<PAGE> 1
NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 16609
Columbus, Ohio 43216-6609, 1-800-848-6331
TDD 1-800-238-3035
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-9
The Contracts described in this prospectus are modified single purchase
payment contracts and such Contracts may be issued as either individual or
group Contracts. In those states where Contracts are issued as group contracts,
references throughout this prospectus to "Contract(s)" shall also mean
"Certificate(s)."
The Contracts are sold either as Non-Qualified Contracts; as Investment
Only Contracts issued to Qualified Pension, Profit-sharing or Stock Bonus Plans
as defined by Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"); as Individual Retirement Annuities with contributions rolled-over or
transferred from certain tax-qualified plans such as Tax Sheltered Annuity
Plans or Individual Retirement Annuities; or as Tax Sheltered Annuities with
contributions rolled over or transferred from other Tax-Sheltered Annuity
Plans. Annuity payments under the Contracts are deferred until a selected
later date.
Purchase Payments are allocated to the Nationwide Variable Account-9
("Variable Account"), a separate account of Nationwide Life Insurance Company
(the "Company"). The Variable Account is divided into Sub-Accounts, each of
which invests in shares of one of the underlying Mutual Fund options described
below:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.,
AN AFFILIATE OF AMERICAN CENTURY COMPANIES, INC.
American Century VP Income & Growth American Century VP International
American Century VP Value
DREYFUS
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund, Inc.
Dreyfus Variable Investment Fund - Capital Appreciation
FIDELITY VARIABLE INSURANCE PRODUCTS ("VIP") FUND
VIP Fund Equity-Income Portfolio: Service Class
VIP Fund Growth Portfolio: Service Class
VIP Fund High Income Portfolio: Service Class
VIP Fund Overseas Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS ("VIP") FUND II
VIP Fund II Contrafund Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS ("VIP") FUND III
VIP Fund III Growth Opportunities Portfolio: Service Class
MORGAN STANLEY
Morgan Stanley Universal Funds, Inc. - Emerging Markets Debt Portfolio
Van Kampen American Capital Life Investment Trust -
Morgan Stanley Real Estate Securities Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund Government Bond Fund
Money Market Fund Total Return Fund
Nationwide Balanced Fund
Nationwide Equity Income Fund
Nationwide Global Equity Fund
Nationwide High Income Bond Fund
Nationwide Multi Sector Bond Fund
Nationwide Select Advisers Mid Cap Fund
Nationwide Small Cap Value Fund
Nationwide Small Company Fund
Nationwide Strategic Growth Fund
Nationwide Strategic Value Fund
<PAGE> 2
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
AMT Guardian Portfolio AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Capital Appreciation Fund Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Emerging Markets Fund Worldwide Hard Assets Fund
WARBURG PINCUS TRUST
Growth & Income Portfolio International Equity Portfolio
Post-Venture Capital Portfolio
This prospectus provides you with the basic information you should know
about the Modified Single Premium Deferred Variable Annuity Contracts issued by
the Variable Account before investing. You should read it and keep it for
future reference. A Statement of Additional Information dated October 27, 1997
containing further information about the Contracts and the Variable Account has
been filed with the Securities and Exchange Commission. You can obtain a copy
without charge from Nationwide Life Insurance Company by calling
1-800-848-6331, or writing P.O. Box 16609, Columbus, Ohio 43216-6609.
Purchase Payments not allocated to the Variable Account may be allocated to
either the Fixed Account or to Guaranteed Term Options. Guaranteed Term Options
are available under the Contracts described in this prospectus and provide for
the crediting of a guaranteed interest rate over a selected period (three,
five, seven or ten years), so long as no Distributions occur prior to the end
of the period. Prospectuses for the Guaranteed Term Options, as well as each of
the underlying Mutual Fund options identified above, can be obtained without
charge by calling 1-800-848-6331, TDD 1-800-238-3035, or by writing P.O. Box
16609, Columbus, Ohio 43216-6609. PLEASE NOTE THAT GUARANTEED TERM OPTIONS MAY
NOT BE AVAILABLE IN EVERY STATE JURISDICTION.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED OCTOBER 27, 1997, IS
INCORPORATED HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF
ADDITIONAL INFORMATION APPEARS ON PAGE 36 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS OCTOBER 27, 1997.
2
<PAGE> 3
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.
ANNUITANT- The person designated to receive annuity payments and upon whose
continuation of life any annuity payments involving life contingencies depends.
This person must be age 85 or younger at the time of Contract issuance unless
the Company has approved a request for an Annuitant of greater age. The
Annuitant may be changed prior to the Annuitization Date with the consent of
the Company.
ANNUITIZATION- The period during which annuity payments are actually received.
ANNUITIZATION DATE- The date on which annuity payments actually commence at
Annuitization.
ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to
commence. The Annuity Commencement Date is shown on the Data Page of the
Contract, and is subject to change by the Contract Owner.
ANNUITY PAYMENT OPTION- The chosen form of annuity payments. Several options
are available under the Contract.
ANNUITY UNIT- An accounting unit of measure used to calculate the value of
Variable Annuity payments.
BENEFICIARY- The person designated to receive certain benefits under the
Contract upon the death of the Annuitant prior to the Annuitization Date. The
Beneficiary can be changed by the Contract Owner as set forth in the Contract.
CODE- The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life Insurance Company.
CONTINGENT ANNUITANT- The person who may be the recipient of certain rights or
benefits under this Contract when the Annuitant dies before the Annuitization
Date. If a Contingent Annuitant is designated and the Annuitant dies before the
Annuitization Date, the Contingent Annuitant becomes the Annuitant. A
Contingent Annuitant may not be named for Contracts issued as Individual
Retirement Annuities or Tax Sheltered Annuities.
CONTINGENT BENEFICIARY- The person designated to be the Beneficiary if the
named Beneficiary is not living at the time of the death of the Annuitant.
CONTINGENT OWNER- The person or entity which succeeds to the rights of the
Contract Owner upon the Contract Owner's death before Annuitization. For
Contracts issued in the State of New York, references throughout this
prospectus to "Contingent Owner" shall mean "Owner's Beneficiary." A Contingent
Owner may not be named for Contracts issued as Individual Retirement Annuities
or Tax Sheltered Annuities.
CONTRACT- The Modified Single Premium Deferred Variable Annuity Contract
described in this prospectus.
CONTRACT ANNIVERSARY- An anniversary of the Date of Issue of the Contract.
CONTRACT OWNER (OWNER)- The person or entity who possesses all rights under the
Contract, including the right to designate and change any designations of the
Owner, Contingent Owner, Annuitant, Contingent Annuitant, Beneficiary,
Contingent Beneficiary, Annuity Payment Option, and the Annuity Commencement
Date. The Contract Owner is the person or entity named as Owner on the Data
Page, unless changed.
CONTRACT VALUE- The sum of the value of all Accumulation Units attributable to
the Contract, plus any amount held under the Contract in the Fixed Account,
plus any amount held under Guaranteed Term Options, which may be subject to a
Market Value Adjustment.
CONTRACT YEAR- Each year the Contract remains in force commencing with the Date
of Issue.
DATE OF ISSUE- The date shown as the Date of Issue on the Data Page of the
Contract.
DEATH BENEFIT- The benefit which is payable upon the death of the Annuitant (or
the Contingent Annuitant, if applicable). This benefit does not apply upon the
death of the Contract Owner when the Owner and Annuitant are not the same
person. If the Annuitant dies after the Annuitization Date, any benefit that
may be payable shall be as specified in the Annuity Payment Option elected.
DISTRIBUTION- Any payment of part or all of the Contract Value.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
3
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FIXED ACCOUNT- An account made up of all assets of the Company other than those
in the Variable Account or any other segregated asset account of the Company.
FIXED ANNUITY- An annuity providing for payments which are guaranteed by the
Company as to dollar amount during Annuitization.
GUARANTEED TERM OPTION (GTOS)- Investment options offered under the Contract
which provide a guaranteed interest rate paid over certain maturity durations
(three, five, seven and ten years) so long as certain conditions are met.
Amounts allocated to a GTO may be subject to a Market Value Adjustment if
distributed for any reason prior to the end of the selected term, resulting in
an upward or downward adjustment in the Distribution proceeds. GTOs are not
part of the Variable Account (or the Fixed Account) and are not subject to
Variable Account charges but may be subject to contingent deferred sales
charges if otherwise applicable. GTOs are not available during the
Annuitization phase of the Contracts and may not be available in every state
jurisdiction. The minimum amount which may be allocated to a GTO is $1,000.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
INDIVIDUAL RETIREMENT ANNUITY - An annuity contract which qualifies for
favorable tax treatment under Section 408 of the Code.
INTEREST RATE GUARANTEE PERIOD- The interval of time during which an interest
rate credited to the Fixed Account is guaranteed to remain the same. For new
Purchase Payments allocated to the Fixed Account or transfers from the Variable
Account or a Guaranteed Term Option, this period begins upon the date of
deposit or transfer and ends at the end of the calendar quarter at least one
year (but not more than 15 months) from deposit or transfer. At the end of an
Interest Rate Guarantee Period, a new interest rate is declared with an
Interest Rate Guarantee Period starting at the end of the prior period and
ending at the end of the calendar quarter one year later. The Interest Rate
Guarantee Period does not in any way refer to interest rate crediting practices
employed by the Company with respect to Guaranteed Term Options.
JOINT OWNER- The Joint Owner, if any, possesses an undivided interest in the
entire Contract in conjunction with the Owner. If a Joint Owner is named,
references to "Contract Owner" or "Owner" in this prospectus will apply to both
the Owner and Joint Owner or either of them. Joint Owners must be spouses at
the time joint ownership is requested, unless otherwise required by state law.
Joint ownership may be selected only for Non-Qualified Contracts.
LONG TERM CARE FACILITY- A state licensed skilled nursing facility or
intermediate care facility.
MARKET VALUE ADJUSTMENT (MVA)- The upward or downward adjustment in value of
amounts allocated to a GTO, which prior to maturity are: 1) distributed
pursuant to a surrender; 2) reallocated to another investment option available
under the Contract; 3) distributed pursuant to the death of the Owner or
Annuitant; or 4) distributed for any other reason.
MUTUAL FUND (FUND)- A registered management investment company in which the
assets of the Sub-Accounts of the Variable Account will be invested.
NON-QUALIFIED CONTRACT- A Contract which does not qualify for favorable tax
treatment under the provisions of Sections 401 or 403(a) (Qualified Plans), 408
(Individual Retirement Annuities) or 403(b) (Tax-Sheltered Annuities) of the
Code.
PURCHASE PAYMENT- A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers among the Sub-Accounts of the Variable
Account, the Fixed Account, or Guaranteed Term Options.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Sections 401 or 403(a) of the Code.
SUB-ACCOUNTS- Separate and distinct divisions of the Variable Account, to which
specific underlying Mutual Fund shares are allocated and for which Accumulation
Units and Annuity Units are separately maintained.
TAX SHELTERED ANNUITY- An annuity which qualifies for favorable tax treatment
under Section 403(b) of the Code.
VALUATION DATE- Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is a
sufficient degree of trading of the Variable Account's underlying Mutual Fund
shares that the current net asset value of its Accumulation Units might be
materially affected.
VALUATION PERIOD- The period of time commencing at the close of a Valuation
Date and ending at the close of business for the next succeeding Valuation
Date.
4
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VARIABLE ACCOUNT- The Nationwide Variable Account-9, a separate investment
account of the Company into which Variable Account Purchase Payments are
allocated. The Variable Account is divided into Sub-Accounts, each of which
invests in the shares of a separate underlying Mutual Fund.
VARIABLE ANNUITY- An annuity providing for payments which are not predetermined
or guaranteed as to dollar amount and which vary in amount with the investment
experience of the Variable Account.
5
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TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS................................................................3
SUMMARY OF CONTRACT EXPENSES.............................................................8
UNDERLYING MUTUAL FUND ANNUAL EXPENSES...................................................9
SYNOPSIS................................................................................13
NATIONWIDE LIFE INSURANCE COMPANY.......................................................14
THE VARIABLE ACCOUNT....................................................................14
Underlying Mutual Fund Options.................................................14
Voting Rights..................................................................14
Substitution of Securities.....................................................15
GUARANTEED TERM OPTION ALLOCATIONS......................................................15
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS...........................................15
Expenses of Variable Account...................................................15
Mortality Risk Charge..........................................................16
Expense Risk Charge............................................................16
Long Term Care Facility and Death Benefit Rider Charge.........................16
Contingent Deferred Sales Charge...............................................16
Waiver of Contingent Deferred Sales Charge.....................................16
Premium Taxes..................................................................17
OPERATION OF THE CONTRACT...............................................................17
Investments of the Variable Account............................................17
Allocation of Purchase Payments and Contract Value.............................17
Value of an Accumulation Unit..................................................18
Net Investment Factor..........................................................18
Valuation of Assets............................................................18
Determining the Contract Value.................................................18
Right to Revoke................................................................18
Transfers......................................................................19
Contract Ownership Provisions..................................................20
Joint Ownership Provisions.....................................................20
Contingent Ownership Provisions................................................20
Beneficiary Provisions.........................................................20
Surrender (Redemption).........................................................21
Surrenders Under a Tax Sheltered Annuity Contract..............................21
Loan Privilege.................................................................22
Assignment.....................................................................23
Contract Owner Services........................................................23
Asset Rebalancing.....................................................23
Dollar Cost Averaging.................................................24
Systematic Withdrawals................................................24
ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS..........................25
Annuity Commencement Date...................................................25
Change in Annuity Commencement Date.........................................25
Annuity Payment Period-Variable Account.....................................25
Value of an Annuity Unit....................................................25
Assumed Investment Rate.....................................................25
Frequency and Amount of Annuity Payments....................................25
Change in Form of Annuity...................................................26
Annuity Payment Options.....................................................26
Death of Contract Owner Provisions-Non-Qualified Contracts..................26
Death of Annuitant Provisions- Non-Qualified Contracts......................26
Death of the Contract Owner/Annuitant Provisions............................27
Death Benefit Payment Provisions............................................27
Five-Year Reset Death Benefit (Standard Contractual Death Benefit)....27
One-Year Step Up Death Benefit (Rider Option 1).......................27
5% Enhanced Death Benefit (Rider Option 2)............................27
Long Term Care Facility Provisions..........................................28
Required Distribution Provisions for Non-Qualified Contracts................28
Required Distributions For Tax Sheltered Annuities..........................29
Required Distributions For Individual Retirement Annuities..................29
Generation-Skipping Transfers...............................................30
FEDERAL TAX CONSIDERATIONS........................................................30
</TABLE>
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<TABLE>
<S> <C>
Federal Income Taxes........................................................30
Puerto Rico.................................................................31
Non-Qualified Contracts-Natural Persons as Owners...........................31
Non-Qualified Contracts-Non-Natural Persons as Owners.......................32
Individual Retirement Annuities and Tax Sheltered Annuities.................32
Withholding.................................................................33
Non-Resident Aliens.........................................................33
Federal Estate, Gift, and Generation Skipping Transfer Taxes................33
Charge for Tax Provisions...................................................34
Diversification.............................................................34
Tax Changes.................................................................34
GENERAL INFORMATION.....................................................................34
Contract Owner Inquiries....................................................34
Statements and Reports......................................................35
Advertising.................................................................35
LEGAL PROCEEDINGS.......................................................................36
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION................................36
APPENDIX A..............................................................................37
APPENDIX B..............................................................................39
</TABLE>
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SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge(1).................... 7 %
- -------------------------------------------------------------------------------
RANGE OF CONTINGENT DEFERRED SALES CHARGE OVER TIME
<TABLE>
<CAPTION>
Number of Completed Years from Contingent Deferred Sales Charge
Date of Purchase Payment Percentage
<S> <C>
0 7%
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
- -------------------------------------------------------------------------------
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES(2)
Mortality and Expense Risk Charges...............................0.95%
Administration Charge............................................0.00%
Total Variable Account Annual Expenses.................................0.95%(3)
OPTIONAL LONG TERM CARE FACILITY AND DEATH BENEFIT RIDERS
Optional Long Term Care Facility and One-Year Stepped Up Death
Benefit (Rider Option 1)........................................0.05%(4)
Total Variable Account Annual Expenses (Including Rider Option 1)......1.00%
Optional Long Term Care Facility and 5% Enhanced Death Benefit
(Rider Option 2)................................................0.10%(4)
Total Variable Account Annual Expenses (Including Rider Option 2)......1.05%
(1) In any year the Contract Owner may withdraw without a Contingent
Deferred Sales Charge ("CDSC"), the greater of: (a) an amount equal to
10% of the total of all Purchase Payments made to this Contract; or
(b) any amount withdrawn in order for this Contract to meet minimum
distribution requirements under the Code. Withdrawals may be
restricted for Contracts issued pursuant to the terms of a Tax
Sheltered Annuity Plan. This CDSC-free withdrawal privilege is
non-cumulative; that is, free amounts not taken during any given
Contract Year cannot be taken as free amounts in a subsequent Contract
Year (see "Contingent Deferred Sales Charge" for additional waiver
provisions).
(2) The Variable Account charges set forth apply exclusively to
allocations made to the Sub-Account(s) of the Variable Account. Such
charges do not apply to, and will not be assessed against, allocations
made to the Fixed Account or Guaranteed Term Option(s).
(3) The Total Variable Account Annual Expenses shown include the Five-Year
Reset Death Benefit ("Standard Contractual Death Benefit")(see "Death
Benefit Payment Provisions").
(4) At the time of application, the applicant may choose one of two Long
Term Care Facility and Death Benefit Riders in lieu of receiving the
Standard Contractual Death Benefit option which does not include any
Long Term Care Facility benefits (see "Long Term Care Facility and
Death Benefit Charges" for additional information). Should the
applicant choose a Rider Option, the Company will deduct an additional
charge equal to an annual rate of 0.05% for Rider Option 1, or 0.10%
for Rider Option 2, of the daily asset value of the Variable Account
(see "Death Benefit Payment Provisions").
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES(1)
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Management Total Mutual
Fees Other Expenses Fund Expenses
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc. - 0.70% 0.00% 0.70%
American Century VP Income & Growth
- --------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 1.50% 0.00% 1.50%
American Century VP International
- --------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 1.00% 0.00% 1.00%
American Century VP Value
- --------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund, Inc.* 0.72% 0.24% 0.96%
- --------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 0.25% 0.05% 0.30%
- --------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital 0.75% 0.09% 0.84%
Appreciation Portfolio
- --------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income Portfolio: 0.51% 0.17% 0.68%
Service Class***
- --------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio: 0.61% 0.18% 0.79%
Service Class***
- --------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High Income Portfolio: 0.59% 0.22% 0.81%
Service Class***
- --------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas Portfolio: Service 0.76% 0.27% 1.03%
Class***
- --------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund Portfolio: 0.61% 0.23% 0.84%
Service Class***
- --------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund III - Growth Opportunities 0.61% 0.26% 0.87%
Service Class***
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Inc. - Emerging 0.80% 0.50% 1.30%
Markets Debt Portfolio
- --------------------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 0.65% 0.03% 0.68%
- --------------------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 0.55% 0.02% 0.57%
- --------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 0.45% 0.02% 0.47%
- --------------------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 0.65% 0.02% 0.67%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Balanced Fund** 0.75% 0.15% 0.90%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund** 0.80% 0.15% 0.95%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Global Equity Fund** 1.00% 0.20% 1.20%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund** 0.80% 0.15% 0.95%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund** 0.75% 0.15% 0.90%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Select Advisers Mid Cap Fund** 1.05% 0.15% 1.20%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Cap Value Fund** 0.97% 0.08% 1.05%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund 1.00% 0.10% 1.10%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Growth Fund** 0.90% 0.10% 1.00%
- --------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Value Fund** 0.90% 0.10% 1.00%
- --------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Guardian Portfolio** 0.55% 0.45% 1.00%
- --------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Mid-Cap Growth Portfolio** 0.55% 0.45% 1.00%
- --------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Partners Portfolio 0.84% 0.11% 0.95%
- --------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.72% 0.03% 0.75%
Oppenheimer Capital Appreciation Fund
- --------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.75% 0.04% 0.79%
Oppenheimer Growth Fund*
- --------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.75% 0.25% 1.00%
Oppenheimer Growth & Income Fund
- --------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.27% 1.27%
Emerging Markets Fund*
- --------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.11% 1.11%
Hard Assets Fund
- --------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment 0.80% 0.30% 1.10%
Trust - Morgan Stanley Real Estate Securities
Portfolio*
- --------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth & Income 0.65% 0.35% 1.00%
Portfolio**
- --------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity 0.96% 0.40% 1.36%
Portfolio
- --------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post-Venture Capital 0.62% 0.78% 1.40%
Portfolio*
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 10
(1) The Mutual Fund expenses shown above are assessed at the underlying
Mutual Fund level and are not direct charges against separate account
assets or reductions from Contract Values. These underlying Mutual
Fund expenses are taken into consideration in computing each
underlying Mutual Fund's net asset value, which is the share price
used to calculate the unit values of the Variable Account. The
management fees and other expenses are more fully described in the
prospectuses for each individual underlying Mutual Fund. The
information relating to the underlying Mutual Fund expenses was
provided by the underlying Mutual Fund and was not independently
verified by the Company. The management fees and other expenses are
not currently subject to fee waivers or expense reimbursements.
* The investment advisers for the indicated underlying Mutual Funds have
voluntarily agreed to reimburse a portion of the management fees
and/or other operating expenses resulting in a reduction of the total
expenses. Absent any such partial reimbursements, "Management Fees"
and "Other Expenses" would have been 0.75% and 0.24% for The Dreyfus
Socially Responsible Growth Fund; 0.75% and 0.06% for the Oppenheimer
Variable Account Funds - Oppenheimer Growth Fund; 1.00% and 0.27% for
the Van Kampen American Capital Life Investment Trust - Morgan Stanley
Real Estate Securities Portfolio; 1.00% and 0.40% for the Warburg
Pincus Trust - International Equity Portfolio; and 1.25% and 0.82% for
the Warburg Pincus Trust - Post-Venture Capital Portfolio.
** The Advisers have agreed with the Trust to waive management fees or to
reimburse expenses incurred by each Fund to the extent necessary to
limit the total expense ratio for each Fund to the following maximum
of the average net assets of each Fund: NSAT Nationwide Balanced Fund
- 0.90%, NSAT Nationwide Equity Income Fund - 0.95%; NSAT Nationwide
High Income Bond Fund - 0.95%; NSAT Nationwide Multi-Sector Bond Fund
- 1.20%; NSAT Nationwide Select Advisers Mid Cap Fund - 1.20%; NSAT
Nationwide Small Cap Value Fund - 1.20%; NSAT Nationwide Strategic
Growth Fund - 1.00% and NSAT Nationwide Strategic Value Fund - 1.00%.
In addition the Advisers of the following underlying Mutual Funds have
agreed to waive management fees or to reimburse expenses incurred by
each underlying Mutual Fund to the extent necessary to limit the total
expense ratio to the following maximum of the average net assets:
Neuberger & Berman AMT - Guardian Portfolio - 1.00%; Neuberger &
Berman AMT - Mid-Cap Growth Portfolio; and Warburg Pincus Trust -
Growth & Income - 1.00%.
*** The "Other Expenses" reflect the payment of 0.10% pursuant to a Rule
12b-1 Plan adopted by the underlying Mutual Funds.
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<PAGE> 11
EXAMPLE
The following chart depicts the dollar amount of expenses that would be
incurred under this Contract assuming a $1000 investment and 5% annual return.
These dollar figures are illustrative only and should not be considered a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below.2
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
If you surrender your Contract If you do not surrender your If you annuitize your Contract
at the end of the applicable Contract at the end of the at the end of the applicable
time period applicable time period time period
- -----------------------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century Variable 81 111 134 212 18 57 98 212 * 57 98 212
Portfolios, Inc. - American
Century VP Income & Growth
- -----------------------------------------------------------------------------------------------------------------------------------
American Century Variable 90 136 176 298 27 82 140 298 * 82 140 298
Portfolios, Inc. - American
Century VP International
- -----------------------------------------------------------------------------------------------------------------------------------
American Century Variable 85 120 150 245 22 66 114 245 * 66 114 245
Portfolios, Inc. - American
Century VP Value
- -----------------------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially 84 119 148 241 21 65 112 241 * 65 112 241
Responsible Growth Fund, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 77 98 112 167 14 44 76 167 * 44 76 167
- -----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 83 115 141 228 20 61 105 228 * 61 105 228
Fund - Capital Appreciation
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income 81 110 133 210 18 56 97 210 * 56 97 210
Portfolio: Service Class
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth 82 114 139 222 19 60 103 222 * 60 103 222
Portfolio: Service Class
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High Income 83 114 140 224 20 60 104 224 * 60 104 224
Portfolio: Service Class
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas 85 121 152 248 22 67 116 248 * 67 116 248
Portfolio: Service Class
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund 83 115 141 228 20 61 105 228 * 61 105 228
Portfolio: Service Class
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund III - Growth 83 116 143 231 20 62 107 231 * 62 107 231
Opportunities Portfolio: Service
Class
- -----------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, 88 130 166 277 25 76 130 277 * 76 130 277
Inc. - Emerging Markets Debt
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 81 110 133 210 18 56 97 210 * 56 97 210
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 80 107 127 198 17 53 91 198 * 53 91 198
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 79 104 121 186 16 50 85 186 * 50 85 186
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 81 110 132 209 18 56 96 209 * 56 96 209
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Balanced Fund 83 117 145 234 20 63 109 234 * 63 109 234
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Equity Income Fund 84 119 147 240 21 65 111 240 * 65 111 240
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Global Equity Fund 87 127 161 266 24 73 125 266 * 73 125 266
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide High Income 84 119 147 240 21 65 111 240 * 65 111 240
Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Multi-Sector 83 117 145 234 20 63 109 234 * 63 109 234
Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Select 87 127 161 266 24 73 125 266 * 73 125 266
Advisers Mid-Cap Fund
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small Cap 85 122 153 250 22 68 117 250 * 68 117 250
Value Fund
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small 86 124 155 256 23 70 119 256 * 70 119 256
Company Fund
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Strategic 85 120 150 245 22 66 114 245 * 66 114 245
Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic 85 120 150 245 22 66 114 245 * 66 114 245
Value Fund
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 85 120 150 245 22 66 114 245 * 66 114 245
Guardian Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 85 120 150 245 22 66 114 245 * 66 114 245
Mid-Cap Growth Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 84 119 147 240 21 65 111 240 * 65 111 240
Partners Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 82 112 137 218 19 58 101 218 * 58 101 218
Funds - Oppenheimer Capital
Appreciation Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 82 114 139 222 19 60 103 222 * 60 103 222
Funds - Oppenheimer Growth
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 85 120 150 245 22 66 114 245 * 66 114 245
Funds - Oppenheimer Growth &
Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 87 129 164 274 24 75 128 274 * 75 128 274
Trust - Worldwide Emerging
Markets Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 66 124 156 257 23 70 120 257 * 70 120 257
Trust - Worldwide Hard Assets
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 86 124 155 256 23 70 119 256 * 70 119 256
Life Investment Trust - Morgan
Stanley Real Estate Securities
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth 85 120 150 245 22 66 114 245 * 66 114 245
& Income Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 88 132 169 283 25 78 133 283 * 78 133 283
International Equity Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post- 89 133 171 287 26 79 135 287 * 79 135 287
Venture Capital Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) The Example takes into consideration the maximum amount which could be
assessed to a Contract (1.05%), for the election of the Long Term Care
Facility and 5% Enhanced Death Benefit Rider (Rider Option 2) (see
"Long Term Care Facility and Death Benefit Rider Charge" and "Death
Benefit Payment Provisions" for additional details on the rider
charges assessed). For those Contracts which have not elected the Long
Term Care Facility and 5% Enhanced Death Benefit (Rider Option 2), the
expenses in the Example will be reduced accordingly.
The purpose of the Summary of Contract Expenses and Example is to
assist the Contract Owner in understanding the various costs and expenses that
will be borne directly or indirectly when investing in the Contract. The
expenses of the Variable Account as well as those of the underlying Mutual
Funds are reflected in the Example. For more complete descriptions of the
expenses of the Variable Account, see "Variable Account Charges and Other
Deductions." For more complete information regarding expenses paid out of the
assets of the underlying Mutual Funds, see the underlying Mutual Fund
prospectuses. Deductions for premium taxes may also apply but are not reflected
in the Example shown above (see "Premium Taxes").
12
<PAGE> 13
SYNOPSIS
The Modified Single Premium Deferred Variable Annuity Contracts
described in this prospectus are designed for use in connection with the
following types of Contracts: (1) Non-Qualified, (2) Investment Only Contracts
issued to Qualified Pension, Profit-sharing or Stock Bonus Plans as defined by
Section 401(a) of the Code, (3) Individual Retirement Annuities, with
contributions rolled-over or transferred from certain tax-qualified plans such
as Tax Sheltered Annuity Plans, Qualified Plans or Individual Retirement
Annuities, and (4) Tax Sheltered Annuities, with contributions rolled-over or
transferred from other Tax Sheltered Annuity Plans.
The initial first year Purchase Payment for Contracts issued as
Non-Qualified Contracts, Individual Retirement Annuities or Tax-Sheltered
Annuities must be at least $15,000 and subsequent Purchase Payments, if any,
must be at least $1,000. In addition, any amounts allocated to the Guaranteed
Term Option(s) must be at least $1,000. Please refer to the prospectus for the
Guaranteed Term Option(s) for additional details regarding Purchase Payments
made to the Guaranteed Term Option(s). For Investment Only Contracts issued to
Qualified Pension, Profit-Sharing, or Stock Bonus Plans as defined by Section
401(a) of the Code, the initial Purchase Payment must be at least $100,000, and
subsequent issued Purchase Payments, if any, at least $15,000. Subsequent
Purchase Payments are not permitted for Contracts issued in the state of Oregon
and may not be permitted in other states under certain circumstances. The
cumulative total of all Purchase Payments under Contracts issued on the life of
any one Annuitant may not exceed $1,000,000 without the prior consent of the
Company (see "Allocation of Purchase Payments and Contract Value").
The Company does not deduct a sales charge from Purchase Payments made
for these Contracts. However, if any part of the Contract Value of such
Contracts is surrendered, the Company will, with certain exceptions, deduct
from the Contract Owner's Contract Value a Contingent Deferred Sales Charge not
to exceed 7% of the lesser of the total of all Purchase Payments made within 84
months prior to the date of the request to surrender, or the amount
surrendered. This charge, when applicable, is imposed to permit the Company to
recover sales expenses which have been advanced by the Company (see "Contingent
Deferred Sales Charge").
The Company deducts a Mortality Risk Charge equal to an annual rate of
0.80% of the daily net asset value of the Variable Account for mortality risks
assumed by the Company (see "Mortality Risk Charge"). The Company deducts an
Expense Risk Charge equal to an annual rate of 0.15% of the daily net asset
value of the Variable Account as compensation for the Company's risk in
undertaking not to increase administrative charges on the Contracts regardless
of the actual administrative costs (see "Expense Risk Charge"). In addition, if
the Contract Owner has elected a Rider Option at the time of application, the
Company deducts: (1) a Long Term Care Facility and One-Year Step Up Death
Benefit (Rider Option 1) charge equal to an annual rate of 0.05% of the daily
net asset value of the Variable Account; or (2) a Long Term Care Facility and
5% Enhanced Death Benefit (Rider Option 2) charge equal to an annual rate of
0.10% of the daily net asset value, depending on which Rider Option was chosen
(see "Long Term Care Facility and Death Benefit Charge", "Long Term Care
Facility Provisions" and "Death Benefit Payment Provision" for additional
information.)
Upon Annuitization, the selected Annuity Payment Option will begin (see
"Annuity Payment Option"). However, if the net amount to be applied to any
Annuity Payment Option at the Annuitization Date is less than $5,000, the
Contract Value may be distributed in one lump sum in lieu of annuity payments.
If any annuity payment would be less than $50, the Company shall have the right
to change the frequency of payments to such intervals as will result in
payments of at least $50. In no event, however, will annuity payments be made
less frequently than annually (see "Frequency and Amount of Annuity Payments").
The Company will charge against the Purchase Payments or the Contract
Value, the amount of any premium taxes levied by a state or any other
governmental entity (see "Premium Taxes").
To be sure that the Contract Owner is satisfied with the Contract, the
Contract Owner has a ten day free look. Within ten days of the date the
Contract is received, it may be returned to the Home Office of the Company, at
the address shown on page 1 of this prospectus. If a Contract is returned to
the Company in a timely manner, the Company will void the Contract and refund
the Contract Value in full unless otherwise required by state and/or federal
law. State and/or federal law may provide additional free look privileges. All
Individual Retirement Annuity refunds will be return of Purchase Payments (see
"Right to Revoke").
13
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws
of the State of Ohio in March 1929. The Company is a member of the Nationwide
Insurance Enterprise, with its Home Office at One Nationwide Plaza, Columbus,
Ohio 43215. The Company is a leading provider of long-term saving and
retirement products to retail and institutional customers. It is admitted to do
business in the District of Columbia, Puerto Rico, and in all states.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company on May 22, 1997,
pursuant to the provisions of Ohio law. The Company has caused the Variable
Account to be registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940. Such registration does not involve supervision of the management of the
Variable Account or the Company by the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company
and, as such, is not chargeable with liabilities arising out of any other
business the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. Obligations under the Contracts, however,
are obligations of the Company. Income, gains and losses, whether or not
realized, from the assets of the Variable Account are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard
to other income, gains, or losses of the Company.
Purchase Payments are allocated within the Variable Account among one or
more Sub-Accounts made up of shares in the underlying Mutual Fund option(s)
designated by the Contract Owner. There are two Sub-Accounts within the
Variable Account for each of the underlying Mutual Fund options which may be
designated by the Contract Owner. One such Sub-Account contains the underlying
Mutual Funds shares attributable to Accumulation Units under Individual
Retirement Annuities, and Tax Sheltered Annuities and one such Sub-Account
contains the underlying Mutual Funds shares attributable to Accumulation Units
under Non-Qualified Contracts.
UNDERLYING MUTUAL FUND OPTIONS
Contract Owners may choose from among a number of different Sub-Account
options. More detailed information may be found in the current prospectus for
each underlying Mutual Fund offered. Such a prospectus for the underlying
Mutual Fund option(s) should be read in conjunction with this prospectus. A
copy of each prospectus may be obtained without charge from Nationwide Life
Insurance Company by calling 1-800-848-6331, TDD 1-800-238-3035 or writing P.O.
Box 16609, Columbus, Ohio 43216-6609.
The underlying Mutual Fund options may also be available to registered
separate accounts offering variable annuity and variable life products of other
participating insurance companies, as well as to the Variable Account and other
separate accounts of the Company. Although the Company does not anticipate any
disadvantages to this, there is a possibility that a material conflict may
arise between the interest of the Variable Account and one or more of the other
separate accounts participating in the underlying Mutual Funds. A conflict may
occur due to a change in law affecting the operations of variable life and
variable annuity separate accounts, differences in the voting instructions of
the Contract Owners and those of other companies, or some other reason. In the
event of conflict, the Company will take any steps necessary to protect
Contract Owners and variable annuity payees, including withdrawal of the
Variable Account from participation in the underlying Mutual Fund or Mutual
Funds which are involved in the conflict.
VOTING RIGHTS
Voting rights under the Contracts apply ONLY with respect to Purchase
Payments or accumulated amounts allocated to the Variable Account.
In accordance with its view of present applicable law, the Company will
vote the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Mutual
Funds. These shares will be voted in accordance with instructions received
from Contract Owners who have an interest in the Variable Account. If the
Investment Company Act of 1940 or any regulation thereunder should be amended
or if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the shares of the underlying
Mutual Funds in its own right, it may elect to do so.
The Contract Owner shall be the person who has the voting interest under
the Contract. The number of underlying Mutual Fund shares attributable to each
Contract Owner is determined by dividing the Contract Owner's interest in each
respective Sub-Account of the Variable Account by the net asset value of the
underlying Mutual Fund corresponding to the Sub-Account. The number of shares
which a person has the right
14
<PAGE> 15
to vote will be determined as of the date to be chosen by the Company not more
than 90 days prior to the meeting of the underlying Mutual Fund. Each person
having a voting interest will receive periodic reports relating to the
underlying Mutual Fund, proxy material and a form with which to give such
voting instructions.
Voting instructions will be solicited by written communication at least
21 days prior to such meeting. Underlying Mutual Fund shares held in the
Variable Account as to which no timely instructions are received will be voted
by the Company in the same proportion as the voting instructions which are
received with respect to all Contracts participating in the Variable Account.
SUBSTITUTION OF SECURITIES
If the shares of the underlying Mutual Fund options described in this
prospectus should no longer be available for investment by the Variable Account
or if, in the judgment of the Company's management, further investment in such
underlying Mutual Fund shares should become inappropriate, the Company may
eliminate Sub-Accounts, combine two or more Sub-Accounts, or substitute shares
of another underlying Mutual Fund for underlying Mutual Fund shares already
purchased or to be purchased in the future with Purchase Payments under the
Contract. No substitution of securities in the Variable Account may take place
without prior approval of the Securities and Exchange Commission, under such
requirements as it may impose.
GUARANTEED TERM OPTION ALLOCATIONS
Guaranteed Term Options (GTOs) are separate investment options available
under the Contract. A prospectus describing the GTOs must be read with this
prospectus in the same manner that prospectuses for underlying Mutual Fund
options must be read with this prospectus. A prospectus for the GTOs may be
obtained without charge by calling 1-800-848-6331, TDD 1-800-238-3035, or
writing P.O. Box 16609, Columbus, Ohio 43216-6609. GTOs MAY NOT BE AVAILABLE IN
EVERY STATE JURISDICTION.
GTOs provide a guaranteed rate of interest over four different maturity
durations: three (3), five (5), seven (7) or ten (10) years. A guaranteed
interest rate, determined and declared by the Company for any maturity duration
selected, will be credited unless a Distribution from the GTO occurs for any
reason. If such a Distribution occurs, the proceeds will be subject to a Market
Value Adjustment, resulting in either an upward or downward adjustment in the
value of the distributed proceeds, depending on interest rate fluctuations. No
Market Value Adjustment shall be applied if GTO allocations are held to
maturity. Because every guaranteed term will end on the final day of a calendar
quarter, the guaranteed term may last for up to 3 months beyond the 3, 5, 7 or
10 year anniversary of the allocation to the GTO.
The minimum amount of any allocation made to a GTO must be at least
$1,000.
Generally, the Market Value Adjustment will reduce the value of
distributed proceeds when prevailing interest rates are higher than the GTO
rate in effect for the maturity duration elected. Conversely, when prevailing
rates are lower than the GTO rate in effect, Distribution proceeds will
increase in value. The effect of a Market Value Adjustment should be carefully
considered prior to an elected surrender of allocations to a GTO.
GTOs are available only during the accumulation phase of a Contract and
are not available as investment options during the Annuitization phase of a
Contract. In addition, GTOs are not available for use in conjunction with
Contract Owner services such as Dollar Cost Averaging and Asset Rebalancing.
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS
EXPENSES OF VARIABLE ACCOUNT
The Variable Account is responsible for a mortality risk charge
associated with guaranteeing the annuity purchase rates at issue for the life
of the Contracts, and an expense risk charge associated with guaranteeing that
the Mortality Risk and Expense Risk Charges described in this prospectus will
not change regardless of actual expenses. In addition, a charge will be
deducted for those Contracts which have elected a Long Term Care Facility and
Death Benefit Rider. If these charges are insufficient to cover these expenses,
the loss will be borne by the Company. Deductions from and expenses paid out of
the assets of the underlying Mutual Funds are described in each underlying
Mutual Fund prospectus.
All of the charges described in this section apply to Variable Account
allocations. Allocations to the Fixed Account or to the GTOs are subject to
Contingent Deferred Sales Changes and Premium Tax deductions, if applicable,
but are not subject to charges exclusive to the Variable Account; i.e., the
Mortality Risk Charge and Expense Risk Charge and if applicable, the Death
Benefit Option Rider Charge.
15
<PAGE> 16
MORTALITY RISK CHARGE
The Company assumes a "mortality risk" by virtue of annuity rates
incorporated into the Contract which cannot be changed regardless of the death
rates of persons receiving annuity payments or of the general population.
For assuming this mortality risk, the Company deducts a Mortality Risk
Charge from the Variable Account. This amount is computed on a daily basis and
is equal to an annual rate of 0.80% of the daily net asset value of the
Variable Account. The Company expects to generate a profit through assessing
this charge.
EXPENSE RISK CHARGE
The Company will not increase charges for administration of the
Contracts regardless of its actual expenses. For assuming this expense risk,
the Company deducts an Expense Risk Charge from the Variable Account. This
amount is computed on a daily basis and is equal to an annual rate of 0.15% of
the daily net asset value of the Variable Account. The Company expects to
generate a profit through assessing this charge.
LONG TERM CARE FACILITY AND DEATH BENEFIT RIDER CHARGE
For those Contracts which have an elected Long Term Care Facility and
Death Benefit Rider, the Company will deduct a charge equal to an annual rate
of either 0.05% or 0.10% of the daily net asset value of the Variable Account
depending upon which Long Term Care Facility and Death Benefit Rider was chosen
(see "Death Benefit Payment Provisions"). The Long Term Care Facility and Death
Benefit Rider charge is designed to reimburse the Company for increases in the
mortality and expense risks. The Company may generate a profit through
assessing this charge.
CONTINGENT DEFERRED SALES CHARGE
No deduction for a sales charge is made from the Purchase Payments for
these Contracts. However, if any part of the Contract Value of such Contracts
is surrendered, the Company will, with certain exceptions, (see "Waiver of
Contingent Deferred Sales Charge" section) deduct a CDSC not to exceed 7% of
the lesser of the total of all Purchase Payments made within 84 months prior to
the date of the request to surrender, or the amount surrendered. The CDSC, when
it is applicable, will be used to cover expenses relating to the sale of the
Contracts, including commissions paid to sales personnel, the costs of
preparation of sales literature and other promotional activity. The Company
attempts to recover its distribution costs relating to the sale of the
Contracts from the CDSC. Any shortfall will be made up from the general account
of the Company, which may indirectly include portions of the Mortality and
Expense Risk Charges, since the Company expects to generate a profit from these
charges. The maximum amount that may be paid to a selling agent on the sale of
these Contracts is 6% of Purchase Payments.
The CDSC is calculated by multiplying the applicable CDSC percentages
noted below by the Purchase Payments that are surrendered. For purposes of
calculating the CDSC, surrenders are considered to come first from the oldest
Purchase Payment made to the Contract, then the next oldest Purchase Payment
and so forth. For tax purposes, a surrender is usually treated as a withdrawal
of earnings first.
The CDSC applies to Purchase Payments as follows:
NUMBER OF COMPLETED CDSC Number of Completed CDSC
-------------------
YEARS FROM DATE OF PERCENTAGE YEARS FROM DATE OF PERCENTAGE
PURCHASE PAYMENT PURCHASE PAYMENT
0 7% 4 4%
1 7% 5 3%
2 6% 6 2%
3 5% 7 0%
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
In any year, the Contract Owner may withdraw, without a CDSC, the
greater of: (a) an amount equal to 10% of the total of all Purchase Payments or
(b) any amount withdrawn from this Contract to meet minimum distribution
requirements under the Code. This CDSC-free withdrawal privilege is
non-cumulative; that is, free amounts not taken during any given Contract Year
cannot be taken as free amounts in a subsequent Contract Year.
In addition, no CDSC will be deducted: (1) upon the Annuitization of
Contracts which have been in force for at least two years, (2) upon payment of
a death benefit pursuant to the death of the Annuitant, or (3) from any values
which have been held under a Contract for at least 84 months. No CDSC applies
upon the transfer of values among the Sub-Accounts or between or among the
Guaranteed Term Options, the Fixed Account and
16
<PAGE> 17
the Variable Account. When a Contract described in this prospectus is exchanged
for another Contract issued by the Company or any of its affiliated insurance
companies, of the type and class which the Company determined is eligible for
such exchange, the Company may waive the CDSC on the first Contract. A CDSC may
apply to the contract received in the exchange.
When a Contract is held by a Charitable Remainder Trust, the amount
which may be withdrawn from this Contract without application of a CDSC, shall
be the larger of (a) or (b), where (a) is the amount which would otherwise be
available for withdrawal without application of a CDSC; and where (b) is the
difference between the total Purchase Payments made to the Contract as of the
date of the withdrawal (reduced by previous withdrawals of such Purchase
Payments), and the Contract Value at the close of the day prior to the date of
the withdrawal.
The Contract Owner may be subject to income tax on all or a portion of
any such withdrawals and to a tax penalty if the Contract Owner takes
withdrawals prior to age 59-1/2 (See "FEDERAL TAX CONSIDERATIONS- Non-Qualified
Contracts-Natural Persons as Owners").
In no event will elimination of CDSC be permitted where such elimination
will be unfairly discriminatory to any person, or where it is prohibited by
state law.
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 Purchase
Payments received by the Company. Premium taxes currently imposed by certain
jurisdictions range from 0% to 3.5%. 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
currently deducts such charges from a Contract Owner's Contract Value either:
(1) at the time the Contract is surrendered, (2) at Annuitization, or (3) at
such earlier date as the Company may become subject to such taxes.
OPERATION OF THE CONTRACT
INVESTMENTS OF THE VARIABLE ACCOUNT
The Contract Owner elects to have Purchase Payments attributable to his
or her participation in the Variable Account allocated among one or more of the
Sub-Accounts which consist of shares in the underlying Mutual Funds. Shares of
the respective underlying Mutual Funds specified by the Contract Owner are
purchased at net asset value for the respective Sub-Account(s) and converted
into Accumulation Units. The Contract Owner may change the election as to
allocation of Purchase Payments or may elect to exchange amounts among the
Sub-Account options pursuant to such terms and conditions applicable to such
transactions as may be imposed by each of the underlying Mutual Funds, in
addition to those set forth in the Contracts.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments are allocated to the Fixed Account, Guaranteed Term
Options, or to one or more Sub-Accounts within the Variable Account in
accordance with the designation of the underlying Mutual Funds by the Contract
Owner and converted into Accumulation Units.
The initial Purchase Payment must be at least $15,000 and subsequent
Purchase Payments, if any, must be at least $1,000. In addition, any amounts
allocated to the Guaranteed Term Option(s) must be at least $1,000 (please
refer to the prospectus for the Guaranteed Term Option(s) for additional
details regarding Purchase Payments made to the Guaranteed Term Option(s)). For
Investment Only Contracts issued to Qualified Pension, Profit-sharing, or Stock
Bonus Plans as defined by Section 401(a) of the Code, the initial Purchase
Payment must be at least $100,000, and subsequent Purchase Payments, if any, at
least $15,000. Subsequent Purchase Payments are not permitted in the state of
Oregon and may not be permitted in other states under certain circumstances.
The cumulative total of all Purchase Payments under Contracts issued on the
life of any one Annuitant may not exceed $1,000,000 without prior consent of
the Company.
The initial Purchase Payment allocated to designated Sub-Accounts of the
Variable Account will be priced no later than 2 business days after receipt of
an order to purchase if all information necessary for processing the purchase
order is complete. The Company may, however, retain the Purchase Payment for up
to 5 business days while attempting to complete an order to purchase. If it is
not complete within 5 days, the prospective purchaser will be informed of the
reasons for the delay and the Purchase Payment will be returned immediately
unless the prospective purchaser specifically consents to the Company retaining
the Purchase Payment until the order to purchase is complete. Thereafter,
subsequent Purchase Payments will be priced on the basis of the Accumulation
Value next computed for the appropriate Sub-Account after the additional
Purchase Payment is received.
17
<PAGE> 18
Purchase Payments will not be priced on the following nationally
recognized holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
VALUE OF AN ACCUMULATION UNIT
The value of an Accumulation Unit for each Sub-Account was arbitrarily
set initially at $10 when underlying Mutual Fund shares in that Sub-Account
were available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each Sub-Account for
the immediately preceding Valuation Period by the Net Investment Factor for the
Sub-Account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by
dividing (a) by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the net asset value per share of the underlying Mutual Fund
held in the Sub-Account determined at the end of the current
Valuation Period, plus
(2) the per share amount of any dividend or capital gain
Distributions made by the underlying Mutual Fund held in the
Sub-Account if the "ex-dividend" date occurs during the
current Valuation Period.
(b) is the net of:
(1) the net asset value per share of the underlying Mutual Fund
held in the Sub-Account determined at the end of the
immediately preceding Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes
reserved for in the immediately preceding Valuation Period
(see "Charge For Tax Provisions").
(c) is a factor representing the daily Mortality Risk Charge and
Expense Risk Charge deducted from the Variable Account. Such factor
is equal to an annual rate of 0.95% of the daily net asset value of
the Variable Account (1.00% or 1.05% if one of the optional Long
Term Care Facility & Death Benefit Riders is chosen.).
For underlying Mutual Fund options that credit dividends on a daily
basis and pay such dividends once a month (the Nationwide Separate Account
Trust - Money Market Fund), the Net Investment Factor allows for the monthly
reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore,
the value of an Accumulation Unit may increase or decrease. It should be noted
that changes in the Net Investment Factor may not be directly proportional to
changes in the net asset value of underlying Mutual Fund shares, because of the
deduction for Mortality Risk Charge and Expense Risk Charge, the Long Term Care
Facility and Death Benefit Rider Charge, if applicable and any charge or credit
for tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at
their net asset value.
DETERMINING THE CONTRACT VALUE
The Contract Value is the sum of: 1) all Accumulation Units, 2) amounts
allocated and credited to the Fixed Account, and 3) amounts allocated and
credited to a Guaranteed Term Option which may be subject to a Market Value
Adjustment. If part or all of the Contract Value is surrendered or charges or
deductions are made against the Contract Value, an appropriate number of
Accumulation Units from the Variable Account and an appropriate amount from the
Fixed Account and Guaranteed Term Options will be deducted in the same
proportion that the Contract Owner's interest in each of the Variable Account,
Fixed Account and Guaranteed Term Option(s) bears to the total Contract Value.
Guaranteed Term Options are not subject to Variable Account charges (Mortality
Charge, Expense Risk Charge and Death Benefit Rider Charge, if applicable), but
may be subject to CDSC and a Market Value Adjustment.
RIGHT TO REVOKE
Unless otherwise required by state and/or federal law, the Contract
Owner may revoke the Contract 10 days after receipt of the Contract and receive
a refund of the Contract Value. All Individual Retirement Annuity refunds will
be a return of Purchase Payments. In order to revoke the Contract, it must be
mailed or delivered
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to the Home Office of the Company at the mailing address shown on page 1 of
this prospectus. Mailing or delivery must occur on or before 10 days after
receipt of the Contract for revocation to be effective. In order to revoke the
Contract, if it has not been received, written notice must be mailed or
delivered to the Home Office of the Company at the mailing address shown on
page 1 of this prospectus.
The liability of the Variable Account under this provision is limited to
the Contract Value in each Sub-Account on the date of revocation. Any
additional amounts refunded to the Contract Owner will be paid by the Company.
TRANSFERS
Transfers between and among the Fixed Account, Variable Account, and the
Guaranteed Term Options must be made prior to the Annuitization Date. The
Contract Owner may request a transfer of up to 100% of the combined value of
any GTO allocation and the Variable Account value to the Fixed Account, without
penalty or adjustment: (transfers from a Guaranteed Term Option prior to
maturity are, however, subject to a Market Value Adjustment). However, the
Company reserves the right to restrict transfers from the Variable Account to
the Fixed Account to 10% of the combined value of any Guaranteed Term Option
allocation and the Variable Account Contract Value for any 12 month period. All
amounts transferred to the Fixed Account must remain on deposit in the Fixed
Account until the expiration of the current Interest Rate Guarantee Period. In
addition, transfers from the Fixed Account may not be made prior to the end of
the then current Interest Rate Guarantee Period. The Interest Rate Guarantee
Period for any amount allocated to the Fixed Account expires on the final day
of a calendar quarter during which the one year anniversary of the allocation
to the Fixed Account occurs. Transfers must also be made prior to the
Annuitization Date. For all transfers involving the Variable Account, the
Contract Owner's value in each Sub-Account will be determined as of the date
the transfer request is received in the Home Office in good order. The Company
reserves the right to refuse transfers or Purchase Payments into the Fixed
Account if the Fixed Account is greater than or equal to 30% of the total
Contract Value.
The Contract Owner may at the maturity of an Interest Rate Guarantee
Period, transfer a portion of the value of the Fixed Account to the Variable
Account or to a Guaranteed Term Option. The amount that may be transferred from
the Fixed Account to the Variable Account or to a Guaranteed Term Option will
be determined by the Company, at its sole discretion, but will not be less than
10% of the total value of the portion of the Fixed Account that is maturing.
The amount that may be transferred from the Fixed Account will be declared upon
the expiration date of the then current Interest Rate Guarantee Period.
Transfers from the Fixed Account must be made within 45 days after the
expiration date of the guarantee period. Contract Owners who have entered into
a Dollar Cost Averaging agreement with the Company (see "Dollar Cost
Averaging") may transfer from the Fixed Account to the Variable Account (but
not to Guaranteed Term Options) under the terms of that agreement.
Transfers may be made either in writing or, in states allowing such
transfers, by telephone. This telephone exchange privilege is made available to
Contract Owners automatically without the Contract Owner's election. The
Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include any or all
of the following: requesting identifying information, such as name, contract
number, Social Security Number, and/or personal identification number; tape
recording all telephone transactions, and providing written confirmation
thereof to both the Contract Owner and any agent of record, at the last address
of record; or such other procedures as the Company may deem reasonable.
Although the Company's failure to follow reasonable procedures may result in
the Company's liability for any losses due to unauthorized or fraudulent
telephone transfers, the Company will not be liable for following instructions
communicated by telephone which it reasonably believes to be genuine. Any
losses incurred pursuant to actions taken by the Company in reliance on
telephone instructions reasonably believed to be genuine shall be borne by the
Contract Owner.
Contracts described in this prospectus may in some cases be sold to
individuals who independently utilize the services of a firm or individual
engaged in market timing. Generally, such firms or individuals obtain
authorization from multiple Contract Owners to make transfers and exchanges
among the Sub-Accounts (the underlying Mutual Funds) on the basis of perceived
market trends. Because of the unusually large transfers of funds associated
with some of these transactions, the ability of the Company or underlying
Mutual Funds to process such transactions may be compromised, and the execution
of such transactions may possibly disadvantage or work to the detriment of
other Contract Owners not utilizing market timing services.
Accordingly, the right to exchange Contract Values among the
Sub-Accounts may be subject to modification if such rights are exercised by a
market timing firm or any other third party authorized to initiate transfer or
exchange transactions on behalf of multiple Contract Owners. THE RIGHTS OF
INDIVIDUAL CONTRACT OWNERS TO EXCHANGE CONTRACT VALUES, WHEN INSTRUCTIONS ARE
SUBMITTED DIRECTLY BY THE CONTRACT OWNER, OR BY THE CONTRACT OWNER'S
REPRESENTATIVE OF
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RECORD AS AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF
ATTORNEY FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the
Company may, among other things, not accept (1) the transfer or exchange
instructions of any agent acting under a power of attorney on behalf of more
than one Contract Owner, or (2) the transfer or exchange instructions of
individual Contract Owners who have executed preauthorized transfer or exchange
forms which are submitted by market timing firms or other third parties on
behalf of more than one Contract Owner at the same time. The Company will not
impose any such restrictions or otherwise modify exchange rights unless such
action is reasonably intended to prevent the use of such rights in a manner
that will disadvantage or potentially impair the contract rights of other
Contract Owners.
CONTRACT OWNERSHIP PROVISIONS
Unless otherwise provided, the Contract Owner has all rights under the
Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF OR HERSELF AS
OWNER, THE PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT. Prior to the
Annuitization Date, the Contract Owner may name a new Contract Owner in
Non-Qualified Contracts. Such change may be subject to state and federal gift
taxes and may also result in federal income taxation. Any change of Contract
Owner designation will automatically revoke any prior Contract Owner
designation. Once proper notice of the change is received and recorded by the
Company, the change will become effective as of the date the written request is
recorded. A change of Owner will not apply and will not be effective with
respect to any payment made or action taken by the Company prior to the time
that the change was received and recorded by the Company.
Prior to the Annuitization Date, the Contract Owner may request a change
in the Annuitant, the Contingent Annuitant, Contingent Owner, Beneficiary, or
Contingent Beneficiary. Such a request must be made in writing on a form
acceptable to the Company and must be signed by both the Contract Owner and the
person to be named as Annuitant, Contingent Annuitant, or Contingent Owner, as
applicable. Such request must be received by the Company at its Home Office
prior to the Annuitization Date. Any such change is subject to underwriting and
approval by the Company. If the Contract Owner is not a natural person and
there is a change of the Annuitant, such change shall be treated as the death
of a Contract Owner and Distributions shall be made as if the Contract Owner
died at the time of such change. On the Annuitization Date, the Annuitant shall
become the Contract Owner.
JOINT OWNERSHIP PROVISIONS
Joint Owners must be spouses at the time joint ownership is requested
unless otherwise required by state law. If a Joint Owner is named, the Joint
Owner will possess an undivided interest in the Contract. Unless otherwise
provided, the exercise of any ownership right in the Contract (including the
right to surrender or partially surrender the Contract, to change the Contract
Owner, the Contingent Owner, the Annuitant, the Contingent Annuitant, the
Beneficiary, the Contingent Beneficiary, the Annuity Payment Option or the
Annuitization Date) shall require a written request signed by both Joint
Owners. The Company will not be liable for any loss, liability, cost, or
expense for acting in accordance with the instructions of either the Owner or
Joint Owner.
CONTINGENT OWNERSHIP PROVISIONS
The Contingent Owner is the person who may receive certain benefits
under the Contract if the Contract Owner, who is not the Annuitant, dies prior
to the Annuitization Date and there is no surviving Joint Owner. If more than
one Contingent Owner survives the Contract Owner, each will share equally
unless otherwise specified in the Contingent Owner designation. If no
Contingent Owner survives a Contract Owner and there is no surviving Joint
Owner, all rights and interest of the Contingent Owner will vest in the
Contract Owner's estate. If a Contract Owner, who is also the Annuitant, dies
before the Annuitization Date and there is no surviving Joint Owner, then the
Contingent Owner does not have any rights in the Contract; however, if the
Contingent Owner is also the Beneficiary, the Contingent Owner will have all
the rights of a beneficiary.
Subject to the terms of any existing assignment, the Contract Owner may
change the Contingent Owner prior to the Annuitization Date by written notice
to the Company. The change will take effect upon receipt and recording by the
Company at its Home Office, whether or not the Contract Owner is living at the
time of recording, but without further liability as to any payment or
settlement made by the Company before receipt of such change.
BENEFICIARY PROVISIONS
The Beneficiary is the person or persons who may receive certain
benefits under the Contract in the event the Annuitant dies prior to the
Annuitization Date. If more than one Beneficiary survives the Annuitant, each
will share equally unless otherwise specified in the Beneficiary designation.
If no Beneficiary survives the Annuitant, all rights and interest of the
Beneficiary shall vest in the Contingent Beneficiary, and if more than one
Contingent Beneficiary survives, each will share equally unless otherwise
specified in the Contingent Beneficiary designation. If no Contingent
Beneficiaries survive the Annuitant, all rights and interest of the Contingent
Beneficiary will vest with the Contract Owner or the estate of the last
surviving Contract Owner.
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Subject to the terms of any existing assignment, the Contract Owner may
change the Beneficiary or Contingent Beneficiary during the lifetime of the
Annuitant, by written notice to the Company. The change will take effect upon
receipt and recording by the Company at its Home Office, whether or not the
Annuitant is living at the time of recording, but without further liability as
to any payment or settlement made by the Company before receipt of such change.
SURRENDER (REDEMPTION)
While the Contract is in force and prior to the earlier of the
Annuitization Date or the death of the Annuitant, the Company will, upon proper
written application by the Contract Owner deemed by the Company to be in good
order, allow the Contract Owner to surrender a portion or all of the Contract
Value. "Proper written application" means that the Contract Owner must request
the surrender in writing and include the Contract. In some cases (for example,
requests by a corporation, partnership, agent, fiduciary, or surviving spouse),
the Company will require additional documentation of a customary nature. The
Company may require that the signature(s) be guaranteed by a member firm of a
major stock exchange or other depository institution qualified to give such a
guaranty.
The Company will, upon receipt of any such written request, surrender a
number of Accumulation Units from the Variable Account and an amount from the
Fixed Account and Guaranteed Term Options to equal the gross dollar amount
requested, less any applicable Contingent Deferred Sales Charge (see
"Contingent Deferred Sales Charge"). In the event of a partial surrender, the
Company will, unless instructed to the contrary, surrender Accumulation Units
from all Sub-Accounts in which the Contract Owner has an interest, and from the
Fixed Account and Guaranteed Term Options. The number of Accumulation Units
surrendered from each Sub-Account and the amount surrendered from the Fixed
Account and Guaranteed Term Options will be in the same proportion that the
Contract Owner's interest in the Sub-Accounts, Fixed Account and Guaranteed
Term Options bears to the total Contract Value.
The Company will pay any funds applied for from the Variable Account
within 7 days of receipt of such application in the Company's Home Office.
However, the Company reserves the right to suspend or postpone the date of any
payment of any benefit or values for any Valuation Period (1) when the New York
Stock Exchange ("Exchange") is closed, (2) when trading on the Exchange is
restricted, (3) when an emergency exists as a result of which disposal of
securities held in the Variable Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Variable Account's net
assets, or (4) during any other period when the Securities and Exchange
Commission, by order, so permits for the protection of security holders,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (2) and (3)
exist. The Contract Value on surrender may be more or less than the total of
Purchase Payments made by a Contract Owner, depending on the market value of
the underlying Mutual Fund shares.
SURRENDERS UNDER A TAX SHELTERED ANNUITY CONTRACT
Except as provided below, the Owner may surrender part or all of the
Contract Value at any time this Contract is in force prior to the earlier of
the Annuitization Date or the death of the Annuitant:
A. The surrender of Contract Value attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of Code
Section 402(g)(3)(A) or (C)), or transfers from a Custodial Account
described in Section 403(b)(7) of the Code, may be executed only:
1. when the Contract Owner attains age 59-1/2, separates from service,
dies, or becomes disabled (within the meaning of Code Section
72(m)(7)); or
2. in the case of hardship (as defined for purposes of Code Section
401(k)), provided that any surrender of Contract Value in the case
of hardship may not include any income attributable to salary
reduction contributions.
B. The surrender limitations described in A. above also apply to:
1. salary reduction contributions to Tax Sheltered Annuities made for
plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year
beginning before January 1, 1989, on amounts attributable to salary
reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts (except
that earnings, and employer contributions as of December 31, 1988 in
such Custodial Accounts may be withdrawn in the case of hardship).
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C. Any Distribution other than the above, including exercise of a
contractual ten-day free look provision (when available) may result in
the immediate application of taxes and penalties and/or retroactive
disqualification of a Tax Sheltered Annuity.
A premature Distribution may not be eligible for rollover treatment. To
assist in preventing disqualification of a Tax Sheltered Annuity in the event
of a ten-day free look, the Company will agree to transfer the proceeds to
another contract which meets the requirements of Section 403(b) of the Code,
upon proper direction by the Contract Owner. The foregoing is the Company's
understanding of the withdrawal restrictions which are currently applicable
under Code Section 401(k)(2)(B), Code Section 403(b)(11) and Revenue Ruling
90-24. Such restrictions are subject to legislative change and/or
reinterpretation from time to time. Distributions pursuant to Qualified
Domestic Relations Orders will not be considered to be a violation of the
restrictions stated in this provision.
LOAN PRIVILEGE
Prior to the Annuitization Date, the Owner of a Tax Sheltered Annuity
Contract may receive a loan from the Contract Value subject to the terms of the
Contract, the Plan, and the Code, which may impose restrictions on loans.
Loans from Tax Sheltered Annuities are available beginning 30 days after
the Date of Issue. The Contract Owner may borrow a minimum of $1,000. In
non-ERISA plans, for Contract Values up to $20,000, the maximum loan balance
which may be outstanding at any time is 80% of the Contract Value, but not more
than $10,000. If the Contract Value is $20,000 or more, the maximum loan
balance which may be outstanding at any time is 50% of the Contract Value, but
not more than $50,000. For ERISA plans, the maximum loan balance which may be
outstanding at any time is 50% of the Contract Value, but not more than
$50,000. The $50,000 limit will be reduced by the highest loan balances owed
during the prior one-year period. Additional loans are subject to the contract
minimum amount. The aggregate of all loans may not exceed the Contract Value
limitations stated above.
For salary reduction Tax Sheltered Annuities, loans may only be secured
by the Contract Value. For loans from Qualified Contracts and other Tax
Sheltered Annuities, the Company reserves the right to limit a loan to 50% of
the Contract Value subject to the acceptance by the Contract Owner of the
Company's loan agreement. Where permitted, the Company may require other named
collateral where the loan from a Contract exceeds 50% of the Contract Value.
All loans are made from the collateral fixed account. An amount equal to
the principal amount of the loan will be transferred to the collateral fixed
account. Unless instructed to the contrary by the Contract Owner, the Company
will transfer to the collateral fixed account the Variable Account units from
the Contract Owner's investment options in proportion to the assets in each
option until the required balance is reached or all such variable units are
exhausted. The required collateral will next be transferred from the Fixed
Account. Any remaining required collateral will be transferred from the
Guaranteed Term Option and may be subject to Market Value Adjustment. No
withdrawal charges are deducted at the time of the loan, or on any transfers to
the collateral fixed account.
Until the loan has been repaid in full, that portion of the collateral
fixed account equal to the outstanding loan balance shall be credited with
interest at a rate 2.25% less than the loan interest rate fixed by the Company
for the term of the loan. However, the interest rate credited to the collateral
fixed account will never be less than 3.0%. Specific loan terms are disclosed
at the time of loan application or loan issuance.
Loans must be repaid in substantially level payments, not less
frequently than quarterly, within five years. Loans used to purchase the
principal residence of the Contract Owner must be repaid within 15 years.
During the loan term, the outstanding balance of the loan will continue to earn
interest at an annual rate as specified in the loan agreement. Loan repayments
will consist of principal and interest in amounts set forth in the loan
agreement. Loan repayments will be processed in the same manner as a Purchase
Payment, except that no loan repayments less than $1,000 are permitted into the
Guaranteed Term Options. Loan repayments will be allocated among the Fixed and
Variable Accounts in accordance with the Contract, unless the Contract Owner
and the Company agree to amend the Contract at a later date on a case by case
basis. If the proportional share of the loan repayment to the Guaranteed Term
Option is less than $1,000, that portion of the loan repayment will be
allocated to the Nationwide Separate Account Trust Money Market Fund, unless
the Contract Owner directs such loan repayments to be directed to the Fixed
Account or another investment option available in the Variable Account.
If the Contract is surrendered while the loan is outstanding, the
surrender value will be reduced by the amount of the loan outstanding plus
accrued interest. If the Contract Owner/Annuitant dies while the loan is
outstanding, the Death Benefit will be reduced by the amount of the loan
outstanding plus accrued interest. If a Contract Owner who is not the Annuitant
dies prior to Annuitization and while the loan is outstanding, the
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Distribution will be reduced by the amount of the loan outstanding plus accrued
interest. If annuity payments start while the loan is outstanding, the Contract
Value will be reduced by the amount of the outstanding loan plus accrued
interest. Until the loan is repaid, the Company reserves the right to restrict
any transfer of the Contract which would otherwise qualify as a transfer as
permitted in the Code.
If a loan payment is not made when due, interest will continue to
accrue. A grace period may be available under the terms of the loan agreement.
If a loan payment is not made when due, or by the end of the applicable grace
period, the entire loan will be treated as a deemed Distribution, may be
taxable to the borrower, and may be subject to the early withdrawal tax
penalty. Interest which subsequently accrues on defaulted amounts may also be
treated as additional deemed Distributions each year. Any defaulted amounts,
plus accrued interest, will be deducted from the Contract when the participant
becomes eligible for a Distribution of at least that amount, and this amount
may again be treated as a Distribution where required by law. Additional loans
may not be available while a previous loan remains in default.
Loans may also be subject to additional limitations or restrictions
under the terms of the employer's plan. Loans permitted under this Contract may
still be taxable in whole or part if the participant has additional loans from
other plans or contracts. The Company will calculate the maximum nontaxable
loan based on the information provided by the participant or the employer.
Loan repayments must be identified as such or else they will be treated
as Purchase Payments and will not be used to reduce the outstanding loan
principal or interest due. The Company reserves the right to modify the term or
procedures if there is a change in applicable law. The Company also reserves
the right to assess a loan processing fee.
Individual Retirement Annuities and Non-Qualified Contracts are not
eligible for loans.
ASSIGNMENT
Where permitted, the Contract Owner may assign some or all of the rights
under the Contract at any time during the lifetime of the Annuitant prior to
the Annuitization Date. Such assignment will take effect upon receipt and
recording by the Company at its Home Office of a written notice executed by the
Contract Owner. The Company assumes no responsibility for the validity or tax
consequences of any assignment. The Company shall not be liable as to any
payment or other settlement made by the Company before recording of the
assignment. Where necessary for the proper administration of the terms of the
Contract, an assignment will not be recorded until the Company has received
sufficient direction from the Contract Owner and assignee as to the proper
allocation of Contract rights under the assignment.
If this Contract is a Non-Qualified Contract, any portion of Contract
Value which is pledged or assigned shall be treated as a Distribution and shall
be included in gross income to the extent that the cash value exceeds the
investment in the Contract for the taxable year in which it was pledged or
assigned. In addition, any Contract Values assigned may, under certain
conditions, be subject to a tax penalty equal to 10% of the amount which is
included in gross income. All rights in this Contract are personal to the
Contract Owner and may not be assigned without written consent of the Company.
Assignment of the entire Contract Value may cause the portion of the Contract
Value which exceeds the total investment in the Contract and previously taxed
amounts to be included in gross income for federal income tax purposes each
year that the assignment is in effect. Individual Retirement Annuities and Tax
Sheltered Annuities may not be assigned, pledged or otherwise transferred
except under such conditions as may be allowed by law.
CONTRACT OWNER SERVICES
ASSET REBALANCING- The Contract Owner may direct the automatic
reallocation of Contract Values to the underlying Mutual Fund options on a
predetermined percentage basis every three months or based on another frequency
authorized by the Company. If the last day of the period falls on a Saturday,
Sunday, recognized holiday or any other day when the New York Stock Exchange is
closed, the Asset Rebalancing exchange will occur on the first business day
after that day. An Asset Rebalancing request must be in writing on a form
provided by the Company. The Contract Owner may want to contact a financial
adviser in order to discuss the use of Asset Rebalancing in his or her
Contract.
Contracts issued to a Tax Sheltered Annuity Plan as defined by the Code
may have superseding plan restrictions with regard to the frequency of fund
exchanges and underlying Mutual Fund options.
Asset Rebalancing is not available for assets held in the Guaranteed
Term Option(s). Amounts transferred from the Guaranteed Term Option prior to
the expiration of the specified term are subject to the Market Value
Adjustment.
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The Company reserves the right to discontinue offering Asset Rebalancing
upon 30 days written notice; such discontinuation will not affect Asset
Rebalancing programs which have already commenced. The Company also reserves
the right to assess a processing fee for this service.
DOLLAR COST AVERAGING- The Contract Owner may direct the Company to
automatically transfer a specified amount from the Nationwide Separate Account
Trust Money Market Fund, Nationwide Separate Account Trust Government Bond Fund
or the Fixed Account to any other Sub-Account within the Variable Account on a
monthly basis or as frequently as otherwise authorized by the Company. This
service is intended to allow the Contract Owner to utilize Dollar Cost
Averaging, a long-term investment program which provides for regular, level
investments over time. The Company makes no guarantees that Dollar Cost
Averaging will result in a profit or protect against loss in a declining
market. The minimum monthly Dollar Cost Averaging transfer is $100. In
addition, Dollar Cost Averaging monthly transfers from the Fixed Account must
be equal to or less than 1/30th of the Fixed Account value when the Dollar Cost
Averaging program is requested. Transfers out of the Fixed Account, other than
for Dollar Cost Averaging, may be subject to certain additional restrictions
(see "Transfers"). A written election of this service, on a form provided by
the Company, must be completed by the Contract Owner in order to begin
transfers. Once elected, transfers from the Nationwide Separate Account Trust
Money Market Fund, Nationwide Separate Account Trust Government Bond Fund or
the Fixed Account will be processed monthly or on another approved frequency
until either the value in the Nationwide Separate Account Trust Money Market
Fund, Nationwide Separate Account Trust Government Bond Fund or the Fixed
Account is completely depleted or the Contract Owner instructs the Company in
writing to cancel the transfers.
Dollar Cost Averaging transfers may not be directed to Guaranteed Term
Options.
The Company reserves the right to discontinue offering Dollar Cost
Averaging upon 30 days written notice; such discontinuation will not affect
Dollar Cost Averaging programs which have already commenced. The Company also
reserves the right to assess a processing fee for this service.
SYSTEMATIC WITHDRAWALS- A Contract Owner may elect in writing on a form
provided by the Company to take Systematic Withdrawals of a specified dollar
amount (of at least $100) on a monthly, quarterly, semi-annual, or annual
basis. The Company will process the withdrawals as directed by surrendering on
a pro-rata basis Accumulation Units from all Sub-Accounts in which the Contract
Owner has an interest, and the Fixed Account (but is not available for
withdrawals from the GTOs). A CDSC may also apply to Systematic Withdrawals in
accordance with the considerations set forth in the "Contingent Deferred Sales
Charge" section. Each Systematic Withdrawal is subject to federal income taxes
on the taxable portion. Unless directed by the Contract Owner, the Company will
withhold federal income taxes from each Systematic Withdrawal. In addition, the
Internal Revenue Service may assess a 10% federal penalty tax on Systematic
Withdrawals if the Contract Owner is under age 59-1/2. Unless the Contract
Owner has made an irrevocable election of distributions of substantially equal
payments, the Systematic Withdrawals may be discontinued at any time by
notifying the Company in writing.
If the Contract Owner withdraws amounts pursuant to a Systematic
Withdrawal program, then the Contract Owner may withdraw each Contract Year
without a CDSC an amount up to the greater of (1) 10% of the total sum of all
Purchase Payments made to the Contract at the time of withdrawal; (2) an amount
withdrawn from any Individual Retirement Annuity Contract or Tax Sheltered
Annuity, in order for that Contract to meet minimum Distribution requirements;
or (3) the specified percentage of the Contract Value based on the Contract
Owner's age, as shown in the following table:
Contract Owner's Percentage of
Age Contract Value
------------------ ----------------
Under 59-1/2 5%
59-1/2 to 62 7%
62 to 65 8%
65 to 75 10%
75 and Over 13%
If the total amounts withdrawn in any Contract Year exceed the CDSC-free
amount as calculated under the Systematic Withdrawal method described above,
then such total withdrawn amounts will be eligible only for the 10% of Purchase
Payment CDSC-free withdrawal privilege described in the "Contingent Deferred
Sales Charge" section, and the total amount of CDSC charged during the Contract
Year will be determined in accordance with that provision.
The Contract Value and the Contract Owner's age for purposes of applying
the CDSC-free withdrawal percentage described in this provision are determined
as of the date the request for a Systematic Withdrawal
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program is received and recorded by the Company at its Home Office. (In the
case of Joint Owners, the older Owner's age will be used.) The Contract Owner
may elect to take such CDSC-free amounts only once each Contract Year.
Furthermore, this CDSC-free withdrawal privilege for Systematic Withdrawals is
non-cumulative; free amounts not taken during any given Contract Year cannot be
taken as free amounts in a subsequent Contract Year.
The Company reserves the right to discontinue offering Systematic
Withdrawals upon 30 days written notice; such discontinuation will not affect
any Systematic Withdrawal programs already commenced. The Company also reserves
the right to assess a processing fee for this service. Systematic withdrawals
are not available prior to the expiration of the ten day free look provision of
the Contract or of applicable state/federal law.
ANNUITY PAYMENT PERIOD, DEATH BENEFIT AND OTHER DISTRIBUTIONS
ANNUITY COMMENCEMENT DATE
An Annuity Commencement Date will be selected. Such date must be the
first day of a calendar month or any other agreed upon date and must be at
least 2 years after the Date of Issue. In the event the Contract is issued
subject to the terms of Tax Sheltered Annuity Plan, Annuitization may occur
during the first 2 years subject to approval by the Company.
CHANGE IN ANNUITY COMMENCEMENT DATE
If the Contract Owner requests in writing and the Company approves the
request, the Annuity Commencement Date may be changed. The new date must comply
with the Annuity Commencement Date provisions above.
ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT
At the Annuitization Date, the Variable Account value is applied to the
Annuity Payment Option elected and the amount of the first such payment shall
be determined in accordance with the Annuity Table in the Contract.
Subsequent Variable Annuity payments vary in amount in accordance with
the investment performance of the Variable Account. The dollar amount of the
first annuity payment determined as above is divided by the value of an Annuity
Unit as of the Annuitization Date to establish the number of Annuity Units
representing each monthly annuity payment. This number of Annuity Units remains
fixed during the annuity payment period. The dollar amount of the second and
subsequent payments is not predetermined and may change from month to month.
The dollar amount of each subsequent payment is determined by multiplying the
fixed number of Annuity Units by the Annuity Unit Value for the Valuation
Period in which the payment is due. The Company guarantees that the dollar
amount of each payment after the first will not be affected by variations in
mortality experience from mortality assumptions used to determine the first
payment.
VALUE OF AN ANNUITY UNIT
The value of an Annuity Unit was arbitrarily set initially at $10 when
the first underlying Mutual Fund shares were purchased. The value of an Annuity
Unit for a Sub-Account for any subsequent 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, and multiplying the result by an
interest factor to neutralize the assumed investment rate of 3.5% per annum
(see "Net Investment Factor").
ASSUMED INVESTMENT RATE
A 3.5% assumed investment rate is built into the Annuity Tables
contained in the Contracts. A higher assumption would mean a higher initial
payment but more slowly rising or more rapidly falling subsequent payments. A
lower assumption would have the opposite effect. If the actual investment rate
is at the annual rate of 3.5%, the annuity payments will be level.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments. However, if the
net amount available to apply under any Annuity Payment Option is less than
$5,000, the Company shall have the right to pay such amount in one lump sum in
lieu of the payments otherwise provided for. In addition, if the payments
provided for would be or become less than $50, the Company shall have the right
to change the frequency of payments to such intervals as will result in
payments of at least $50. In no event will the Company make payments under an
annuity option less frequently than annually.
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CHANGE IN FORM OF ANNUITY
The Contract Owner may, upon prior written notice to the Company, at any
time prior to the Annuitization Date, elect one of the Annuity Payment Options.
ANNUITY PAYMENT OPTIONS
Any of the following Annuity Payment Options may be elected:
Option 1-Life Annuity-An annuity payable periodically, but at least
annually, during the lifetime of the Annuitant, ceasing with the last
payment due prior to the death of the Annuitant. IT WOULD BE POSSIBLE
UNDER THIS OPTION FOR THE ANNUITANT TO RECEIVE ONLY ONE ANNUITY PAYMENT
IF HE OR SHE DIED BEFORE THE SECOND ANNUITY PAYMENT DATE, TWO ANNUITY
PAYMENTS IF HE OR SHE DIED BEFORE THE THIRD ANNUITY PAYMENT DATE, AND SO
ON.
Option 2-Joint and Last Survivor Annuity-An annuity payable
periodically, but at least annually, during the joint lifetimes of the
Annuitant and designated second person and continuing thereafter during
the lifetime of the survivor. AS IS THE CASE UNDER OPTION 1 ABOVE, THERE
IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS
CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
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 120 or 240 months, as selected, payments will be made as
follows:
(1) Any guaranteed annuity payments will be continued during the
remainder of the selected period to such recipient as chosen by the
Annuitant at the time the Annuity Payment Option was selected. In
the alternative, the recipient may, at any time, elect to have the
present value of the guaranteed number of annuity payments remaining
paid in a lump sum as specified in section (2) below.
(2) If someone other than the Annuitant is the payee, the present value,
computed as of the date on which notice of death is received by the
Company at its Home Office, of the guaranteed number of annuity
payments remaining after receipt of such notice and to which the
deceased would have been entitled had he or she not died, computed
at the Assumed Investment Rate effective in determining the Annuity
Tables, shall be paid in a lump sum.
Some of the stated Annuity Options may not be available in all states.
The Contract Owner may request an alternative non-guaranteed option by giving
notice in writing prior to Annuitization. If such a request is approved by the
Company, it will be permitted under the Contract.
If the Contract Owner of a Non-Qualified Contract fails to elect an
Annuity Payment Option, no Distribution will be made until an effective Annuity
Payment Option has been elected. Individual Retirement Annuities or Tax
Sheltered Annuities are subject to the minimum Distribution requirements set
forth in the Plan, Contract or Code.
DEATH OF CONTRACT OWNER PROVISIONS - NON-QUALIFIED CONTRACTS
For Non-Qualified Contracts, if the Contract Owner and the Annuitant are
not the same person and such Contract Owner dies prior to the Annuitization
Date, then the Joint Owner, if any, becomes the new Contract Owner. If there is
no surviving Joint Owner, the Contingent Owner becomes the new Contract Owner.
If there is no surviving Contingent Owner, the last surviving Contract Owner's
estate becomes the Contract Owner. The entire interest in the Contract Value,
less any applicable deductions (which may include a Contingent Deferred Sales
Charge), must be distributed in accordance with the "Required Distribution
Provisions- Non-Qualified Contracts" provisions.
DEATH OF THE ANNUITANT PROVISIONS - NON-QUALIFIED CONTRACTS
If the Contract Owner and Annuitant are not the same person, and the
Annuitant dies prior to the Annuitization Date, a Death Benefit will be payable
to the Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last
surviving Contract Owner's estate, as specified in the "Beneficiary
Provisions", unless there is a surviving Contingent Annuitant. In such case,
the Contingent Annuitant becomes the Annuitant and no Death Benefit is payable.
The Beneficiary may elect to receive such Death Benefits in the form of:
(1) a lump sum distribution; (2) election of an annuity payout; or (3) any
distribution that is permitted under state and federal regulations and is
acceptable by the Company. Such election must be received by the Company within
60 days of the Annuitant's death.
If the Annuitant dies after the Annuitization Date, any benefit that may
be payable shall be paid according to the selected Annuity Payment Option.
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DEATH OF THE CONTRACT OWNER/ANNUITANT PROVISIONS
If any Contract Owner and Annuitant are the same person, and such person
dies before the Annuitization Date, a Death Benefit will be payable to the
Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last
surviving Contract Owner's estate, as specified in the Beneficiary Provisions
and in accordance with the appropriate "Required Distributions Provisions."
If the Annuitant dies after the Annuitization Date, any benefit that may
be payable shall be paid according to the selected Annuity Payment Option.
DEATH BENEFIT PAYMENT PROVISIONS
The value of the Death Benefit will be determined as of the Valuation
Date coincident with or next following the date the Company receives in writing
at the Home Office the following three items: (1) proper proof of the
Annuitant's death; (2) an election specifying the Distribution method; and (3)
any applicable state required form(s).
At the time of application, Contract Owners may select one of three
death benefits available under the Contract as listed below (not all death
benefit options riders may be available in all states at the time of
application). If no selection is made at the time of application, the Death
Benefit will be the Five-Year Reset Death Benefit (Standard Contractual Death
Benefit).
FIVE-YEAR RESET DEATH BENEFIT (STANDARD CONTRACTUAL DEATH BENEFIT)
If the Annuitant dies at any time prior to the Annuitization Date, the
dollar amount of the death benefit will be the greatest of:
(1) the Contract Value;
(2) the total of all Purchase Payments made to the Contract, less an
adjustment for amounts surrendered; or
(3) the Contract Value as of the most recent five year Contract
Anniversary before the Annuitant's 86th birthday, less adjustments
for amounts surrendered, plus Purchase Payments received after that
Contract Anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3)
above in the same proportion that the Contract Value was reduced on the date of
the partial surrender.
No additional charge will be assessed to the Contract Owner for election
of the Five-Year Reset (Standard Contractual Death Benefit).
ONE-YEAR STEP UP DEATH BENEFIT (RIDER OPTION 1)
If the Annuitant dies at any time prior to the Annuitization Date, the
dollar 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 Anniversary Date before the
Annuitant's 86th birthday, less an adjustment for amounts
surrendered, plus Purchase Payments received after that Contract
Anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3)
above in the same proportion that the Contract Value was reduced on the date of
the partial surrender.
For this Death Benefit Option, the Company deducts a charge at an annual
rate of 0.05% of the daily net asset value of the Variable Account. This charge
is designed only to reimburse the Company for increases in the mortality and
expense risks, and consequently the Company may lower this charge at any time
without prior notice to the Contract Owner. However, the Company may generate a
profit through assessing this charge.
5% ENHANCED DEATH BENEFIT (RIDER OPTION 2)
If the Annuitant dies at any time prior to Annuitization Date, the
dollar amount of the death benefit will be the greater of:
(1) the Contract Value; or
(2) the total of all Purchase Payments, less any amounts surrendered,
accumulated at 5% simple interest from the date of each Purchase
Payment or surrender to the most recent Contract Anniversary Date
prior to the Annuitant's 86 birthday, less an adjustment for
amounts surrendered, plus Purchase Payments received since that
anniversary.
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Such total accumulated amount shall not exceed 200% of the net of
Purchase Payments and amounts surrendered. The adjustment for amounts
subsequently surrendered after the most recent Contract Anniversary Date will
reduce the 5% interest anniversary value in the same proportion that the
Contract Value was reduced on the date of the partial surrender.
For this Death Benefit Rider Option, the Company deducts a charge at an
annual rate of 0.10% of the daily net asset value of the Variable Account. This
charge is designed only to reimburse the Company for increases in the mortality
and expense risks, and consequently, the Company may lower this charge at any
time without prior notice to the Contract Owner. However, the Company may
generate a profit through assessing this charge.
FOR ANY DEATH BENEFIT OPTION SELECTED, IF THE ANNUITANT DIES AFTER THE
ANNUITIZATION DATE, ANY PAYMENT THAT MAY BE PAYABLE WILL BE DETERMINED
ACCORDING TO THE SELECTED ANNUITY PAYMENT OPTION.
LONG TERM CARE FACILITY PROVISIONS
For those Contracts which have elected a Long Term Care Facility and
Death Benefit Rider at the time of application, the following Long Term Care
Facility provisions also apply. Beginning at the third Contract Anniversary
Date, surrender charges on withdrawals will not apply if a Contract Owner is
confined to a Long Term Care Facility or hospital, as defined by the applicable
endorsement to the Contract, and has been confined in such facility for a
continuous 90 day period. In addition, upon receipt of a physician's letter at
the Company's Home Office, no surrender charges will be deducted upon
withdrawals if the Contract Owner has been diagnosed by that physician to have
a terminal illness, as defined by the applicable endorsement to the Contract.
The Contract Owner may be subject to income tax on all or a portion of
any such withdrawals and to a tax penalty if the Contract Owner takes
withdrawals prior to age 59-1/2 (see "FEDERAL TAX CONSIDERATIONS -
Non-Qualified Contracts - Natural Persons as Owners").
REQUIRED DISTRIBUTION PROVISIONS FOR NON-QUALIFIED CONTRACTS
Upon the death of any Contract Owner or Joint Owner (including an
Annuitant who becomes the Owner of the Contract on the Annuitization Date)
(each of the foregoing "a deceased Owner"), certain distributions for
Non-Qualified Contracts, are required by Section 72(s) of the Code.
Notwithstanding any provision of the Contract to the contrary, the following
distributions shall be made in accordance with such requirements:
1. If any deceased Owner died on or after the Annuitization Date and
before the entire interest under the Contract has been distributed,
then the remaining portion of such interest shall be distributed at
least as rapidly as under the method of distribution in effect as
of the date of such deceased Owner's death.
2. If any deceased Owner died prior to the Annuitization Date, then
the entire interest in the Contract (consisting of either the Death
Benefit or the Contract Value reduced by certain charges as set
forth elsewhere in the Contract) shall be distributed within 5
years of the death of the deceased Owner, provided however:
(a) If any portion of such interest is payable to or for the
benefit of a natural person who is a surviving Contract Owner,
Contingent Owner, Joint Owner, Annuitant, Contingent
Annuitant, Beneficiary, or Contingent Beneficiary as the case
may be (each a "designated beneficiary"), such portion may, at
the election of the designated beneficiary, be distributed
over the life of such designated beneficiary, or over a period
not extending beyond the life expectancy of such designated
beneficiary, provided that payments begin within one year of
the date of the deceased Owner's death (or such longer period
as may be permitted by federal income tax regulations), and
(b) If the designated beneficiary is the surviving spouse of the
deceased Owner, such spouse may elect to become the Owner of
this Contract, in lieu of a Death Benefit, and the
distributions required under these distribution rules will be
made upon the death of such spouse.
In the event that this Contract is owned by a person that is not a
natural person (e.g., a trust or corporation), then, for purposes of these
distribution provisions, (i) the death of the Annuitant shall be treated as the
death of any Owner, (ii) any change of the Annuitant shall be treated as the
death of any Owner, and (iii) in either case the appropriate distribution
required under these distribution rules shall be made upon such death or
change, as the case may be. The Annuitant is the primary annuitant as defined
in Section 72(s)(6)(B) of the Code.
These distribution provisions shall not be applicable to any Contract
that is not required to be subject to the provisions of 72(s) of the Code by
reason of Section 72(s)(5) or any other law or rule (including Tax Sheltered
Annuities, Individual Retirement Annuities, and Qualified Plans.
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Upon the death of a "deceased Owner", the designated beneficiary must
elect a method of distribution which complies with these above distribution
provisions and which is acceptable to the Company. Such election must be
received by the Company within 60 days of the deceased Owner's death.
REQUIRED DISTRIBUTIONS FOR TAX SHELTERED ANNUITIES
The entire interest of an Annuitant under a Tax Sheltered Annuity
Contract will be distributed in a manner consistent with the Minimum
Distribution and Incidental Benefit (MDIB) provisions of Section 401(a)(9) of
the Code and applicable regulations and will be paid, notwithstanding anything
else contained herein, to the Annuitant under the Annuity Payments Option
selected, over a period not exceeding:
A. the life of the Annuitant or the lives of the Annuitant and the
Annuitant's designated beneficiary under the selected Annuity
Payment Option; or
B. a period not extending beyond the life expectancy of the Annuitant
or the life expectancy of the Annuitant and the Annuitant's
designated beneficiary under the selected annuity Payment Option.
No Distributions will be required from this Contract if Distributions
otherwise required from this Contract are being withdrawn from another Tax
Sheltered Annuity Contract of the Annuitant.
If the Annuitant's entire interest in a Tax Sheltered Annuity is to be
distributed in equal or substantially equal payments over a period described in
(A) or (B), above, such payments will commence no later than (i) the first day
of April following the calendar year in which the Annuitant attains age 70-1/2
or (ii) when the Annuitant retires, whichever is later (the "required beginning
date"). However, provision (ii) does not apply to any employee who is a 5%
Owner (as defined in Section 416 of the Code) with respect to the plan year
ending in the calendar year in which the employee attains the age of 70-1/2.
If the Annuitant dies prior to the commencement of his or her
Distribution, the interest in the Tax Sheltered Annuity must be distributed by
December 31 of the calendar year in which the fifth anniversary of his or her
death occurs unless:
(a) the Annuitant names his or her surviving spouse as the Beneficiary
and such spouse elects to receive Distribution of the account in
substantially equal payments over his or her life (or a period not
exceeding his or her life expectancy) and commencing not later than
December 31 of the year in which the Annuitant would have attained
age 70-1/2; or
(b) the Annuitant names a Beneficiary other than his or her surviving
spouse and such Beneficiary elects to receive a Distribution of the
account in substantially equal payments over his or her life (or a
period not exceeding his or her life expectancy) commencing not
later than December 31 of the year following the year in which the
Annuitant dies.
If the Annuitant dies after Distribution has commenced, Distribution
must continue at least as rapidly as under the schedule being used prior to his
or her death.
Payments commencing on the required beginning date will not be less than
the lesser of the quotient obtained by dividing the entire interest of the
Annuitant by the life expectancy of the Annuitant, or the joint and last
survivor expectancy of the Annuitant and the Annuitant's designated beneficiary
(if the Annuitant dies prior to the required beginning date) or the beneficiary
under the selected Annuity Payment Option (if the Annuitant dies after the
required beginning date) whichever is applicable under the applicable minimum
distribution or MDIB provisions. Life expectancy and joint and last survivor
expectancy are computed by the use of return multiples contained in Section
1.72-9 of the Treasury Regulations.
If the amounts distributed to the Annuitant are less than those
mentioned above, penalty tax of 50% is levied on the excess of the amount that
should have been distributed for that year over the amount that actually was
distributed for that year.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES
Distribution from an Individual Retirement Annuity must begin not later
than April 1 of the calendar year following the calendar year in which the
Owner attains age 70-1/2. Distribution may be accepted in a lump sum or in
substantially equal payments over: (a) the Owner's life or the lives of the
Owner and his or her spouse or designated beneficiary, or (b) a period not
extending beyond the life expectancy of the Owner or the joint life expectancy
of the Owner and the Owner's designated beneficiary.
If the Owner dies prior to the commencement of his or her Distribution,
the interest in the Individual Retirement Annuity must be distributed by
December 31 of the calendar year in which the fifth anniversary of his or her
death occurs, unless:
(a) The Owner names his or her surviving spouse as the Beneficiary and
such spouse elects to:
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(i) treat the annuity as an Individual Retirement Annuity
established for his or her benefit; or
(ii) receive Distribution of the account in nearly equal payments
over his or her life (or a period not exceeding his or her
life expectancy) and commencing not later than December 31 of
the year in which the Owner would have attained age 70-1/2; or
(b) The Owner names a Beneficiary other than his or her surviving
spouse and such Beneficiary elects to receive a Distribution of the
account in nearly equal payments over his or her life (or a period
not exceeding his or her life expectancy) commencing not later than
December 31 of the year following the year in which the Owner dies.
No Distribution will be required from this Contract if Distributions
otherwise required from this Contract are being withdrawn from another
Individual Retirement Annuity or Individual Annuity Account of the Contract
Owner.
If the Owner dies after Distribution has commenced, Distribution must
continue at least as rapidly as under the schedule being used prior to his or
her death, except that a surviving spouse who is the beneficiary under the
Annuity Payment Option, may treat the Contract as his or her own, in the same
manner as is described in section (a)(i) of this provision.
If the amounts distributed to the Contract Owner are less than those
mentioned above, penalty tax of 50% is levied on the excess of the amount that
should have been distributed for that year over the amount that actually was
distributed for that year.
A pro-rata portion of all Distributions will be included in the gross
income of the person receiving the Distribution and taxed at ordinary income
tax rates. The portion of the Distribution which is taxable is based on the
ratio between the amount by which non-deductible Purchase Payments exceed prior
non-taxable Distributions and total account balances at the time of the
Distribution. The Owner of an Individual Retirement Annuity must annually
report the amount of non-deductible Purchase Payments, the amount of any
Distribution, the amount by which non-deductible Purchase Payments for all
years exceed non-taxable Distributions for all years, and the total balance of
all Individual Retirement Annuities.
Individual Retirement Annuity Distributions will not receive the benefit
of the tax treatment of a lump sum Distribution from a Qualified Plan. If the
Owner dies prior to the time Distribution of his or her interest in the annuity
is completed, the balance will also be included in his or her gross estate.
GENERATION-SKIPPING TRANSFERS
The Company may determine whether the Death Benefit or any other payment
constitutes a direct skip as defined in Section 2612 of the Code, and the
amount of the tax on the generation-skipping transfer resulting from such
direct skip. If applicable, such payment will be reduced by any tax the
Company is required to pay by Section 2603 of the Code.
A direct skip may occur when property is transferred to or a Death
Benefit is paid to an individual two or more generations younger than the
Contract Owner.
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
The Company does not make any guarantee regarding the tax status for any
Contract or any transaction involving the Contracts. Contract Owners should
consult a financial consultant, legal counsel or tax advisor to discuss in
detail the taxation and the use of the Contracts.
Section 72 of the Code governs federal income taxation of annuities in
general. That section sets forth different rules for: (1) Individual Retirement
Annuities (2) Tax Sheltered Annuities; and (3) Non-Qualified Contracts. Each
type of annuity is discussed below.
Distributions to participants from Qualified Contracts or Tax Sheltered
Annuities are generally taxed when received. A portion of each Distribution is
excludable from income based on the ratio between the after tax investment of
the Owner/Annuitant in the Contract and the value of the Contract at the time
of the withdrawal or Annuitization.
Distributions from Individual Retirement Annuities and Contracts owned
by Individual Retirement Accounts are generally taxed when received. The
portion of each such payment which is excludable is based on the ratio between
the amount by which nondeductible Purchase Payments to all such Contracts
exceeds prior non-taxable Distributions from such Contracts, and the total
account balances in such Contracts at the time of the Distribution. The Owner
of such Individual Retirement Annuities or the Annuitant under Contracts held
by Individual Retirement Accounts must annually report to the Internal Revenue
Service the amount of
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nondeductible Purchase Payments, the amount of any Distribution, the amount by
which nondeductible Purchase Payments for all years exceed non-taxable
Distributions for all years, and the total balance in all Individual Retirement
Annuities and Accounts.
A change of the Annuitant or Contingent Annuitant may be treated by the
Internal Revenue Service as a taxable transaction.
PUERTO RICO
Under the Puerto Rico tax code, Distributions prior to Annuitization are
treated as nontaxable return of principal until the principal is fully
recovered; thereafter, all Distributions are fully taxable. Distributions after
Annuitization are treated as part taxable income and part nontaxable return of
principal. The amount excluded from gross income after Annuitization is equal
to the amount of the Distribution in excess of 3% of the total Purchase
Payments paid, until an amount equal to the total Purchase Payments paid has
been excluded; thereafter, the entire Distribution is included in gross income.
Puerto Rico does not impose an early withdrawal penalty tax. Generally, Puerto
Rico does not require income tax to be withheld from Distributions of income. A
personal tax advisor should be consulted.
NON-QUALIFIED CONTRACTS - NATURAL PERSONS AS OWNERS
The rules applicable to Non-Qualified Contracts provide that a portion
of each annuity payment received is excludable from taxable income based on the
ratio between the Contract Owner's investment in the Contract and the expected
return on the Contract until the investment has been recovered; thereafter the
entire amount is includable in income. The maximum amount excludable from
income is the investment in the Contract. If the Annuitant dies prior to
excluding from income the entire investment in the Contract, the Annuitant's
final tax return may reflect a deduction for the balance of the investment in
the Contract.
Distributions made from the Contract prior to the Annuitization Date are
taxable to the Contract Owner to the extent that the cash value of the Contract
exceeds the Contract Owner's investment at the time of the Distribution.
Distributions, for this purpose, include partial surrenders, dividends, loans,
or any portion of the Contract which is assigned or pledged; or for Contracts
issued after April 22, 1987, any portion of the Contract transferred by gift.
For these purposes, a transfer by gift may occur upon Annuitization if the
Contract Owner and the Annuitant are not the same individual. In determining
the taxable amount of a Distribution, all annuity contracts issued after
October 21, 1988, by the same company to the same contract owner during any 12
month period, will be treated as one annuity contract. Additional limitations
on the use of multiple contracts may be imposed by Treasury Regulations.
Distributions prior to the Annuitization Date with respect to that portion of
the Contract invested prior to August 14, 1982, are treated first as a recovery
of the investment in the Contract as of that date. A Distribution in excess of
the amount of the investment in the Contract as of August 14, 1982, will be
treated as taxable income.
The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on the earnings on the Contract which are attributable to
contributions made to the Contract after February 28, 1986. There are
exceptions for immediate annuities and certain Contracts owned for the benefit
of an individual. An immediate annuity, for purposes of this discussion, is a
single premium Contract on which payments begin within one year of purchase. If
this Contract is issued as the result of an exchange described in Section 1035
of the Code, for purposes of determining whether the Contract is an immediate
annuity, it will generally be considered to have been purchased on the purchase
date of the contract given up in the exchange.
Code Section 72 also provides for a penalty tax, equal to 10% of the
portion of any Distribution that is includable in gross income, if such
Distribution is made prior to attaining age 59-1/2. The penalty tax does not
apply if the Distribution is attributable to the Contract Owner's death,
disability or is one of a series of substantially equal periodic payments made
over the life or life expectancy of the Contract Owner (or the joint lives or
joint life expectancies of the Contract Owner and the beneficiary selected by
the Contract Owner to receive payment under the Annuity Payment Option selected
by the Contract Owner) or for the purchase of an immediate annuity, or is
allocable to an investment in the Contract before August 14, 1982. A Contract
Owner wishing to begin taking Distributions to which the 10% tax penalty does
not apply should forward a written request to the Company. Upon receipt of a
written request from the Contract Owner, the Company will inform the Contract
Owner of the procedures pursuant to Company policy and subject to limitations
of the Contract including but not limited to first year withdrawals. Such
election shall be irrevocable and may not be amended or changed.
In order to qualify as an annuity contract under Section 72 of the Code,
the contract must provide for Distribution of the entire contract to be made
upon the death of a Contract Owner. If a Contract Owner dies prior to the
Annuitization Date, then the Joint Contract Owner, the Contingent Owner or
other named recipient must receive the Distribution within 5 years of the
Contract Owner's death. However, the recipient may elect
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for payments to be made over his/her life or life expectancy provided that such
payments begin within one year from the death of the Contract Owner. If the
Joint Contract Owner, Contingent Owner or other named recipient is the
surviving spouse, such spouse may be treated as the Contract Owner and the
Contract may be continued throughout the life of the surviving spouse. In the
event the Contract Owner dies on or after the Annuitization Date and before the
entire interest has been distributed, the remaining portion must be distributed
at least as rapidly as under the method of Distribution being used as of the
date of the Contract Owner's death (see "Required Distribution For Qualified
Plans and Tax Sheltered Annuities"). If the Contract Owner is not an
individual, the death of the Annuitant (or a change in the Annuitant) will
result in a Distribution pursuant to these rules, regardless of whether a
Contingent Annuitant is named.
The Code requires that any election to receive an annuity rather than a
lump sum payment must be made within 60 days after the lump sum becomes payable
(generally, the election must be made within 60 days after the death of an
Owner or the Annuitant). If the election is made more than 60 days after the
lump sum first becomes payable, the election would be ignored for tax purposes,
and the entire amount of the lump sum would be subject to immediate tax. If the
election is made within the 60 day period, each Distribution would be taxable
when it is paid.
NON-QUALIFIED CONTRACTS - NON-NATURAL PERSONS AS OWNERS
The foregoing discussion of the taxation of Non-Qualified Contracts applies
to Contracts owned (or, pursuant to Section 72(u) of the Code, deemed to be
owned) by individuals; it does not apply to Contracts where one or more
non-individuals is an Owner.
As a general rule, contracts owned by corporations, partnerships, trusts,
and similar entities ("Non-Natural Persons"), rather than by one or more
individuals, are not treated as annuity contracts for most purposes under the
Code; in particular, they are not treated as annuity contracts for purposes of
Section 72. Therefore, the taxation rules for Distributions, as described
above, do not apply to Non-Qualified Contracts owned by Non-Natural Persons.
Rather, the following rules will apply:
The income earned under a Non-Qualified Contract that is owned by a
Non-Natural Person is taxed as ordinary income during the taxable year that it
is earned, and is not deferred, even if the income is not distributed out of
the Contract to the Owner.
The foregoing Non-Natural Person rule does not apply to all entity-owned
contracts. First, for this purpose, a Contract that is owned by a Non-Natural
Person as an agent for an individual is treated as owned by the individual.
This exception does not apply, however, to a Non-Natural Person who is an
employer that holds the Contract under a non-qualified deferred compensation
arrangement for one or more employees.
The Non-Natural Person rules also do not apply to a Contract that is (a)
acquired by the estate of a decedent by reason of the death of the decedent;
(b) issued in connection with certain qualified retirement plans and individual
retirement plans; (c) used in connection with certain structured settlements;
(d) purchased by an employer upon the termination of certain qualified
retirement plans; or (e) an immediate annuity.
INDIVIDUAL RETIREMENT ANNUITIES AND TAX SHELTERED ANNUITIES
The Contract may be purchased as an Individual Retirement Annuity, or a
Tax Sheltered Annuity. The Contract Owner should seek competent advice as to
the tax consequences associated with the use of a Contract as an Individual
Retirement Annuity.
For information regarding eligibility, limitations on permissible amounts
of Purchase Payments, and the tax consequences of distributions from Tax
Sheltered Annuities, Individual Retirement Annuities and other plans that
receive favorable tax treatment, the purchasers of such contracts should seek
competent advice. The terms of such plans may limit the rights available under
the Contracts.
Pursuant to Section 403(b)(1)(E) Code, a Contract that is issued as a
Tax-Sheltered Annuity is required to limit the amount of the Purchase Payment
for any year to an amount that does not exceed the limit set forth in Section
402(g) of the Code ($7,000), as it is from time to time increased to reflect
increases in the cost of living. This limit may be reduced by any deposits,
contributions or payments made to any other Tax-Sheltered Annuity or other
plan, contract or arrangement by or on behalf of the Owner.
The Code permits the rollover of most Distributions from Qualified Plans
to other Qualified Plans or Individual Retirement Annuities. Most Distributions
from Tax-Sheltered Annuities may be rolled into another Tax-Sheltered Annuity,
Individual Retirement Annuity, or an Individual Retirement Account.
Distributions that may not be rolled over are those which are:
1. one of a series of substantially equal annual (or more frequent)
payments made: (a) over the life (or life expectancy) of the
Contract Owner, (b) over the joint lives (or joint life
expectancies) of the
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Contract Owner and the Contract Owner's designated Beneficiary, or
(c) for a specified period of ten years or more, or
2. a required minimum distribution.
Any Distribution eligible for rollover will be subject to federal tax
withholding at a rate of twenty percent (20%) unless the Distribution is
transferred directly to an appropriate plan as described above.
Individual Retirement Accounts and Individual Retirement Annuities may
not provide life insurance benefits. If the Death Benefit exceeds the greater
of the cash value of the Contract or the sum of all Purchase Payments (less any
surrenders), it is possible the Internal Revenue Service could determine that
the Individual Retirement Account or Individual Retirement Annuity did not
qualify for the desired tax treatment.
WITHHOLDING
The Company is required to withhold tax from certain Distributions to
the extent that such Distribution would constitute income to the Contract Owner
or other payee. The Contract Owner or other payee is entitled to elect not to
have federal income tax withheld from any such Distribution, but may be subject
to penalties in the event insufficient federal income tax is withheld during a
calendar year. However, if the Internal Revenue Service notifies the Company
that the Contract Owner or other payee has furnished an incorrect taxpayer
identification number, or if the Contract Owner or other payee fails to provide
a taxpayer identification number, the Distributions may be subject to back-up
withholding at the statutory rate, which is presently 31%, and which cannot be
waived by the Contract Owner or other payee.
NON-RESIDENT ALIENS
Distributions to nonresident aliens (NRAs) are generally subject to federal
income tax and tax withholding, at a statutory rate of thirty percent (30%) of
the amount of income that is distributed. The Company may be required to
withhold such amount from the Distribution and remit it to the Internal Revenue
Service. Distributions to certain NRAs may be subject to lower, or in certain
instances, zero tax and withholding rates, if the United States has entered
into an applicable treaty. However, in order to obtain the benefits of such
treaty provisions, the NRA must give to the Company sufficient proof of his or
her residency and citizenship in the form and manner prescribed by the Internal
Revenue Service. In addition, for any Distribution made after December 31,
1997, the NRA must obtain an Individual Taxpayer Identification Number from the
Internal Revenue Service, and furnish that number to the Company prior to the
Distribution. If the Company does not have the proper proof of citizenship or
residency and (for Distributions after December 31, 1997) a proper Individual
Taxpayer Identification Number prior to any Distribution, the Company will be
required to withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient
sufficiently establishes to the Company that such payment is effectively
connected to the recipient's conduct of a trade or business in the United
States and that such payment is includable in the recipient's gross income for
United States federal income tax purposes. Any such Distributions will be
subject to the rules set forth in the section entitled "Withholding."
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
A transfer of the Contract from one Contract Owner to another, or the
payment of a Distribution under the Contract to someone other than a Contract
Owner, may constitute a gift for federal gift tax purposes. Upon the death of
the Contract Owner, the value of the Contract may be included in his or her
gross estate, even if all or a portion of the value is also subject to federal
income taxes.
The Company may be required to determine whether the Death Benefit or any
other payment or Distribution constitutes a "direct skip" as defined in Section
2612 of the Code, and the amount of the generation skipping transfer tax, if
any, resulting from such direct skip. A direct skip may occur when property is
transferred to, or a Death Benefit or other Distribution is made to (a) an
individual who is two or more generations younger than the Owner; or (b)
certain trusts, as described in Section 2613 of the Code (generally, trusts
that have no beneficiaries who are not 2 or more generations younger than the
Owner). If the Owner is not an individual, then for this purpose only, "Owner"
refers to any person who would be required to include the Contract, Death
Benefit, Distribution, or other payment in his federal gross estate at his
death, or who is required to report the transfer of the Contract, Death
Benefit, Distribution, or other payment for federal gift tax purposes.
If the Company determines that a generation skipping transfer tax is
required to be paid by reason of such direct skip, the Company is required to
reduce the amount of such Death Benefit, Distribution, or other payment by such
tax liability, and pay the tax liability directly to the Internal Revenue
Service.
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Federal estate, gift and generation skipping transfer tax consequences, and
state and local estate, inheritance, succession, generation skipping transfer,
and other tax consequences, of owning or transferring a Contract, and of
receiving a Distribution, Death Benefit, or other payment, depend on the
circumstances of the person owning or transferring the Contract, or receiving a
Distribution, Death Benefit, or other payment.
CHARGE FOR TAX PROVISIONS
The Company is no longer required to maintain a capital gain reserve
liability on Non-Qualified Contracts since capital gains attributable to assets
held in the Company's Variable Account for such Contracts are not taxable to
the Company. However, the Company reserves the right to implement and adjust
the tax charge in the future, if the tax laws change.
DIVERSIFICATION
The Internal Revenue Service has promulgated regulations under Section
817(h) of the Code relating to diversification standards for the investments
underlying a variable annuity contract. The regulations provide that a variable
annuity contract which does not satisfy the diversification standards will not
be treated as an annuity contract, unless the failure to satisfy the
regulations was inadvertent, the failure is corrected, and the Owner or the
Company pays an amount to the Internal Revenue Service. The amount will be
based on the tax that would have been paid by the Owner if the income, for the
period the contract was not diversified, had been received by the Owner. If the
failure to diversify is not corrected in this manner, the Owner of an annuity
contract will be deemed the Owner of the underlying securities and will be
taxed on the earnings of his or her account. The Company believes, under its
interpretation of the Code and regulations thereunder, that the investments
underlying this Contract meet these diversification standards.
Representatives of the Internal Revenue Service have suggested, from
time to time, that the number of underlying Mutual Funds available or the
number of transfer opportunities available under a variable product may be
relevant in determining whether the product qualifies for the desired tax
treatment. No formal guidance has been issued in this area. Should the
Secretary of the Treasury issue additional rules or regulations limiting the
number of underlying Mutual Funds, transfers between underlying Mutual Funds,
exchanges of underlying Mutual Funds or changes in investment objectives of
underlying Mutual Funds such that the Contract would no longer qualify as an
annuity under Section 72 of the Code, the Company will take whatever steps are
available to remain in compliance.
TAX CHANGES
In the recent past, the Code has been subjected to numerous amendments
and changes, and it is reasonable to believe that it will continue to be
revised. The United States Congress has, in the past, considered numerous
legislative proposals that, if enacted, could change the tax treatment of the
Contracts. It is reasonable to believe that such proposals, and other proposals
will be considered in the future, and some of them may be enacted into law. In
addition, the Treasury Department may amend existing regulations, issue new
regulations, or adopt new interpretations of existing law that may be in
variance with its current positions on these matters. In addition, current
state law (which is not discussed herein), and future amendments to state law,
may affect the tax consequences of the Contract.
The foregoing discussion, which is based on the Company's
understanding of federal tax laws as they are currently interpreted by the
Internal Revenue Service, is general and is not intended as tax advice.
Statutes, regulations, and rulings are subject to interpretation by the courts.
The courts may determine that a different interpretation than the currently
favored interpretation is appropriate, thereby changing the operation of the
rules that are applicable to annuity contracts.
Any of the foregoing may change from time to time without any notice,
and the tax consequences arising out of a Contract may be changed
retroactively. There is no way of predicting whether, when, and to what extent
any such change may take place. No representation is made as to the likelihood
of the continuation of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
ANNUITY CONTRACTS. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
GENERAL INFORMATION
CONTRACT OWNER INQUIRIES
Contract Owner inquiries may be directed to Nationwide Life Insurance
Company by writing P.O. Box 16609, Columbus, Ohio 43216-6609, or calling
1-800-848-6331, TDD 1-800-238-3035.
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STATEMENTS AND REPORTS
The Company will mail to Contract Owners, at their last known address of
record, any statements and reports required by applicable laws or regulations.
Contract Owners should therefore give the Company prompt notice of any address
change. The Company will send a confirmation statement to Contract Owners each
time a transaction is made affecting the Owner's Variable Account Contract
Value or allocations made to the Guaranteed Term Options, such as making
additional Purchase Payments, 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 plan (such as a dollar cost
averaging program) or salary reduction arrangement, the Contract Owner may
receive confirmation of such transactions in their quarterly statements. The
Contract Owner should review the information in these statements carefully. All
errors or corrections must be reported to the Company immediately to assure
proper crediting to the Owner's Contract. The Company will assume all
transactions are accurately reported on quarterly statements or confirmation
statements unless the Contract Owner notifies the Company otherwise within 30
days after receipt of the statement. The Company will also send to Contract
Owners each year an annual report and a semi-annual report containing financial
statements for the Variable Account, as of December 31 and June 30,
respectively.
ADVERTISING
A "yield" and "effective yield" may be advertised for the Nationwide
Separate Account Trust Money Market Fund Sub-Account. "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 Sub-Account's units. Yield is an annualized figure,
which means that it is assumed that the Sub-Account generates the same level of
net income over a 52-week period. The effective yield" is calculated similarly
but includes the effect of assumed compounding, calculated under rules
prescribed by the Securities and Exchange Commission. The effective yield will
be slightly higher than yield due to this compounding effect.
The Company may also from time to time advertise the performance of the
Sub-Account of the Variable Account relative to the performance of other
variable annuity sub-accounts or underlying mutual funds with similar or
different objectives, or the investment industry as a whole. Other investments
to which the Sub-Accounts may be compared include, but are not limited to:
precious metals; real estate; stocks and bonds; closed-end funds; CDs; bank
money market deposit accounts and passbook savings; and the Consumer Price
Index.
The Sub-Accounts of the Variable Account may also be compared to certain
market indexes, which may include, but are not limited to: S&P 500;
Shearson/Lehman Intermediate Government/Corporate Bond Index; Shearson/Lehman
Long-Term Government/Corporate Bond Index; Donoghue Money Fund Average; U.S.
Treasury Note Index; Bank Rate Monitor National Index of 2 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/ Wiesenberger, Morningstar,
Donoghue's; magazines such as Money, Forbes, Kiplinger's Personal Finance
Magazine, Financial World, Consumer Reports, Business Week, Time, Newsweek,
National Underwriter, U.S. News and World Report; 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 underlying
Mutual Funds against all underlying mutual 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 Moody's, Standard & Poor's and A.M. Best Company. The
purpose of these ratings is to reflect the financial strength or claims-paying
ability of the Company. The ratings are not intended to reflect the investment
experience or financial strength of the Variable 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.
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The Company may from time to time advertise several types of historical
performance for the Sub-Accounts of the Variable Account. The Company may
advertise for the Sub-Accounts standardized "average annual total return",
calculated in a manner prescribed by the Securities and Exchange Commission,
and nonstandardized "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 underlying Mutual Fund option held in the Sub-Account has been in
existence, if the underlying Mutual Fund option 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" will be calculated in a similar manner
and for the same time periods as the average annual total return except total
return will assume an initial investment of $10,000 and will not reflect the
deduction of any applicable Contingent Deferred Sales Charge, which, if
reflected, would decrease the level of performance shown. The Contingent
Deferred Sales Charge is not reflected because the Contracts are designed for
long term investment. An assumed initial investment of $10,000 will be used
because that figure more closely approximates the size of a typical Contract
than does the $1,000 figure used in calculating the standardized average annual
total return quotations. The amount of the hypothetical initial investment
assumed affects performance because the Contract Maintenance Charge is a fixed
per Contract charge.
For those underlying Mutual Fund options which have not been held as
Sub-Accounts within the Variable Account for one of the standardized periods,
the nonstandardized total return quotations, which accompany the standardized
total return quotations, will show the investment performance such underlying
Mutual Fund options would have achieved (reduced by the applicable charges) had
they been held as Sub-Accounts within the Variable Account for the period
quoted.
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 Variable
Account are parties or to which any of their property is the subject.
The General Distributor, Nationwide Advisory Services, Inc., is not
engaged in any litigation of any material nature.
The Company is a party to litigation and arbitration proceedings in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the Company.
In recent years, life insurance companies have been named as defendants
in lawsuits, including class action lawsuits, relating to life insurance
pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements. In February 1997, Nationwide Life was
named as a defendant in a lawsuit filed in New York Supreme Court also related
to the sale of whole life policies on a "vanishing premium" basis (John H.
Snyder v. Nationwide Mutual Insurance Company, Nationwide Mutual Insurance Co.
and Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks to
represent a national class of Nationwide Life policyholders and claims
unspecified compensatory and punitive damages. This lawsuit is in an early
stage and has not been certified as a class action. There can be no assurance
that any litigation relating to pricing and sales practices will not have a
material adverse effect on the Company in the future.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
General Information and History............................................1
Services...................................................................1
Purchase of Securities Being Offered.......................................1
Underwriters...............................................................2
Calculations of Performance................................................2
Annuity Payments...........................................................3
Financial Statements.......................................................4
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APPENDIX A
FIXED ACCOUNT
Purchase Payments under the Fixed Account portion of the Contract and
transfers to the Fixed Account portion become part of the general account of
the Company, which support insurance and annuity obligations. 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 are generally subject to the provisions of the 1933 or
1940 Acts, and we have been advised that the staff of the Securities and
Exchange Commission has not reviewed the disclosures in this prospectus which
related to the guaranteed interest portion. Disclosures regarding the Fixed
Account portion of the Contract and the general account, however, may be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
FIXED ACCOUNT ALLOCATIONS
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company,
other than those in the Variable Account and any other segregated asset
account. Fixed Account Purchase Payments will be allocated to the Fixed
Account by election of the Contract Owner at the time of purchase.
The Company will invest the assets of the Fixed Account in those assets
chosen by the Company and allowed by applicable law. Investment income from
such Fixed Account assets will be allocated by the Company between itself and
the Contracts participating in the Fixed Account.
The level of annuity payments made to Annuitants under the Contracts
will not be affected by the mortality experience (death rate) of persons
receiving such payments or of the general population. The Company assumes this
"mortality risk" by virtue of annuity rates incorporated in the Contract which
cannot be changed. In addition, the Company guarantees that it will not
increase charges for maintenance of the Contracts regardless of its actual
expenses.
Investment income from the Fixed Account allocated to the Company
includes compensation for mortality and expense risks borne by the Company in
connection with Fixed Account Contracts. The amount of such investment income
allocated to the Contracts will vary from year to year in the sole discretion
of the Company at such rate or rates as the Company prospectively declares from
time to time. Any such rate or rates so determined will remain effective for a
period of not less than twelve months, and remain at such rate unless changed.
However, the Company guarantees that it will credit interest at not less than
3.0% per year (or as otherwise required under state law, or at such minimum
rate as stated in the contract when sold). ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3.0% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 3.0% FOR ANY GIVEN YEAR. New Purchase Payments deposited to the
Contract which are allocated to the Fixed Account may receive a different rate
of interest than money transferred from the Variable Account Sub-Accounts or
Guaranteed Term Options to the Fixed Account and amounts maturing in the Fixed
Account at the expiration of an Interest Rate Guarantee Period.
The Company guarantees that, at any time, the Fixed Account Contract
Value will not be less than the amount of the Purchase Payments allocated to
the Fixed Account, plus interest credited as described above, less the sum of
all administrative charges, any applicable premium taxes, and less any amounts
surrendered. If the Contract Owner effects a surrender, the amount available
from the Fixed Account will be reduced by any applicable Contingent Deferred
Sales Charge (see "Contingent Deferred Sales Charge").
TRANSFERS
Contract Owners may at the maturity of an Interest Rate Guarantee
Period, transfer a portion of the value of the Fixed Account to the Variable
Account or Guaranteed Term Options. The maximum percentage that may be
transferred will be determined by the Company at its sole discretion, but will
not be less than 10% of the total value of the portion of the Fixed Account
that is maturing and will be declared upon the expiration date of the then
current Interest Rate Guarantee Period. The Interest Rate Guarantee Period
expires on the final day of a calendar quarter. Transfers must be made within
45 days after the expiration date of the guarantee period. Owners who have
entered into a Dollar Cost Averaging Agreement with the Company (see "Dollar
Cost Averaging") may transfer from the Fixed Account to the Variable Account
under the terms of that agreement.
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ANNUITY PAYMENT PERIOD-FIXED ACCOUNT
FIRST AND SUBSEQUENT PAYMENTS
A Fixed Annuity is an annuity with payments which are guaranteed by the
Company as to dollar amount during the annuity payment period. The first Fixed
Annuity payment will be determined by applying the Fixed Account Contract Value
to the applicable Annuity Table in accordance with the Annuity Payment Option
elected. This will be done at the Annuitization Date on an age last birthday
basis. Fixed Annuity payments after the first will not be less than the first
Fixed Annuity payment.
The Company does not credit discretionary interest to Fixed Annuity
payments during the annuity payment period for annuity options based on life
contingencies. The Annuitant must rely on the Annuity Tables applicable to the
Contracts to determine the amount of such Fixed Annuity payments.
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APPENDIX B
PARTICIPATING UNDERLYING MUTUAL FUNDS
BELOW ARE THE INVESTMENT OBJECTIVES OF EACH UNDERLYING MUTUAL FUND AVAILABLE
THROUGH THE VARIABLE ACCOUNT. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES OF EACH FUND WILL BE ACHIEVED.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN
CENTURY(SM) FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end management investment
company, which offers its shares only as investment vehicles for variable
annuity and variable life insurance products of insurance companies. American
Century Variable Portfolios, Inc. is managed by American Century Investment
Management, Inc.
-AMERICAN CENTURY VP INTERNATIONAL
Investment Objective: Capital growth. The Fund will seek to achieve
its investment objective by investing primarily in securities of
foreign companies that meet certain fundamental and technical
standards of selection and, in the opinion of the investment manager,
have potential for appreciation. Under normal conditions, the Fund
will invest at least 65% of its assets in common stocks or other
equity securities of issuers from at least three countries outside the
United States. While securities of United States issuers may be
included in the portfolio from time to time, it is the primary intent
of the manager to diversify investments across a broad range of
foreign issuers. Although the primary investment of the Fund will be
common stocks (defined to include depository receipts for common
stocks and other equity equivalents), the Fund may also invest in
other types of securities consistent with the Fund's objective. When
the Fund manager believes that the total capital growth potential of
other securities equals or exceeds the potential return of common
stocks, the Fund may invest up to 35% of its assets in such other
securities.
-AMERICAN CENTURY VP VALUE
Investment Objective: Long-term capital growth; income is a secondary
objective. Under normal market conditions, the Fund expects to invest
at least 80% of the value of its total assets in equity securities,
including common and preferred stock, convertible preferred stock and
convertible debt obligations. The equity securities in which the Fund
will invest will be primarily securities of well-established companies
with intermediate to large market capitalizations that are believed by
the Fund manager to be undervalued at the time of purchase.
-AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing primarily in common stocks. The investment manager
constructs the portfolio to match the risk characteristics of the S&P
500 Stock Index and then optimizes each portfolio to achieve the
desired balance of risk and return potential. This includes targeting
a dividend yield that exceeds that of the S&P 500. Such a management
technique, known as portfolio optimization, may cause the Fund to be
more heavily invested in some industries than in others. However, the
Fund may not invest more than 25% of its total assets in companies
whose principal business activities are in the same industry.
DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund, Inc., is an open-end, non-diversified, management
investment company. It was incorporated under Maryland law on January 24, 1989,
and commenced operations on September 29, 1989. The Dreyfus Corporation
("Dreyfus") serves as the Fund's manager, while Mellon Equity Associates, an
affiliate of Dreyfus, serves as the Fund's index manager. Dreyfus is a
wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned
subsidiary of Mellon Bank Corporation.
Investment Objective: To provide investment results that correspond to
the price and yield performance of publicly traded common stocks, in
the aggregate, as represented by the Standard & Poor's 500 Composite
Stock Price Index. The Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation.
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THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company. It was incorporated under Maryland law on July
20, 1992, and commenced operations on October 7, 1993. Dreyfus serves as the
Fund's investment advisor. NCM Capital Management Group, Inc. serves as the
Fund's sub-investment adviser and provides day-to-day management of the Fund's
portfolio.
Investment Objective: Capital growth through equity investment in
companies that, in the opinion of the Fund's management, not only meet
traditional investment standards but which also show evidence that
they conduct their business in a manner that contributes to the
enhancement of the quality of life in America. Current income is
secondary to the primary goal.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, management investment company.
It was organized as an unincorporated business trust under the laws of the
Commonwealth of Massachusetts on October 29, 1986 and commenced operations on
August 31, 1990. Dreyfus serves as the investment manager. Fayez Sarofim &
Company provides day-to-day management of the Fund's portfolio.
-CAPITAL APPRECIATION PORTFOLIO
Investment Objective: Long-term capital growth consistent with the
preservation of capital; current income is a secondary investment
objective. This Portfolio invests primarily in the common stocks of
domestic and foreign issuers.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund ("Fidelity VIP") is an open-end,
diversified, management investment company organized as a Massachusetts
business trust on November 13, 1981. Shares of Fidelity VIP are purchased by
insurance companies to fund benefits under variable insurance and annuity
policies. Fidelity Management & Research Company ("FMR") is the manager for
Fidelity VIP and its portfolios.
-VIP FUND EQUITY-INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR
will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite
yield on the securities comprising the Standard & Poor's 500 Composite
Stock Price Index.
-VIP FUND GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation. This Portfolio will invest
in the securities of both well-known and established companies, and
smaller, less-known companies which may have a narrow product line or
whose securities are thinly traded. These latter securities will often
involve greater risk than may be found in the ordinary investment
security. FMR's analysis and expertise plays an integral role in the
selection of securities and, therefore, the performance of the
Portfolio. Many securities which FMR believes would have the greatest
potential may be regarded as speculative, and investment in the
Portfolio may involve greater risk than is inherent in other
underlying mutual funds. It is also important to point out that the
Portfolio makes sense for you if can afford to ride out changes in the
stock market because the Portfolio invests primarily in common stocks.
FMR can also make temporary investments in securities such as
investment-grade bonds, high-quality preferred stocks and short-term
notes, for defensive purposes when it believes market conditions
warrant.
-VIP FUND HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: High level of current income by investing
primarily in high-risk, lower-rated, high-yielding, fixed-income
securities, while also considering growth of capital. FMR will seek
high current income normally by investing the Portfolio's assets as
follows:
o at least 65% in income-producing debt securities and preferred
stocks, including convertible securities
o up to 20% in common stocks and other equity securities when
consistent with the Portfolio's primary objective or acquired as
part of a unit combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated
or that are unrated. Lower-rated securities are usually defined as Ba
or lower by Moody's; BB or lower by Standard & Poor's and may be
deemed to be speculative in nature. The Portfolio may also purchase
lower-quality bonds such as those rated Ca3 by Moody's Investor
Services, Inc. ("Moody's") or C- by Standard & Poor's Corporation
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("S&P") which provide poor protection for payment of principal and
interest (commonly referred to as "junk bonds"). For a further
discussion of lower-rated securities, please see the "Risks of
Lower-Rated Debt Securities" section of the Portfolio's prospectus.
-VIP FUND OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a means for
investors to diversify their own portfolios by participating in
companies and economies outside the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II ("Fidelity VIP II") is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on March 21, 1988. Fidelity VIP II's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the manager of Fidelity VIP II and its portfolios.
-VIP FUND II CONTRAFUND PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation by investing primarily in
companies that FMR believes to be undervalued due to an overly
pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign companies, small and large, many of
which may not be well known. The Portfolio primarily invests in common
stock and securities convertible into common stock, but it has the
flexibility to invest in any type of security that may produce capital
appreciation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III ("Fidelity VIP III") is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on July 14, 1994. Fidelity VIP III's shares are
purchased by insurance companies to fund benefits under variable life insurance
and annuity contracts. FMR is the manager for Fidelity VIP III and its
portfolios.
-VIP FUND III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
Investment Objective: Capital growth by investing primarily in common
stocks and securities convertible into common stocks. The Portfolio,
under normal conditions, will invest at least 65% of its total assets
in securities of companies that FMR believes have long-term growth
potential. Although the Portfolio invests primarily in common stock
and securities convertible into common stock, it has the ability to
purchase other securities, such as preferred stock and bonds, that may
produce capital growth. The Portfolio may invest in foreign securities
without limitation.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley Universal Funds, Inc. is a mutual fund designed to provide
investment vehicles for variable annuity contracts and variable life insurance
policies and for certain tax-qualified investors. Its Emerging Markets Debt
Portfolio is managed by Morgan Stanley Asset Management, Inc.
-EMERGING MARKETS DEBT PORTFOLIO
Investment Objective: High total return by investing primarily in
dollar-and non-dollar denominated fixed income securities of
government and government-related issuers located in emerging market
countries, which securities provide a high level of current income,
while at the same time holding the potential for capital appreciation
if the perceived creditworthiness of the issuer improves due to
improving economic, financial, political, social or other conditions
in the country in which the issuer is located.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified, open-end
management investment company created under the laws of Massachusetts. NSAT
offers shares in the mutual funds listed below, each with its own investment
objectives. Shares of NSAT will be sold primarily to life insurance company
separate accounts to fund the benefits under variable life insurance policies
and variable annuity contracts. The assets of the Trust are managed by
Nationwide Advisory Services, Inc., ("NAS") a wholly-owned subsidiary of
Nationwide Life Insurance Company.
-CAPITAL APPRECIATION FUND
Investment Objective: Long-term growth by primarily investing in a
diversified portfolio of the common stock of companies which NAS
determines have better-than-average potential for sustained capital
growth over the long term.
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-GOVERNMENT BOND FUND
Investment Objective: As high level of income as is consistent with
the preservation of capital by investing in a diversified portfolio of
securities issued or backed by the United States government, its
agencies or instrumentalities.
-MONEY MARKET FUND
Investment Objective: As high a level of current income as is
considered consistent with the preservation of capital and liquidity
by investing primarily in money market instruments.
-TOTAL RETURN FUND
Investment Objective: Capital growth by investing in common stocks of
companies that NAS believes will have above-average earnings or
otherwise provide investors with above-average potential for capital
appreciation. To maximize this potential, NAS may also utilize, from
time to time, securities convertible into common stocks, warrants and
options to purchase such stocks.
SUBADVISED NATIONWIDE FUNDS
-NATIONWIDE BALANCED FUND
Subadviser: Salomon Brothers Asset Managment, Inc.
Investment Objective: Primarily seeks above average income compared to
a portfolio entirely invested in equity securities. The Fund's
secondary objective is to take advantage of opportunities for growth
of capital and income. The Fund seeks its objective primarily through
investments in a broad variety of securities, including equity
securities, fixed-income securities and short term obligations. Under
normal market conditions, it is anticipated that the Fund will invest
at least 40% of the Fund's total assets in equity securities and at
least 25% in fixed-income senior securities. The Fund's subadviser,
Salomon Brothers Asset Management, Inc., will have discretion to
invest in the full range of maturities of fixed-income securities.
Generally, most of the Fund's long-term debt investments will consist
of "investment grade" securities; but the Fund may invest up to 20% of
its net assets in non-convertible fixed-income securities rated below
investment grade or determined by the subadviser to be of comparable
quality. These securities are commonly known as junk bonds. In
addition, the Fund may invest an unlimited amount in convertible
securities rated below investment grade.
-NATIONWIDE EQUITY INCOME FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks above average income and capital
appreciation by investing at least 65% of its assets in
income-producing equity securities. Such equity securities include
common stocks, preferred stocks, and securities (including debt
securities) that are convertible into common stocks. The portion of
the Fund's total assets invested in each type of equity security will
vary according to the Fund's subadviser's assessment of market,
economic conditions and outlook.
-NATIONWIDE GLOBAL EQUITY FUND
Subadviser: J. P. Morgan Investment Management Inc.
Investment Objective: To provide high total return from a globally
diversified portfolio of equity securities. Total return will consist
of income plus realized and unrealized capital gains and losses. The
Fund seeks its investment objective through country allocation, stock
selection and management of currency exposure. Under normal market
conditions, J.P. Morgan Investment Management Inc., intends to keep
the Fund essentially fully invested with at least 65% of the value of
its total assets in equity securities consisting of common stocks and
other securities with equity characteristics such as preferred stocks,
warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Fund's primary
equity instruments are the common stock of companies based in the
developed countries around the world. The assets of the Fund will
ordinarily be invested in the securities of at least five different
countries.
-NATIONWIDE HIGH INCOME BOND FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks to provide high current income by
investing primarily in a professionally managed, diversified portfolio
of fixed income securities. To meet its objective, the Fund intends to
invest at least 65% of its assets in lower-rated fixed income
securities such as preferred stocks, bonds, debentures, notes,
equipment lease certificates and equipment trust certificates which
are rated BBB or
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lower by S & P or Fitch Investors Service or Baa or lower by Moody's
(or if not rated, are determined by the Fund's subadviser to be of a
comparable quality). Such investments are commonly referred to as
"junk bonds." For a further discussion of lower-rated securities,
please see the "High Yield Securities" section of the Fund's
prospectus.
-NATIONWIDE MULTI SECTOR BOND FUND
Subadviser: Salomon Brothers Asset Management, Inc. with Salomon
Brothers Asset Management Limited
Investment Objective: Primarily seeks a high level of current income.
Capital appreciation is a secondary objective. The Fund seeks to
achieve its objectives by investing in a globally diverse portfolio of
fixed-income investments and by giving the subadviser, Salomon
Brothers Asset Management, Inc., broad discretion to deploy the Fund's
assets among certain segments of the fixed-income market that the
subadviser believes will best contribute to achievement of the Fund's
investment objectives. The Fund reserves the right to invest
predominantly in securities rated in medium or lower categories, or as
determined by the subadviser to be of comparable quality, commonly
referred to as "junk bonds." Although the subadviser has the ability
to invest up to 100% of the Fund's assets in lower-rated securities,
the subadviser does not anticipate investing in excess of 75% of the
Fund's assets in such securities. The Subadviser has entered into a
subadvisory agreement with its London based affiliate, Salomon
Brothers Asset management Limited, pursuant to which the Subadviser
has delegated to Salomon Brothers Asset Management Limited
responsibility for management of the Fund's investments in non-dollar
denominated debt securities and currency transactions.
-NATIONWIDE SELECT ADVISERS MID CAP FUND
Subadvisers: First Pacific Advisors, Inc., Pilgrim Baxter &
Associates, Ltd., and Rice, Hall, James & Associates
Investment Objective: Capital appreciation by investing primarily in
equity securities of medium-sized companies (market capitalization
between $500 million and $7 billion); under normal market conditions,
the Fund will invest in equity securities consisting of common stock,
preferred stock and securities convertible into common stocks,
including convertible preferred stock and convertible bonds. NAS has
chosen the Fund's subadvisers because they utilize a number of
different investment styles. In utilizing these different styles, NAS
hopes to increase prospects for investment return and to reduce market
risk and volatility.
-NATIONWIDE SMALL CAP VALUE FUND
Subadviser: The Dreyfus Corporation
Investment Objective: Capital appreciation through investment in a
diversified portfolio of equity securities of companies with a median
market capitalization of approximately $1 billion. Under normal market
conditions, at least 75% of the Fund's total assets will be invested
in equity securities of companies with market capitalizations at the
time of purchase of between $200 million and $2.5 billion. The Fund
will invest in equity securities of domestic and foreign issuers
characterized as " value" companies according to criteria established
by Dreyfus, the Fund's subadviser.
-NATIONWIDE SMALL COMPANY FUND
Subadvisers: Dreyfus Corporation, Neuberger & Berman, L.P., Pictet
International Management Limited with Van Eck Associates Corporation,
Strong Capital Management, Inc. and Warburg Pincus Asset Management,
Inc.
Investment Objective: Long-term growth of capital by investing
primarily in equity securities of domestic and foreign companies with
market capitalizations of less than $1 billion at the time of
purchase. The subadvisers were chosen because they utilize a number
of different investment styles when investing in small company stocks.
By utilizing different investment styles, NAS hopes to increase
prospects for investment return and to reduce market risk and
volatility.
-NATIONWIDE STRATEGIC GROWTH FUND
Subadviser: Strong Capital Managment Inc.
Investment Objective: Capital growth by investing primarily in equity
securities that the Fund's subadviser believes have above-average
growth prospects. The Fund will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, and
to a lesser extent,
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in companies in which significant further growth is not anticipated
but whose market value is thought to be undervalued Under normal
market conditions, the Fund will invest at least 65% of its total
assets in equity securities, including common stocks, preferred
stocks, and securities convertible into common or preferred stocks,
such as warrants and convertible bonds. The Fund may invest up to 35%
of its total assets in debt obligations, including intermediate- to
long-term corporate or U.S. Government debt securities.
-NATIONWIDE STRATEGIC VALUE FUND
Subadviser: Strong Capital Management Inc./Schafer Capital Management
Inc.
Investment Objective: Primarily long-term capital appreciation;
current income is a secondary objective. The Fund seeks to meet its
objectives by investing in securities which are believed to offer the
possibility of increase in value, primarily common stocks of
established companies having a strong financial position and a low
stock market valuation at the time of purchase in relation to
investment value. Other than considered appropriate for cash reserves,
the Fund will generally maintain a fully invested position in common
stocks of publicly held companies, primarily in stocks of companies
listed on a national securities exchange or other equity securities
(common stock or securities convertible into common stock).
Investments may also be made in debt securities which are convertible
into common stocks and in warrants or other rights to purchase common
stock, which in such case are considered equity securities by the
Fund. Strong Capital Management, Inc. has subcontracted with Schafer
Capital Management, Inc. to subadvise the Fund.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust ("N & B AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of N & B AMT are offered in connection with certain variable
annuity contracts and variable life insurance policies issued through life
insurance company separate accounts and are also offered directly to qualified
pension and retirement plans outside of the separate account context.
The Guardian, Partners and Mid-Cap Portfolios of N & B AMT invest all of their
investable assets in a corresponding series of Advisers Managers Trust managed
by Neuberger & Berman Management Incorporated ("N & B Management"). Each series
then invests in securities in accordance with an investment objective, policies
and limitations identical to those of the Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. (For more
information regarding "master/feeder fund" structure, see "Special Information
Regarding Organization, Capitalization, and Other Matters" in the underlying
mutual fund prospectus.) The investment advisor is N & B Management.
-AMT GUARDIAN PORTFOLIO
Investment Objective: Capital appreciation and secondarily, current
income. The Portfolio and its corresponding series seek to achieve
these objectives by investing in common stocks of long-established,
high-quality companies. N & B Management uses a value-oriented
investment approach in selecting securities, looking for low
price-to-earnings ratios, strong balance sheets, solid management, and
consistent earnings.
-AMT MID-CAP GROWTH PORTFOLIO
Investment Objective: Capital appreciation by investing in equity
securities of medium-sized companies that N & B Management believes
have the potential for long-term, above-average capital appreciation.
Medium-sized companies have market capitalizations form $300 million
to $10 billion at the time of investment. The Portfolio and its
corresponding series may invest up to 10% of its net assets, measured
at the time of investment, in corporate debt securities that are below
investment grade or, if unrated, deemed by N & B Management to be of
comparable quality. Securities that are below investment grade, as
well as unrated securities, are often considered to be speculative and
usually entail greater risk. As part of the Portfolio's investment
strategy, the Portfolio may invest up to 20% of its net assets in
securities of issuers organized and doing business principally outside
the United States. This limitation does not apply with respect to
foreign securities that are denominated in U.S. dollars.
-AMT PARTNERS PORTFOLIO
Investment Objective: Capital growth by investing in the common stock
of established companies. Its investment program seeks securities
believed to be undervalued based on fundamentals such as low
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price-to-earnings ratios, consistent cash flows, and the company's
track record through all parts of the market cycle.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds is an open-end, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. OppenheimerFunds, Inc. is the
investment adviser.
-OPPENHEIMER CAPITAL APPRECIATION FUND
Investment Objective: Capital appreciation by investing in
"growth-type" companies. Such companies are believed to have
relatively favorable long-term prospects for increasing demand for
their goods or services, or to be developing new products, services or
markets, and normally retain a relatively larger portion of their
earnings for research, development and investment in capital assets.
The Fund may also invest in cyclical industries in "special
situations" that OppenheimerFunds, Inc. believes present opportunities
for capital growth.
-OPPENHEIMER GROWTH & INCOME FUND
Investment Objective: High total return, which includes growth in the
value of its shares as well as current income from equity and debt
securities. In seeking its investment objectives, the Fund may invest
in equity and debt securities. Equity investments will include common
stocks, preferred stocks, convertible securities and warrants. Debt
investments will include bonds, participation interests, asset backed
securities, private-label mortgage-backed securities and CMOs, zero
coupon securities and U.S. debt obligations, and cash and cash
equivalents. From time to time, the Fund may focus on small to medium
capitalization issuers, the securities of which may be subject to
greater price volatility than those of larger capitalized issuers.
-OPPENHEIMER GROWTH FUND
Investment Objective: Capital appreciation by investing in securities
of well-known established companies. Such securities generally have a
history of earnings and dividends and are issued by seasoned companies
(companies which have an operating history of at least five years
including predecessors). Current income is a secondary consideration
in the selection of the Fund's portfolio securities.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management
investment company organized as a business trust under the laws of the
Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are
offered only to separate accounts of various insurance companies to fund the
benefits of variable insurance and annuity policies. The investment advisor and
manager is Van Eck Associates Corporation.
-WORLDWIDE EMERGING MARKETS FUND
Investment Objective: Long-term capital appreciation by investing in
equity securities in emerging markets around the world. The Fund
emphasizes primarily investment in countries that, compared to the
world's major economies, exhibit relatively low gross national product
per capita, as well as the potential for rapid economic growth.
Peregrine Asset Management (Hong Kong) Limited serves as
sub-investment advisor to this Fund.
-WORLDWIDE HARD ASSETS FUND
Investment Objective: Long-term capital appreciation by investing
primarily in "Hard Asset Securities." For the Fund's purpose, "Hard
Assets" are real estate, energy, timber and industrial and precious
metals. Income is a secondary consideration.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust is an open-end,
diversified management investment company organized as a Delaware business
trust. Shares are offered in separate portfolios which are sold only to
insurance companies to provide funding for variable life insurance policies and
variable annuity contracts. Van Kampen American Capital Asset Management, Inc.
serves as the investment adviser.
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-MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
Investment Objective: Long-term capital growth by investing
principally in a diversified portfolio of securities of companies
operating in the real estate industry ("Real Estate Securities").
Current income is a secondary consideration. Real Estate Securities
include equity securities, including common stocks and convertible
securities, as well as non-convertible preferred stocks and debt
securities of real estate industry companies. A "real estate industry
company" is a company that derives at least 50% of its assets (marked
to market), gross income or net profits, from the ownership,
construction, management or sale of residential, commercial or
industrial real estate. Under normal market conditions, at least 65%
of the Portfolio's total assets will be invested in Real Estate
Securities, primarily equity securities of real estate investment
trusts. The Portfolio may invest up to 25% of its total assets in
securities issued by foreign issuers, some or all of which may also be
Real Estate Securities.
WARBURG PINCUS TRUST
The Warburg Pincus Trust is an open-end, management investment company
organized in March 1995 as a business trust under the laws of the Commonwealth
of Massachusetts. It offers shares to insurance companies for allocation to
separate accounts for the purpose of funding variable annuity and variable life
contracts. Portfolios are managed by Warburg, Pincus Asset Management, Inc.
("Warburg")
-GROWTH & INCOME PORTFOLIO
Investment Objective: Long-term growth of capital and income by
investing primarily in dividend-paying equity securities. Under normal
market conditions, the Portfolio will invest substantially all of its
assets in equity securities that Warburg considers to be relatively
undervalued based upon research and analysis, taking into account
factors such as price/earnings ratio, price/book ratio, price/cash
flow ratio, earnings growth, debt/capital ratio and multiples of
earnings of comparable securities. Although the Portfolio may hold
securities of any size, it currently expects to focus on companies
with market capitalizations of $1 billion or greater at the time of
initial purchase.
-INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: Long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of Counsellors
have their principal business activities and interest outside the
United States. The Portfolio will ordinarily invest substantially all
of its assets, but no less than 65% of its total assets, in common
stocks, warrants and securities convertible into or exchangeable for
common stocks. The Portfolio intends to invest principally in the
securities of financially strong companies with opportunities for
growth within growing international economies and markets through
increased earning power and improved utilization or recognition of
assets.
-POST-VENTURE CAPITAL PORTFOLIO
Investment Objective: Long-term growth of capital by investing
primarily in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment
strategy. Under normal market conditions, the Portfolio will invest
at least 65% of its total assets in equity securities of "post-venture
capital companies." A post-venture capital company is one that has
received venture capital financing either: (a) during the early stages
of the company's existence or the early stages of the development of a
new product or service; or (b) as part of a restructuring or
recapitalization of the company. The Portfolio may invest up to 10% of
its assets in venture capital and other investment funds.
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