<PAGE>
As filed with the Securities and Exchange Commission.
'33 Act File No. 333-28995
'40 Act File No. 811-08241
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1 [X]
NATIONWIDE VARIABLE ACCOUNT-9
(EXACT NAME OF REGISTRANT)
NATIONWIDE LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (614) 249-7111
GORDON E. MCCUTCHAN, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
The Registrant elects to register an indefinite number of securities in
accordance with Rule 24f-2 under the Investment Company Act of 1940.
Approximate date of proposed public offering: (Upon the effective date of this
Registration Statement. October 7, 1997 requested).
The Registrant hereby agrees to amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall therefore become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such a date as the Commission, acting pursuant to said Section
8(a), may determine.
- --------------------------------------------------------------------------------
<PAGE>
NATIONWIDE VARIABLE ACCOUNT-9
REFERENCE TO ITEMS REQUIRED BY FORM N-4
Caption in Prospectus and Statement of Additional Information and Other
Information
N-4 ITEM PAGE
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover page. . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . .4
Item 3. Synopsis or Highlights. . . . . . . . . . . . . . . . . . 11
Item 4. Condensed Financial Information . . . . . . . . . . . . .N/A
Item 5. General Description of Registrant, Depositor, and
Portfolio Companies . . . . . . . . . . . . . . . . . . . 12
Item 6. Deductions and Expenses . . . . . . . . . . . . . . . . . 13
Item 7. General Description of Variable Annuity Contracts . . . . 15
Item 8. Annuity Period. . . . . . . . . . . . . . . . . . . . . . 24
Item 9. Death Benefit and Distributions . . . . . . . . . . . . . 26
Item 10. Purchases and Contract Value. . . . . . . . . . . . . . . 15
Item 11. Redemptions . . . . . . . . . . . . . . . . . . . . . . . 19
Item 12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 13. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 36
Item 14. Table of Contents of the Statement of Additional
Information . . . . . . . . . . . . . . . . . . . . . . . 36
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page. . . . . . . . . . . . . . . . . . . . . . . . 40
Item 16. Table of Contents . . . . . . . . . . . . . . . . . . . . 40
Item 17. General Information and History . . . . . . . . . . . . . 40
Item 18. Services. . . . . . . . . . . . . . . . . . . . . . . . . 40
Item 19. Purchase of Securities Being Offered. . . . . . . . . . . 40
Item 20. Underwriters. . . . . . . . . . . . . . . . . . . . . . . 41
Item 21. Calculation of Performance Information. . . . . . . . . . 41
Item 22. Annuity Payments. . . . . . . . . . . . . . . . . . . . . 42
Item 23. Financial Statements. . . . . . . . . . . . . . . . . . . 43
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits . . . . . . . . . . . . 72
Item 25. Directors and Officers of the Depositor . . . . . . . . . 74
Item 26. Persons Controlled by or Under Common Control
with the Depositor or Registrant. . . . . . . . . . . . . 76
Item 27. Number of Contract Owners . . . . . . . . . . . . . . . . 85
Item 28. Indemnification . . . . . . . . . . . . . . . . . . . . . 85
Item 29. Principal Underwriter . . . . . . . . . . . . . . . . . . 85
Item 30. Location of Accounts and Records. . . . . . . . . . . . . 87
Item 31. Management Services . . . . . . . . . . . . . . . . . . . 87
Item 32. Undertakings. . . . . . . . . . . . . . . . . . . . . . . 87
<PAGE>
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 THE 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:
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund Government Bond Fund Money Market Fund
Small Company Fund Total Return Fund
This prospectus provides you with the basic information you should know
about the Individual 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 to 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 34 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS OCTOBER 27, 1997.
1
<PAGE>
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 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.
2
<PAGE>
DISTRIBUTION- Any payment of part or all of the Contract Value.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
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 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 between the Variable Account and Fixed
Account, or among the Sub-Accounts 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.
3
<PAGE>
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.
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.
4
<PAGE>
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . .2
SUMMARY OF CONTRACT EXPENSES . . . . . . . . . . . . . . . . . . . . . . .7
UNDERLYING MUTUAL FUND ANNUAL EXPENSES . . . . . . . . . . . . . . . . . .8
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
NATIONWIDE LIFE INSURANCE COMPANY. . . . . . . . . . . . . . . . . . . . 10
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Underlying Mutual Fund Options. . . . . . . . . . . . . . . . . . . 10
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Substitution of Securities. . . . . . . . . . . . . . . . . . . . . 11
GUARANTEED TERM OPTION ALLOCATIONS . . . . . . . . . . . . . . . . . . . 11
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS. . . . . . . . . . . . . . 11
Expenses of Variable Account. . . . . . . . . . . . . . . . . . . . 11
Mortality Risk Charge . . . . . . . . . . . . . . . . . . . . . . . 12
Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . 12
Long Term Care Facility and Death Benefit Rider Charge. . . . . . . 12
Contingent Deferred Sales Charge. . . . . . . . . . . . . . . . . . 12
Waiver of Contingent Deferred Sales Charge. . . . . . . . . . . . . 13
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
OPERATION OF THE CONTRACT. . . . . . . . . . . . . . . . . . . . . . . . 13
Investments of the Variable Account . . . . . . . . . . . . . . . . 13
Allocation of Purchase Payments and Contract Value. . . . . . . . . 13
Value of an Accumulation Unit . . . . . . . . . . . . . . . . . . . 14
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . 14
Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . 15
Determining the Contract Value. . . . . . . . . . . . . . . . . . . 15
Right to Revoke . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Contract Ownership Provisions . . . . . . . . . . . . . . . . . . . 16
Joint Ownership Provisions. . . . . . . . . . . . . . . . . . . . . 16
Contingent Ownership Provisions . . . . . . . . . . . . . . . . . . 17
Beneficiary Provisions. . . . . . . . . . . . . . . . . . . . . . . 17
Surrender (Redemption). . . . . . . . . . . . . . . . . . . . . . . 17
Surrenders Under a Tax Sheltered Annuity Contract . . . . . . . . . 18
Loan Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Contract Owner Services . . . . . . . . . . . . . . . . . . . . . . 20
Asset Rebalancing. . . . . . . . . . . . . . . . . . . . . . . 20
Dollar Cost Averaging. . . . . . . . . . . . . . . . . . . . . 20
Systematic Withdrawals . . . . . . . . . . . . . . . . . . . . 21
ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS . . . . . 22
Annuity Commencement Date . . . . . . . . . . . . . . . . . . . . 22
Change in Annuity Commencement Date . . . . . . . . . . . . . . . 22
Annuity Payment Period-Variable Account . . . . . . . . . . . . . 22
Value of an Annuity Unit. . . . . . . . . . . . . . . . . . . . . 22
Assumed Investment Rate . . . . . . . . . . . . . . . . . . . . . 22
Frequency and Amount of Annuity Payments. . . . . . . . . . . . . 22
Change in Form of Annuity . . . . . . . . . . . . . . . . . . . . 22
Annuity Payment Options . . . . . . . . . . . . . . . . . . . . . 23
Death of Contract Owner Provisions-Non-Qualified Contracts. . . . 23
Death of Annuitant Provisions- Non-Qualified Contracts. . . . . . 23
Death of the Contract Owner/Annuitant Provisions. . . . . . . . . 24
Death Benefit Payment Provisions. . . . . . . . . . . . . . . . . 24
Five Year Reset Death Benefit (Standard Contractual Death
Benefit). . . . . . . . . . . . . . . . . . . . . . . . . . 24
One-Year Step Up Death Benefit (Rider Option 1). . . . . . . 24
5% Enhanced Death Benefit (Rider Option 2) . . . . . . . . . 24
5
<PAGE>
Long Term Care Facility Provisions. . . . . . . . . . . . . . . . 25
Required Distribution Provisions for Non-Qualified Contracts. . . 25
Required Distributions For Tax Sheltered Annuities. . . . . . . . 26
Required Distributions For Individual Retirement Annuities. . . . 27
Generation-Skipping Transfers . . . . . . . . . . . . . . . . . . 27
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 28
Federal Income Taxes. . . . . . . . . . . . . . . . . . . . . . . 28
Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Non-Qualified Contracts-Natural Persons as Owners . . . . . . . . 28
Non-Qualified Contracts-Non-Natural Persons as Owners . . . . . . 29
Individual Retirement Annuities and Tax Sheltered Annuities . . . 30
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Non-Resident Aliens . . . . . . . . . . . . . . . . . . . . . . . 30
Federal Estate, Gift, and Generation Skipping Transfer Taxes. . . 31
Charge for Tax Provisions . . . . . . . . . . . . . . . . . . . . 31
Diversification . . . . . . . . . . . . . . . . . . . . . . . . . 31
Tax Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Contract Owner Inquiries. . . . . . . . . . . . . . . . . . . . . 32
Statements and Reports. . . . . . . . . . . . . . . . . . . . . . 32
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . 34
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6
<PAGE>
SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge(1) . . . . . . . . . . . . 7%
RANGE OF CONTINGENT DEFERRED SALES CHARGE OVER TIME
Number of Completed Years from Contingent Deferred Sales Charge
Date of Purchase Payment Percentage
0 7%
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
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(4)
Optional Long Term Care Facility and One-Year Stepped
Up Death Benefit (Rider Option 1). . . . . . . . . . . . . .0.05%
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%
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").
7
<PAGE>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES(4)
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS)
Management Total Mutual
Fees Other Expenses Fund Expenses
-------------------------------------------------------------------------
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-Small Company Fund 1.00% 0.10% 1.10%
NSAT-Total Return Fund 0.65% 0.03% 0.68%
(4) 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.
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. (5)
<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>
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-Small Company Fund 86 124 155 256 23 70 119 256 * 70 119 256
NSAT-Total Return Fund 81 110 132 209 18 56 96 209 * 56 96 209
</TABLE>
(5) 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").
8
<PAGE>
SYNOPSIS
The Individual 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 issues 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 by
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 Charges", "Long Term Care Facility
Provision" 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").
9
<PAGE>
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.
10
<PAGE>
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 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.
11
<PAGE>
All of the charges described in this section apply to Variable Account
(underlying Mutual Fund) 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.
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%
12
<PAGE>
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 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
13
<PAGE>
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 undr 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.
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.
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 and any charge or
credit for tax reserves.
14
<PAGE>
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 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
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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
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
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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.
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
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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).
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.
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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 asset 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 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.
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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.
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
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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 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.
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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.
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.
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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 paide 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.
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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.
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.
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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% 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.
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.
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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.
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.
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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:
(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.
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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 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.
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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 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
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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
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
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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.
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
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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.
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
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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.
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.
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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.
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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.
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.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company created under the laws of Massachusetts. The
Trust offers shares in the five separate mutual funds listed below, each
with its own investment objectives. Currently, shares of the Trust will be
sold only to life insurance company separate accounts to fund the benefits
under variable life insurance policies or variable annuity contracts issued
by life insurance companies. The assets of the Trust are managed by
Nationwide Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus,
Ohio 43216, a wholly-owned subsidiary of Nationwide Life Insurance Company.
-CAPITAL APPRECIATION FUND
INVESTMENT OBJECTIVE: The Fund is designed for investors who are
interested in long-term growth. The Fund seeks to meet its objective
primarily through a diversified portfolio of the common stock of companies
which the investment manager determines have a better-than-average
potential for sustained capital growth over the long term.
-GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE: To provide as high a level of income as is
consistent with the preservation of capital. It seeks to achieve its
objective by investing in a diversified portfolio of securities issued or
backed by the U.S. Government, its agencies or instrumentalities.
-MONEY MARKET FUND
INVESTMENT OBJECTIVE: To seek 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.
-SMALL COMPANY FUND
INVESTMENT OBJECTIVE: The Fund seeks 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. NAS, the Fund's adviser, has employed a group of sub-advisers,
each of which will manage a portion of the Fund's portfolio. These sub-
advisers are the Dreyfus Corporation, Neuberger & Berman, L.P., Pictet
International Management Limited, Van Eck Associates Corporation, Strong
Capital Management, Inc. and Warburg Pincus Counsellors, Inc. The bus-
advisers were chosen because they utilize a number of different investment
styles when investing in small company stocks. By utilizing a number of
investment styles, NAS hopes to increase prospects for investment return
and to reduce market risk and volatility.
-TOTAL RETURN FUND
INVESTMENT OBJECTIVE: To obtain a reasonable long-term total return (i.e.,
earnings growth plus potential dividend yield on invested capital from a
flexible combination of current return and capital gains through
investments in common stocks, convertible issues, money market instruments
and bonds with a primary emphasis on common stocks.
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STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 27, 1997
INDIVIDUAL MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-9
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the prospectus
and should be read in conjunction with the prospectus dated October 27, 1997.
The prospectus may be obtained from 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.
TABLE OF CONTENTS
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
GENERAL INFORMATION AND HISTORY
The Nationwide Variable Account-9 is a separate investment account of
Nationwide Life Insurance Company ("Company"). The Company is a member of the
Nationwide Insurance Enterprise and all of the Company's common stock is owned
by Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B Common
Stock) to control NFS. Nationwide Corporation is a holding company, as well.
All of its common stock is held by Nationwide Mutual Insurance Company (95.3%)
and Nationwide Mutual Fire Insurance Company (4.7%), the ultimate controlling
persons of Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise
is one of America's largest insurance and financial services family of
companies, with combined assets of over $67.5 billion as of December 31, 1996.
SERVICES
The Company, which has responsibility for administration of the Contracts
and the Variable Account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each Contract Owner
and the number and type of Contract issued to each such Contract Owner and
records with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is the Company. The
Company will maintain a record of all purchases and redemptions of shares of the
underlying Mutual Funds. The Company, or affiliates of the Company may have
entered into agreements with either the investment adviser or distributor for
several of the underlying Mutual Funds. The agreements relate to administrative
services furnished by the Company or an affiliate of the Company and provide for
an annual fee based on the average aggregate net assets of the Variable Account
(and other separate accounts of the Company or life insurance company
subsidiaries of the Company) invested in particular underlying Mutual Funds.
These fees in no way affect the net asset value of the underlying Mutual Funds
or fees paid by the Contract Owner.
The audited financial statement has been included herein in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
Two Nationwide Plaza, Columbus, Ohio 43215, and upon the authority of said firm
as experts in accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states where
the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
("NASD").
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The Contract Owner may transfer up to 100% of the Contract Value from the
Variable Account to the Fixed Account. However, the Company, at its sole
discretion, reserves the right to limit such transfers to 25% of the Contract
Value for any 12 month period. Contract Owners may at the maturity of an
Interest Rate Guarantee Period transfer a portion of the Contract Value of the
Fixed Account to the Variable Account. Such portion 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.
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. Transfers under this provision must be made within 45 days
after the termination date of the guarantee period. Owners who have entered
into a Dollar Cost Averaging agreement with the Company may transfer from the
Fixed Account under the terms of that agreement.
Transfers from the Fixed and Variable Accounts may not be made prior to the
first Contract Anniversary. Transfers from the Fixed Account may not be made
within 12 months of any prior Transfer. Transfers must also be made prior to
the Annuitization Date.
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by
Nationwide Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio
43216, a wholly owned subsidiary of the Company. During the fiscal years ended
December 31, 1996, 1995 and 1994, no underwriting commissions were paid by the
Company to NAS.
CALCULATIONS OF PERFORMANCE
Any current yield quotations of the Nationwide Separate Account Trust Money
Market Fund Sub-Account, subject to Rule 482 of the Securities Act of 1933,
shall consist of a seven calendar day historical yield, carried at least to the
nearest hundredth of a percent. The yield shall be calculated by determining
the net change, exclusive of capital changes, in the value of hypothetical pre-
existing account having a balance of one accumulation unit at the beginning of
the base period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the net change in account value by the
value of the account at the beginning of the period to obtain a base period
return, and multiplying the base period return by (365/7) or (366/7) in a leap
year. The effective yield is computed similarly but includes the effect of
assumed compounding on an annualized basis of the current unit value yield
quotations of the Nationwide Separate Account Trust Money Market Fund.
The Nationwide Separate Account Trust Money Market Fund Sub-Account's yield
and effective yield will fluctuate daily. Actual yields will depend on factors
such as the type of instruments in the Nationwide Separate Account Trust Money
Market Fund's portfolio, portfolio quality and average maturity, changes in
interest rates, and the Fund's expenses. Although the Sub-Account determines
its yield on the basis of a seven calendar day period, it may use a different
time period on occasion. The yield quotes may reflect the expense limitation
described "Investment Manager and Other Services" in the Fund's Statement of
Additional Information. There is no assurance that the yields quoted on any
given occasion will remain in effect for any period of time and there is no
guarantee that the net asset values will remain constant. It should be noted
that a Contract Owner's investment in the Nationwide Separate Account Trust
Money Market Fund Sub-Account is not guaranteed or insured. Yield of other
money market funds may not be comparable if a different base period or another
method of calculation is used.
All performance advertising shall also include quotations of standardized
average annual total return, calculated in accordance with a standard method
prescribed by rules of the Securities and Exchange Commission, to facilitate
comparison with standardized Average annual total return advertised for a
specific period is found by first taking a hypothetical $1,000 investment in
each of the Sub-Accounts' units on the first day of the period at the offering
price, which is the Accumulation Unit Value per unit ("initial investment") and
computing the ending redeemable value ("redeemable value") of that investment at
the end of the period. The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. Standardized average annual total return reflects the deduction of a
0.95% Mortality Charge and Expense Risk Charge and 0.10% deduction for Rider
Option 2. The redeemable value also reflects the effect of any applicable
Contingent Deferred Sales Charge
2
<PAGE>
that may be imposed at the end of the period (see "Contingent Deferred Sales
Charge" located in the prospectus). No deduction is made for premium taxes
which may be assessed by certain states. Nonstandardized total return may also
be advertised, and is calculated in a manner similar to standardized average
annual total return except the nonstandardized total return is based on a
hypothetical initial investment of $25,000 and does not reflect the deduction of
any applicable Contingent Deferred Sales Charge. Reflecting the Contingent
Deferred Sales Charge would decrease the level of the performance advertised.
The Contingent Deferred Sales Charge is not reflected because the Contract is
designed for long term investment. An assumed initial investment of $25,000
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 standardized average annual total return and nonstandardized total
return quotations will be current to the last day of the calendar quarter
preceding the date on which an advertisement is submitted for publication. Both
the standardized average annual return and the nonstandardized total return will
be based on rolling calendar quarters and will cover periods of one, five, and
ten years, or 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. For those
underlying Mutual Fund options which have not been held as Sub-Accounts within
the Variable Account for one of the quoted periods, the standardized average
annual total return and nonstandardized 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.
Quotations of standardized average annual total return and non-standardized
total return are based upon historical earnings and will fluctuate. Any
quotation of performance, therefore, would not be considered a guarantee of
future performance. Factors affecting a Sub-Account's performance include
general market conditions, operating expenses and investment management. A
Contract Owner's account when redeemed may be more or less than original cost.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the
prospectus .
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company
We have audited the accompanying consolidated balance sheets of Nationwide
Life Insurance Company and subsidiaries (collectively the Company) as of
December 31, 1996 and 1995, and the related consolidated statements of
income, shareholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Nationwide Life Insurance Company and subsidiaries as of December 31, 1996
and 1995, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
4
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ----------- -----------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564
Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953
Mortgage loans on real estate, net 5,272,119 4,602,764
Real estate, net 265,759 229,442
Policy loans 371,816 336,356
Other long-term investments 28,668 61,989
Short-term investments (note 13) 4,789 32,792
----------- -----------
18,306,921 17,778,860
----------- -----------
Cash 43,784 9,455
Accrued investment income 210,182 212,963
Deferred policy acquisition costs 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677
Other assets (note 6) 426,441 388,214
Assets held in Separate Accounts (note 8) 26,926,702 18,591,108
----------- -----------
$47,766,246 38,507,633
----------- -----------
----------- -----------
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614
Policyholders' dividend accumulations 361,401 348,027
Other policyholder funds 60,073 65,297
Accrued federal income tax (note 7):
Current 30,170 35,301
Deferred 162,212 246,627
----------- -----------
192,382 281,928
----------- -----------
Dividend payable to shareholder (notes 1 and 2) 485,707 -
Other liabilities 423,047 234,147
Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108
----------- -----------
45,628,372 35,879,121
----------- -----------
Commitments and contingencies (notes 6, 9 and 15)
Shareholder's equity (notes 3, 4, 5, 12 and 13):
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 527,874 657,118
Retained earnings 1,432,593 1,583,275
Unrealized gains on securities available-for-sale, net 173,592 384,304
----------- -----------
2,137,874 2,628,512
----------- -----------
$47,766,246 38,507,633
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenues (note 16):
Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245
Traditional life insurance premiums 198,642 199,106 176,658
Net investment income (note 5) 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 5) (326) (1,724) (16,527)
Other income 35,861 20,702 11,312
---------- ---------- ---------
1,992,838 1,798,651 1,599,499
---------- ---------- ---------
Benefits and expenses:
Benefits and claims 1,160,580 1,115,493 992,667
Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Other operating expenses (note 13) 342,394 272,954 240,652
---------- ---------- ---------
1,677,341 1,511,079 1,357,641
---------- ---------- ---------
Income from continuing operations before federal income tax expense 315,497 287,572 241,858
---------- ---------- ---------
Federal income tax expense (benefit) (note 7):
Current 116,512 88,700 73,559
Deferred (5,623) 11,108 5,030
---------- ---------- ---------
110,889 99,808 78,589
---------- ---------- ---------
Income from continuing operations 204,608 187,764 163,269
Income from discontinued operations (less federal income tax expense of
$4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459
---------- ---------- ---------
Net income $ 215,932 212,478 183,728
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168
Capital contribution - 200,000 - - 200,000
Net income - - 183,728 - 183,728
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 4) - - - 212,553 212,553
Unrealized losses on securities available-
for-sale, net - - - (338,971) (338,971)
------ ------- --------- --------- ----------
Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478
------ ------- --------- --------- ----------
------ ------- --------- --------- ----------
1995:
Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478
Capital contribution (note 13) - 51,029 - (4,111) 46,918
Dividends to shareholder - - (7,450) - (7,450)
Net income - - 212,478 - 212,478
Unrealized gains on securities available-
for-sale, net - - - 508,088 508,088
------ ------- --------- --------- ----------
Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512
------ ------- --------- --------- ----------
------ ------- --------- --------- ----------
1996:
Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512
Capital contribution (note 13) - 25 5 - 30
Dividends to shareholder - (129,269) (366,619) (39,819) (535,707)
Net income - - 215,932 - 215,932
Unrealized losses on securities available-
for-sale, net - - - (170,893) (170,893)
------ ------- --------- --------- ----------
Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874
------ ------- --------- --------- ----------
------ ------- --------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 215,932 212,478 183,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431)
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Amortization and depreciation 6,962 10,234 3,603
Realized (gains) losses on invested assets, net (284) 3,250 16,094
Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946
Decrease (increase) in accrued investment income 2,781 (16,999) (12,808)
(Increase) decrease in other assets (38,876) 39,880 (102,676)
Increase in policy liabilities 305,755 135,937 118,361
Increase in policyholders' dividend accumulations 13,374 12,639 15,298
(Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714)
Increase in other liabilities 188,900 26,851 506
Other, net (61,679) 1,832 (29,595)
---------- --------- ---------
Net cash provided by operating activities 346,159 187,633 39,880
---------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843
Proceeds from sale of securities available-for-sale 299,558 107,345 228,308
Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862
Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574
Proceeds from sale of real estate 18,519 48,331 46,713
Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506
Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370)
Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379)
Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570)
Cost of real estate acquired (7,862) (10,928) (6,385)
Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302)
Short-term investments, net 28,003 77,837 (89,376)
Purchase of affiliate (note 13) - - (155,000)
---------- --------- ---------
Net cash used in investing activities (771,327) (1,724,978) (1,391,576)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions 30 - 200,000
Dividends paid to shareholder (50,000) (7,450) -
Increase in investment product and universal life insurance
product account balances 2,293,933 2,809,385 3,547,976
Decrease in investment product and universal life insurance
product account balances (1,784,466) (1,258,758) (2,412,595)
---------- --------- ---------
Net cash provided by financing activities 459,497 1,543,177 1,335,381
---------- --------- ---------
Net increase (decrease) in cash 34,329 5,832 (16,315)
Cash, beginning of year 9,455 3,623 19,938
---------- --------- ---------
Cash, end of year $ 43,784 9,455 3,623
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Nationwide Life Insurance Company (NLIC) is a wholly owned
subsidiary of Nationwide Corporation (Nationwide Corp.). Wholly
owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Employers Life Insurance Company of
Wausau and subsidiaries (ELICW), National Casualty Company (NCC),
West Coast Life Insurance Company (WCLIC), Nationwide Advisory
Services, Inc. (formerly Nationwide Financial Services, Inc.),
Nationwide Investment Services Corporation (formerly PEBSCO
Securities Corporation) (NISC) and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS)
in November 1996 as a holding company for NLIC and the other
companies of the Nationwide Insurance Enterprise that offer or
distribute long-term savings and retirement products. On January
27, 1997, Nationwide Corp. contributed to NFS the common stock of
NLIC and three marketing and distribution companies. NFS is
planning an initial public offering of its Class A common stock
during the first quarter of 1997.
In anticipation of the restructuring described above, on September
24, 1996, NLIC's Board of Directors declared a dividend payable
January 1, 1997 to Nationwide Corp. consisting of the outstanding
shares of common stock of certain subsidiaries (ELICW, NCC and
WCLIC) that do not offer or distribute long-term savings and
retirement products. In addition, during 1996, NLIC entered into
two reinsurance agreements whereby all of NLIC's accident and
health and group life insurance business was ceded to ELICW and
another affiliate effective January 1, 1996. These subsidiaries
and all accident and health and group life insurance business have
been accounted for as discontinued operations for all periods
presented. See notes 2 and 13.
In addition, as part of the restructuring described above, NLIC
intends to make an $850,000 distribution to NFS which will then
make an equivalent distribution to Nationwide Corp.
The Company is a leading provider of long-term savings and
retirement products to retail and institutional customers and is
subject to competition from other financial services providers
throughout the United States. The Company is subject to regulation
by the Insurance Departments of states in which it is licensed, and
undergoes periodic examinations by those departments.
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments
may create costs for the insurer beyond those currently recorded in
the consolidated financial statements. The Company mitigates this
risk by offering a wide range of products and by operating
throughout the United States, thus reducing its exposure to any
single product or jurisdiction, and also by employing underwriting
practices which identify and minimize the adverse impact of this
risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by the
Company will default or that other parties, including reinsurers,
which owe the Company money, will not pay. The Company minimizes
this risk by adhering to a conservative investment strategy, by
maintaining reinsurance and credit and collection policies and by
providing for any amounts deemed uncollectible.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(2) DISCONTINUED OPERATIONS
As discussed in note 1, NFS is a holding company for NLIC and
certain other companies that offer or distribute long-term savings
and retirement products. Prior to the contribution by Nationwide
Corp. to NFS of the outstanding common stock of NLIC and other
companies, NLIC effected certain transactions with respect to
certain subsidiaries and lines of business that were unrelated to
long-term savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a
dividend to Nationwide Corp. consisting of the outstanding shares
of common stock of three subsidiaries: ELICW, NCC and WCLIC. ELICW
writes group accident and health and group life insurance business
and maintains it offices in Wausau, Wisconsin. NCC is a property
and casualty company that serves as a fronting company for a
property and casualty subsidiary of Nationwide Mutual Insurance
Company (NMIC), an affiliate. NCC maintains its offices in
Scottsdale, Arizona. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC
and WCLIC have been accounted for as discontinued operations for
all periods presented. NLIC did not recognize any gain or loss on
the disposal of these subsidiaries.
A summary of the combined results of operations, including the
results of the accident and health and group life insurance
business ELICW assumed from NLIC in 1996, and assets and
liabilities of ELICW, NCC and WCLIC as of and for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <S> <C> <C>
Revenues $ 668,870 422,149 84,226
Net income 11,324 26,456 11,753
Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
</TABLE>
During 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business
was ceded to ELICW and NMIC, effective January 1, 1996. See note
13 for a complete discussion of the reinsurance agreements. NLIC
has discontinued its accident and health and group life insurance
business and in connection therewith has entered into reinsurance
agreements to cede all existing and any future writings to other
affiliated companies and will cease writing any new business prior
to December 31, 1997. NLIC's accident and health and group life
insurance business is accounted for as discontinued operations for
all periods presented. NLIC did not recognize any gain or loss on
the disposal of the accident and health and group life insurance
business. The assets, liabilities, results of operations and
activities of discontinued operations are distinguished physically,
operationally and for financial reporting purposes from the
remaining assets, liabilities, results of operations and activities
of NLIC.
<PAGE>
A summary of the results of operations, net of amounts ceded to
ELICW and NMIC in 1996, and assets and liabilities of NLIC's
accident and health and group life insurance business as of and for
the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues $ - 354,788 362,476
Net income (loss) - (1,742) 8,706
Assets, consisting primarily of investments 259,185 239,426 234,082
Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
</TABLE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP)
which differ from statutory accounting practices prescribed or
permitted by regulatory authorities. Annual Statements for NLIC
and its insurance subsidiaries, filed with the department of
insurance of each insurance company's state of domicile, are
prepared on the basis of accounting practices prescribed or
permitted by each department. Prescribed statutory accounting
practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as state
laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices
not so prescribed. The Company has no material permitted statutory
accounting practices.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for
the reporting period. Actual results could differ significantly
from those estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for
mortgage loans on real estate and real estate investments and the
liability for future policy benefits and claims. Although some
variability is inherent in these estimates, management believes the
amounts provided are adequate.
(a) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are classified
and reported as discontinued operations are not consolidated but
rather are reported as "Investment in Subsidiaries Classified as
Discontinued Operations" in the accompanying consolidated balance
sheets and "Income for Discontinued Operations" in the accompanying
consolidated statements of income. All significant intercompany
balances and transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity, available-for-
sale or trading. Fixed maturity securities are classified as held-
to-maturity when the Company has the positive intent and ability to
hold the securities to maturity and are stated at amortized cost.
Fixed maturity securities not classified as held-to-maturity and
all equity securities are classified as available-for-sale and are
stated at fair value, with the unrealized gains and losses, net of
adjustments to deferred policy acquisition costs and deferred
federal income tax, reported as a separate component of
shareholder's equity. The adjustment to deferred policy
acquisition costs represents the change in amortization of deferred
policy acquisition costs that would have been required as a charge
or credit to operations had such unrealized amounts been realized.
The Company has no fixed maturity securities classified as held-to-
maturity or trading as of December 31, 1996 or 1995.
<PAGE>
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the fair value of the collateral, if the loan is
collateral dependent. Loans in foreclosure and loans considered to
be impaired are placed on non-accrual status. Interest received on
non-accrual status mortgage loans on real estate are included in
interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are determined
on the basis of specific security identification. Estimates for
valuation allowances and other than temporary declines are included
in realized gains and losses on investments.
(c) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities, annuities without life contingencies
and guaranteed investment contracts. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of
insurance, policy administration and surrender charges that have
been earned and assessed against policy account balances during the
period. Policy benefits and claims that are charged to expense
include interest credited to policy account balances and benefits
and claims incurred in the period in excess of related policy
account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result in
recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health
insurance premiums are recognized as revenue over the terms of the
policies. Policy claims are charged to expense in the period that
the claims are incurred. All accident and health insurance
business is accounted for as discontinued operations. See note 2.
(d) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable agency expenses have been deferred. For
investment products and universal life insurance products, deferred
policy acquisition costs are being amortized with interest over the
lives of the policies in relation to the present value of estimated
future gross profits from projected interest margins, asset fees,
cost of insurance, policy administration and surrender charges.
For years in which gross profits are negative, deferred policy
acquisition costs are amortized based on the present value of gross
revenues. For traditional life products, these deferred policy
acquisition costs are predominantly being amortized with interest
over the premium paying period of the related policies in
proportion to the ratio of actual annual premium revenue to the
anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for
computing liabilities for future policy benefits. Deferred policy
acquisition costs are adjusted to reflect the impact of unrealized
gains and losses on fixed maturity securities available-for-sale as
described in note 3(b).
<PAGE>
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or losses
of these accounts accrue directly to the contractholders. The
activity of the Separate Accounts is not reflected in the
consolidated statements of income and cash flows except for the
fees the Company receives.
(f) FUTURE POLICY BENEFITS
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
Future policy benefits for traditional life insurance policies have
been calculated using a net level premium method based on estimates
of mortality, morbidity, investment yields and withdrawals which
were used or which were being experienced at the time the policies
were issued, rather than the assumptions prescribed by state
regulatory authorities. See note 6.
Future policy benefits and claims for collectively renewable long-
term disability policies and group long-term disability policies
are the present value of amounts not yet due on reported claims and
an estimate of amounts to be paid on incurred but unreported
claims. The impact of reserve discounting is not material. Future
policy benefits and claims on other group health insurance policies
are not discounted. All health insurance business is accounted for
as discontinued operations. See note 2.
(g) PARTICIPATING BUSINESS
Participating business represents approximately 52% in 1996 (54% in
1995 and 55% in 1994) of the Company's life insurance in force, 78%
in 1996 (79% in 1995 and 79% in 1994) of the number of life
insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
in 1994) of life insurance premiums. The provision for
policyholder dividends is based on current dividend scales. Future
dividends are provided for ratably in future policy benefits based
on dividend scales in effect at the time the policies were issued.
(h) FEDERAL INCOME TAX
The Company, with the exception of ELICW, files a consolidated
federal income tax return with NMIC, the majority shareholder of
Nationwide Corp. The members of the consolidated tax return group
have a tax sharing arrangement which provides, in effect, for each
member to bear essentially the same federal income tax liability as
if separate tax returns were filed. Through 1994, ELICW filed a
consolidated federal income tax return with Employers Insurance of
Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
files a separate federal income tax return.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
<PAGE>
(i) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to affiliates
and is accounted for as discontinued operations. See notes 2 and
13.
(j) RECLASSIFICATION
Certain items in the 1995 and 1994 consolidated financial
statements have been reclassified to conform to the 1996
presentation.
(4) CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, the Company changed its method of
accounting for certain investments in debt and equity securities in
connection with the issuance of STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS (SFAS) NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES. As of January 1, 1994, the Company
classified fixed maturity securities with amortized cost and fair
value of $6,299,665 and $6,721,714, respectively, as available-for-
sale and recorded the securities at fair value. Previously, these
securities were recorded at amortized cost. The effect as of
January 1, 1994 has been recorded as a direct credit to
shareholder's equity as follows:
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 422,049
Adjustment to deferred policy acquisition costs (95,044)
Deferred federal income tax (114,452)
---------
$ 212,553
---------
---------
(5) INVESTMENTS
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $275,696 4,795 (1,340) 279,151
Obligations of states and political subdivisions 6,242 450 (2) 6,690
Debt securities issued by foreign governments 100,656 2,141 (857) 101,940
Corporate securities 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288
------------ ---------- ---------- -----------
Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639
Equity securities 43,890 15,571 (330) 59,131
------------ ---------- ---------- -----------
$12,014,768 400,341 (51,339) 12,363,770
------------ ---------- ---------- -----------
------------ ---------- ---------- -----------
</TABLE>
<PAGE>
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
<S> <C> <C> <C> <C>
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $310,186 12,764 (1) 322,949
Obligations of states and political subdivisions 8,655 1,205 (1) 9,859
Debt securities issued by foreign governments 101,414 4,387 (66) 105,735
Corporate securities 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642
----------- -------- ------- ----------
Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564
Equity securities 23,617 6,382 (46) 29,953
----------- -------- ------- ----------
$11,886,173 663,588 (34,244) 12,515,517
----------- -------- ------- ----------
----------- -------- ------- ----------
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Estimated
cost fair value
Fixed maturity securities available-for-sale: ----------- ----------
Due in one year or less $ 440,235 444,214
Due after one year through five years 3,937,010 4,053,152
Due after five years through ten years 2,809,813 2,871,806
Due after ten years 1,194,846 1,270,179
----------- ----------
8,381,904 8,639,351
Mortgage-backed securities 3,588,974 3,665,288
----------- ----------
$11,970,878 12,304,639
----------- ----------
----------- ----------
The components of unrealized gains on securities available-for-sale, net,
were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Gross unrealized gains $349,002 629,344
Adjustment to deferred policy acquisition costs (81,939) (138,914)
Deferred federal income tax (93,471) (171,649)
-------- --------
173,592 318,781
Unrealized gains on securities available-for-sale, net, of
subsidiaries classified as discontinued operations (note 2) - 65,523
-------- --------
$173,592 384,304
-------- --------
-------- --------
</TABLE>
<PAGE>
An analysis of the change in gross unrealized gains (losses) on securities
available-for-sale and fixed maturity securities held-to-maturity follows for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(289,247) 876,332 (675,373)
Equity securities 8,905 (26) (1,927)
Fixed maturity securities held-to-maturity - 75,626 (398,183)
--------- --------- ----------
$(280,342) 951,932 (1,075,483)
--------- --------- ----------
--------- --------- ----------
</TABLE>
Proceeds from the sale of securities available-for-sale during
1996, 1995 and 1994 were $299,558, $107,345 and $228,308,
respectively. During 1996, gross gains of $6,606 ($4,838 and
$3,045 in 1995 and 1994, respectively) and gross losses of $6,925
($2,147 and $21,280 in 1995 and 1994, respectively) were realized
on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25,429 to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of
those fixed maturity securities resulted in a gross unrealized loss
of $3,535.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in
November 1995 the Company transferred all of its fixed maturity
securities previously classified as held-to-maturity to available-
for-sale. As of December 14, 1995, the date of transfer, the fixed
maturity securities had amortized cost of $3,320,093, resulting in
a gross unrealized gain of $155,940.
Investments that were non-income producing for the twelve month
period preceding December 31, 1996 amounted to $26,805 ($27,712 in
1995) and consisted of $248 ($6,982 in 1995) in fixed maturity
securities, $20,633 ($14,740 in 1995) in real estate and $5,924
($5,990 in 1995) in other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$30,338 as of December 31, 1996 ($30,482 as of December 31, 1995)
and valuation allowances of $15,219 as of December 31, 1996
($25,819 as of December 31, 1995).
The recorded investment of mortgage loans on real estate considered
to be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND
DISCLOSURE) as of December 31, 1996 was $51,765 ($44,409 as of
December 31, 1995), which includes $41,663 ($23,975 as of December
31, 1995) of impaired mortgage loans on real estate for which the
related valuation allowance was $8,485 ($5,276 as of December 31,
1995) and $10,102 ($20,434 as of December 31, 1995) of impaired
mortgage loans on real estate for which there was no valuation
allowance. During 1996, the average recorded investment in
impaired mortgage loans on real estate was approximately $39,674
($22,181 in 1995) and interest income recognized on those loans was
$2,103 ($387 in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on
real estate is summarized for the years ended December 31:
1996 1995
------- ------
Allowance, beginning of year $49,128 46,381
Additions charged to operations 4,497 7,433
Direct write-downs charged against the allowance (2,587) (4,686)
------- ------
Allowance, end of year $51,038 49,128
------- ------
------- ------
<PAGE>
An analysis of investment income by investment type follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $917,135 685,787 647,927
Equity securities 1,291 1,330 509
Fixed maturity securities held-to-maturity - 201,808 185,938
Mortgage loans on real estate 432,815 395,478 372,734
Real estate 44,332 38,344 40,170
Short-term investments 4,155 10,576 6,141
Other 3,998 7,239 2,121
---------- --------- ---------
Total investment income 1,403,726 1,340,562 1,255,540
Less investment expenses 45,967 46,529 44,729
---------- --------- ---------
Net investment income $1,357,759 1,294,033 1,210,811
---------- --------- ---------
---------- --------- ---------
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(3,462) 4,213 (7,296)
Equity securities 3,143 3,386 1,422
Mortgage loans on real estate (4,115) (7,091) (20,446)
Real estate and other 4,108 (2,232) 9,793
------- ------ -------
$ (326) (1,724) (16,527)
------- ------ -------
------- ------ -------
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592 as of
December 31, 1996 and 1995, respectively, were on deposit with various
regulatory agencies as required by law.
(6) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts
represents approximately 87% and 87% of the total liability for
future policy benefits as of December 31, 1996 and 1995,
respectively. The average interest rate credited on investment
product policies was approximately 6.3%, 6.6% and 6.5% for the
years ended December 31, 1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
INTEREST RATES: Interest rates vary as follows:
Year of issue Interest rates
------------- --------------------------------------------------
1996 6.6%, not graded
1984-1995 6.0% to 10.5%, not graded
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior generally lower than post 1965 issues
<PAGE>
WITHDRAWALS: Rates, which vary by issue age, type of coverage and
policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on published
tables, modified for the Company's actual experience.
The Company has entered into a reinsurance contract to cede a
portion of its general account individual annuity business to The
Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $240,451 and $245,255 as of December 31, 1996
and 1995, respectively. The contract is immaterial to the
Company's results of operations. The ceding of risk does not
discharge the original insurer from its primary obligation to the
policyholder. Under the terms of the contract, Franklin has
established a trust as collateral for the recoveries. The trust
assets are invested in investment grade securities, the market
value of which must at all times be greater than or equal to 102%
of the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as
described in note 13. All other reinsurance agreements are not
material to either premiums or reinsurance recoverables.
(7) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to
significant components of the net deferred tax liability as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $175,571 149,192
Liabilities in Separate Accounts 188,426 129,120
Mortgage loans on real estate and real estate 23,366 25,165
Other policyholder funds 7,407 7,424
Other assets and other liabilities 53,757 41,847
-------- --------
Total gross deferred tax assets 448,527 352,748
Less valuation allowances (7,000) (7,000)
-------- --------
Net deferred tax assets 441,527 345,748
-------- --------
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 399,345 299,579
Fixed maturity securities 133,210 227,345
Deferred tax on realized investment gains 37,597 40,634
Equity securities and other long-term investments 8,210 3,780
Other 25,377 21,037
-------- --------
Total gross deferred tax liabilities 603,739 592,375
-------- --------
$162,212 246,627
-------- --------
-------- --------
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of
the total gross deferred tax assets will not be realized. Nearly
all future deductible amounts can be offset by future taxable
amounts or recovery of federal income tax paid within the statutory
carryback period. There has been no change in the valuation
allowance for the years ended December 31, 1996, 1995 and 1994.
<PAGE>
Total federal income tax expense for the years ended December 31,
1996, 1995 and 1994 differs from the amount computed by applying
the U.S. federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- ---------------
Amount % Amount % Amount %
-------------- -------------- ---------------
<S> <C> <C> <C>
Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0
Tax exempt interest and dividends
received deduction (212) (0.1) (18) (0.0) (130) (0.1)
Other, net 677 0.3 (824) (0.3) (5,931) (2.5)
-------------- -------------- ---------------
Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
Total federal income tax paid was $115,839, $51,840 and $83,239 during the
years ended December 31, 1996, 1995 and 1994, respectively.
(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS (SFAS 107) requires disclosure of fair value
information about existing on and off-balance sheet financial
instruments. SFAS 107 defines the fair value of a financial
instrument as the amount at which the financial instrument could be
exchanged in a current transaction between willing parties. In
cases where quoted market prices are not available, fair value is
based on estimates using present value or other valuation
techniques.
These techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. Although fair value estimates are calculated using
assumptions that management believes are appropriate, changes in
assumptions could cause these estimates to vary materially. In
that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many
cases, could not be realized in the immediate settlement of the
instruments. SFAS 107 excludes certain assets and liabilities from
its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically
exempted from SFAS 107 disclosures, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair
value disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses
can have a significant effect on fair value estimates and have not
been considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender charges.
<PAGE>
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is the estimated fair value of
the underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analyses. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life insurance
and supplementary contracts with life contingencies for which the
estimated fair value is the amount payable on demand. Also
included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER FUNDS:
The carrying amount reported in the consolidated balance sheets for
these instruments approximates their fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 9.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Securities available-for-sale:
Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564
Equity securities 59,131 59,131 29,953 29,953
Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655
Policy loans 371,816 371,816 336,356 336,356
Short-term investments 4,789 4,789 32,792 32,792
Cash 43,784 43,784 9,455 9,455
Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108
LIABILITIES
Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend accumulations 361,401 361,401 348,027 348,027
Other policyholder funds 60,073 60,073 65,297 65,297
Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(9) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is
a party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to
extend credit in the form of loans. These instruments involve, to
varying degrees, elements of credit risk in excess of amounts
recognized on the consolidated balance sheets.
<PAGE>
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a deposit. Commitments extended by the Company are
based on management's case-by-case credit evaluation of the
borrower and the borrower's loan collateral. The underlying
mortgage property represents the collateral if the commitment is
funded. The Company's policy for new mortgage loans on real estate
is to lend no more than 75% of collateral value. Should the
commitment be funded, the Company's exposure to credit loss in the
event of nonperformance by the borrower is represented by the
contractual amounts of these commitments less the net realizable
value of the collateral. The contractual amounts also represent
the cash requirements for all unfunded commitments. Commitments on
mortgage loans on real estate of $327,456 extending into 1997 were
outstanding as of December 31, 1996.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants
mainly commercial mortgage loans on real estate to customers
throughout the United States. The Company has a diversified
portfolio with no more than 21% (20% in 1995) in any geographic
area and no more than 2% (2% in 1995) with any one borrower as of
December 31, 1996.
The Company had a significant reinsurance recoverable balance from
one reinsurer as of December 31, 1996 and 1995. See note 6.
The summary below depicts loans by remaining principal balance as
of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
-------- ----------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $139,518 119,069 549,064 215,038 1,022,689
East South Central 33,267 22,252 172,968 90,623 319,110
Mountain 17,972 43,027 113,292 73,390 247,681
Middle Atlantic 129,077 54,046 160,833 18,498 362,454
New England 33,348 43,581 161,960 - 238,889
Pacific 202,562 325,046 424,295 110,108 1,062,011
South Atlantic 103,889 134,492 482,934 385,185 1,106,500
West North Central 126,467 2,441 75,180 40,529 244,617
West South Central 104,877 120,314 197,090 304,256 726,537
-------- ----------- --------- ------------ ------------
$890,977 864,268 2,337,616 1,237,627 5,330,488
-------- ----------- --------- ------------
-------- ----------- --------- ------------
Less valuation allowances and unamortized discount 58,369
------------
Total mortgage loans on real estate, net $5,272,119
------------
------------
1995:
East North Central $138,965 101,925 514,995 175,213 931,098
East South Central 21,329 13,053 180,858 82,383 297,623
Mountain - 17,219 138,220 45,274 200,713
Middle Atlantic 116,187 64,813 158,252 10,793 350,045
New England 9,559 39,525 148,449 1 197,534
Pacific 183,206 233,186 374,915 105,419 896,726
South Atlantic 106,246 73,541 446,800 278,265 904,852
West North Central 133,899 14,205 78,065 36,651 262,820
West South Central 69,140 92,594 190,299 267,268 619,301
-------- ----------- --------- ------------ ------------
$778,531 650,061 2,230,853 1,001,267 4,660,712
-------- ----------- --------- ------------
-------- ----------- --------- ------------
Less valuation allowances and unamortized discount 57,948
------------
Total mortgage loans on real estate, net $4,602,764
------------
------------
</TABLE>
<PAGE>
(10) PENSION PLAN
The Company is a participant, together with other affiliated
companies, in a pension plan covering all employees who have
completed at least one thousand hours of service within a twelve-
month period and who have met certain age requirements. Benefits
are based upon the highest average annual salary of a specified
number of consecutive years of the last ten years of service. The
Company funds pension costs accrued for direct employees plus an
allocation of pension costs accrued for employees of affiliates
whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements
and elected early retirement no later than March 15, 1995. The
entire cost of the enhanced benefit was borne by NMIC and certain
of its property and casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau
Insurance Companies Pension Plan to form the Nationwide Insurance
Enterprise Retirement Plan. Immediately prior to the merger, the
plans were amended to provide consistent benefits for service after
January 1, 1996. These amendments had no significant impact on the
accumulated benefit obligation or projected benefit obligation as
of December 31, 1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1996, 1995 and 1994 were $7,381, $10,478 and
$10,063, respectively.
The Company's net accrued pension expense as of December 31, 1996
and 1995 was $1,075 and $1,392, respectively.
The net periodic pension cost for the Nationwide Insurance
Enterprise Retirement Plan as a whole for the year ended December
31, 1996 and for the Nationwide Insurance Companies and Affiliates
Retirement Plan as a whole for the years ended December 31, 1995
and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
-------- -------- --------
$ 72,189 53,866 55,046
-------- -------- --------
-------- -------- --------
Basis for measurements, net periodic pension cost:
1996 1995 1994
-------- -------- --------
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
<PAGE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
------------ -----------
$1,349,703 1,263,233
------------ -----------
------------ -----------
Net accrued pension expense:
Projected benefit obligation for services rendered to date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
------------ -----------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
------------ -----------
$ (26,819) (21,592)
------------ -----------
------------ -----------
Basis for measurements, funded status of plan:
1996 1995
------------ -----------
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and ELICW.
(11) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the defined benefit pension plan, the Company,
together with other affiliated companies, participates in life and
health care defined benefit plans for qualifying retirees.
Postretirement life and health care benefits are contributory and
generally available to full time employees who have attained age 55
and have accumulated 15 years of service with the Company after
reaching age 40. Postretirement health care benefit contributions
are adjusted annually and contain cost-sharing features such as
deductibles and coinsurance. In addition, there are caps on the
Company's portion of the per-participant cost of the postretirement
health care benefits. These caps can increase annually, but not
more than three percent. The Company's policy is to fund the cost
of health care benefits in amounts determined at the discretion of
management. Plan assets are invested primarily in group annuity
contracts of NLIC.
The Company elected to immediately recognize its estimated
accumulated postretirement benefit obligation; however, certain
affiliated companies elected to amortize their initial transition
obligation over periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December
31, 1996 and 1995 was $34,884 and $33,537, respectively, and the
net periodic postretirement benefit cost (NPPBC) for 1996, 1995 and
1994 was $3,286, $3,132 and $4,284, respectively.
<PAGE>
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
-------- -------- --------
$17,875 19,076 23,165
-------- -------- --------
-------- -------- --------
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
-------- --------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
-------- --------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
-------- --------
$(159,216) (152,734)
-------- --------
-------- --------
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
-------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1996 by $701 and the NPPBC for the year ended
December 31, 1996 by $83.
(12) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance is
determined by a ratio of the company's regulatory total adjusted capital,
as defined by the NAIC, to its authorized control level risk-based
capital, as defined by the NAIC. Companies below specific trigger points
or ratios are classified within certain levels, each of which requires
specified corrective action. NLIC and each of its insurance company
subsidiaries exceed the minimum risk-based capital requirements.
<PAGE>
The statutory capital shares and surplus of NLIC as of December 31,
1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
respectively. The statutory net income of NLIC for the years ended
December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
respectively.
NLIC is limited in the amount of shareholder dividends it may pay
without prior approval by the Department of Insurance of the State
of Ohio (the Department). NLIC's dividend of the outstanding
shares of common stock of certain companies which was declared on
September 24, 1996 and the anticipated $850,000 dividend (as
discussed in note 1) are deemed extraordinary under Ohio insurance
laws. As a result of such dividends, any dividend paid by NLIC
during the 12-month period immediately following the $850,000
dividend would also be an extraordinary dividend under Ohio
insurance laws. Accordingly, no such dividend could be paid
without prior regulatory approval.
In addition, the payment of dividends by NLIC may also be subject
to restrictions set forth in the insurance laws of New York that
limit the amount of statutory profits on NLIC's participating
policies (measured before dividends to policyholders) that can
inure to the benefit of the Company and its stockholder.
The Company currently does not expect such regulatory requirements
to impair its ability to pay operating expenses and stockholder
dividends in the future.
(13) TRANSACTIONS WITH AFFILIATES
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1996, 1995 and
1994, the Company made lease payments to NMIC and its subsidiaries
of $9,065, $8,986 and $8,133, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC
provides certain operational and administrative services, such as
sales support, advertising, personnel and general management
services, to those subsidiaries. Expenses covered by this
agreement are subject to allocation among NMIC, the Company and
other affiliates. Amounts allocated to the Company were $101,584,
$107,112, and $100,601 in 1996, 1995 and 1994, respectively. The
allocations are based on techniques and procedures in accordance
with insurance regulatory guidelines. Measures used to allocate
expenses among companies include individual employee estimates of
time spent, special cost studies, salary expense, commissions
expense and other methods agreed to by the participating companies
that are within industry guidelines and practices. The Company
believes these allocation methods are reasonable. In addition, the
Company does not believe that expenses recognized under the inter-
company agreements are materially different than expenses that
would have been recognized had the Company operated on a stand
alone basis. Amounts payable to NMIC from the Company under the
cost sharing agreement were $15,111 and $1,186 as of December 31,
1996 and 1995, respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the
securities will be repurchased by the seller at the original sales
price plus a price differential. Transactions under the agreements
during 1996 and 1995 were not material. The Company believes that
the terms of the repurchase agreements are materially consistent
with what the Company could have obtained with unaffiliated
parties.
<PAGE>
Intercompany reinsurance contracts exist between NLIC and,
respectively NMIC and ELICW whereby all of NLIC's accident and
health and group life insurance business is ceded on a modified
coinsurance basis. NLIC entered into the reinsurance agreements
during 1996 because the accident and health and group life
insurance business was unrelated to NLIC's long-term savings and
retirement products. Accordingly, the accident and health and
group life insurance business has been accounted for as
discontinued operations for all periods presented. Under modified
coinsurance agreements, invested assets are retained by the ceding
company and investment earnings are paid to the reinsurer. Under
the terms of NLIC's agreements, the investment risk associated with
changes in interest rates is borne by NMIC or ELICW, as the case
may be. Risk of asset default is retained by NLIC, although a fee
is paid by NMIC or ELICW, as the case may be, to NLIC for the
NLIC's retention of such risk. The agreements will remain in force
until all policy obligations are settled. However, with respect to
the agreement between NLIC and NMIC, either party may terminate the
contract on January 1 of any year with prior notice. The ceding of
risk does not discharge the original insurer from its primary
obligation to the policyholder. NLIC believes that the terms of the
modified coinsurance agreements are consistent in all material
respects with what NLIC could have obtained with unaffiliated
parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of
operations for 1996 which, combined with the results of WCLIC and
NCC, are summarized in note 2. Amounts ceded to ELICW in 1996
include premiums of $224,224, net investment income and other
revenue of $14,833, and benefits, claims and other expenses of
$246,641. Amounts ceded to NMIC in 1996 include premiums of
$97,331, net investment income of $10,890, and benefits, claims and
other expenses of $100,476.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and
CCMC act as common agents in handling the purchase and sale of
short-term securities for the respective accounts of the
participants. Amounts on deposit with NCMC and CCMC were $4,789
and $9,654 as of December 31, 1996 and 1995, respectively, and are
included in short-term investments on the accompanying consolidated
balance sheets.
On April, 5 1996, Nationwide Corp. contributed all of the
outstanding shares, with shareholder equity value of $30, of NISC
to NLIC. NLIC contributed an additional $500 to NISC on August 30,
1996.
On March 1, 1995, Nationwide Corp. contributed all of the
outstanding shares of common stock of Farmland Life Insurance
Company (Farmland) to NLIC. Farmland merged into WCLIC effective
June 30, 1995. The contribution resulted in a direct increase to
consolidated shareholder's equity of $46,918. As discussed in note
2, WCLIC is accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of common stock of ELICW from Wausau Service Corporation
(WSC) for $155,000. NLIC transferred fixed maturity securities and
cash with a fair value of $155,000 to WSC on December 28, 1994,
which resulted in a realized loss of $19,239 on the disposition of
the securities. The purchase price approximated both the
historical cost basis and fair value of net assets of ELICW. ELICW
has and will continue to share home office, other facilities,
equipment and common management and administrative services with
WSC. As discussed in note 2, ELICW is accounted for as
discontinued operations.
Certain annuity products are sold through three affiliated
companies which are also subsidiaries of Nationwide Corp. Total
commissions and fees paid to these affiliates for the years ended
December 31, 1996, 1995 and 1994 were $76,922, $57,280 and $50,168,
respectively.
(14) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, established a $600,000
revolving credit facility which provides for a $600,000 loan over a
five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several
and not joint liability with respect to any amount drawn by either
NLIC or NMIC. NLIC and NMIC pay facility and usage fees to the
financial institutions to maintain the revolving credit facility.
All previously existing line of credit agreements were canceled.
<PAGE>
(15) CONTINGENCIES
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected
to be material to the Company's financial position or results of
operations.
(16) SEGMENT INFORMATION
The Company has three primary segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment
consists of annuity contracts that provide the customer with the
opportunity to invest in mutual funds managed by the Company and
independent investment managers, with the investment returns
accumulating on a tax-deferred basis. The Fixed Annuities segment
consists of annuity contracts that generate a return for the
customer at a specified interest rate, fixed for a prescribed
period, with returns accumulating on a tax-deferred basis. The
Life Insurance segment consists of insurance products that provide
a death benefit and may also allow the customer to build cash value
on a tax-deferred basis. In addition, the Company reports
corporate expenses and investments, and the related investment
income supporting capital not specifically allocated to its product
segments in a Corporate and Other segment. In addition, all
realized gains and losses, investment management fees and other
revenue earned from mutual funds, other than the portion allocated
to the variable annuities and life insurance segments, are reported
in the Corporate and Other segment.
During 1996, the Company changed its reporting segments to better
reflect the way the businesses are managed. Prior periods have
been restated to reflect these changes.
The following table summarizes the revenues and income from
continuing operations before federal income tax expense for the
years ended December 31, 1996, 1995 and 1994 and assets as of
December 31, 1996, 1995 and 1994, by business segment.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 284,638 189,071 132,687
Fixed Annuities 1,092,566 1,051,970 939,868
Life Insurance 435,657 409,135 383,150
Corporate and Other 179,977 148,475 143,794
---------- ---------- -----------
$ 1,992,838 1,798,651 1,599,499
---------- ---------- -----------
---------- ---------- -----------
Income from continuing operations before
federal income tax expense:
Variable Annuities 90,244 50,837 24,574
Fixed Annuities 135,405 137,000 138,950
Life Insurance 67,242 67,590 53,046
Corporate and Other 22,606 32,145 25,288
---------- ---------- -----------
$ 315,497 287,572 241,858
---------- ---------- -----------
---------- ---------- -----------
Assets:
Variable Annuities 25,069,725 17,333,039 11,146,465
Fixed Annuities 13,994,715 13,250,359 11,668,973
Life Insurance 3,353,286 3,027,420 2,752,283
Corporate and Other 5,348,520 4,896,815 3,678,303
---------- ---------- -----------
$ 47,766,246 38,507,633 29,246,024
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
Assets 1997 1996
------ ------------ ------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $12,049,864 in 1997; $11,970,878 in 1996) $ 12,319,848 12,304,639
Equity securities (cost $55,813 in 1997; $43,890 in 1996) 66,497 59,131
Mortgage loans on real estate, net 5,141,839 5,272,119
Real estate, net 292,935 265,759
Policy loans 391,432 371,816
Other long-term investments 23,336 28,668
Short-term investments 286,354 4,789
------------ ------------
18,522,241 18,306,921
------------ ------------
Cash 86,387 43,784
Accrued investment income 209,037 210,182
Deferred policy acquisition costs 1,537,814 1,366,509
Investment in subsidiaries classified as discontinued operations - 485,707
Other assets 404,319 426,441
Assets held in Separate Accounts 32,866,145 26,926,702
------------ ------------
$ 53,625,943 47,766,246
------------ ------------
------------ ------------
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $ 17,536,264 17,179,060
Policyholders' dividend accumulations 366,681 361,401
Other policyholder funds 59,153 60,073
Accrued federal income tax:
Current 44,323 30,170
Deferred 158,769 162,212
------------ ------------
203,092 192,382
------------ ------------
Dividend payable - 485,707
Other liabilities 375,206 423,047
Liabilities related to Separate Accounts 32,866,145 26,926,702
------------ ------------
51,406,541 45,628,372
------------ ------------
Shareholder's equity:
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 914,654 527,874
Retained earnings 1,159,696 1,432,593
Unrealized gains on securities available-for-sale, net 141,237 173,592
------------ ------------
2,219,402 2,137,874
------------ ------------
$ 53,625,943 47,766,246
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Investment product and universal life insurance product
policy charges $ 129,658 97,955 250,107 186,558
Traditional life insurance premiums 50,295 49,224 105,741 103,012
Net investment income 351,346 340,266 692,296 669,797
Realized gains (losses) on investments (11,929) 5,806 9,113 9,374
Other income 15,908 6,010 25,742 12,219
---------- ---------- ---------- ----------
535,278 499,261 1,082,999 980,960
---------- ---------- ---------- ----------
Benefits and expenses:
Benefits and claims 297,049 285,276 593,419 575,272
Provision for policyholders' dividends on participating policies 11,542 11,907 22,188 22,687
Amortization of deferred policy acquisition costs 39,594 34,865 82,988 70,994
Other operating expenses 94,231 76,108 188,092 141,788
---------- ---------- ---------- ----------
442,416 408,156 886,687 810,741
---------- ---------- ---------- ----------
Income from continuing operations before federal income
tax expense 92,862 91,105 196,312 170,219
---------- ---------- ---------- ----------
Federal income tax expense:
Current 32,477 32,592 55,231 58,617
Deferred 10 15 13,978 640
---------- ---------- ---------- ----------
32,487 32,746 69,209 59,257
---------- ---------- ---------- ----------
Income from continuing operations 60,375 58,359 127,103 110,962
Income from discontinued operations (less federal income tax
expense of $1,470 and $3,986 in 1996) - 3,100 - 7,295
---------- ---------- ---------- ----------
Net income $ 60,375 61,459 127,103 118,257
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(Unaudited)
Six Months Ended June 30, 1997 and 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
1996:
Balance, January 1, 1996 $ 3,815 657,118 1,583,275 384,304 2,628,512
Capital of contributed subsidiary - 30 - - 30
Net income - - 118,257 - 118,257
Unrealized losses on securities
available-for-sale, net - - - (275,185) (275,185)
---------------- ---------------- ---------------- ---------------- ----------------
Balance, June 30, 1996 $ 3,815 657,148 1,701,532 109,119 2,471,614
---------------- ---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ---------------- ----------------
1997:
Balance, January 1, 1997 3,815 527,874 1,432,593 173,592 2,137,874
Capital contributions - 836,780 - - 836,780
Dividends to shareholder - (450,000) (400,000) - (850,000)
Net income - - 127,103 - 127,103
Unrealized losses on securities
available-for-sale, net - - - (32,355) (32,355)
---------------- ---------------- ---------------- ---------------- ----------------
Balance, June 30, 1997 $ 3,815 914,654 1,159,696 141,237 2,219,402
---------------- ---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, 1997 and 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 127,103 118,257
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Capitalization of deferred policy acquisition costs (235,735) (214,486)
Amortization of deferred policy acquisition costs 82,988 70,994
Amortization and depreciation 1,964 8,613
Realized gains on investments, net (9,113) (9,374)
Deferred federal income tax 13,978 23,864
Decrease (increase) in accrued investment income 1,145 (814)
Decrease (increase) in other assets 21,708 (81,888)
Increase (decrease) in policyholder account balances 55,237 (63,997)
Increase in policyholders' dividend accumulations 5,280 7,113
Increase in accrued federal income tax payable 14,153 8,579
(Decrease) increase in other liabilities (47,841) 63,206
Other, net (2,317) (2,344)
------------ ------------
Net cash provided by (used in) operating activities 28,550 (72,277)
------------ ------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 437,694 685,247
Proceeds from sale of securities available-for-sale 225,855 194,207
Proceeds from repayments of mortgage loans on real estate 164,699 123,064
Proceeds from sale of real estate 23,214 8,163
Proceeds from repayments of policy loans and sale of other invested assets 21,908 27,108
Cost of securities available-for-sale acquired (1,236,560) (769,786)
Cost of mortgage loans on real estate acquired (418,593) (486,706)
Cost of real estate acquired (21,506) (2,893)
Policy loans issued and other invested assets acquired (37,785) (42,936)
Short-term investments, net (282,700) 26,109
------------ ------------
Net cash used in investing activities (1,123,774) (238,423)
------------ ------------
Cash flows from financing activities:
Proceeds from capital contributions 836,780 -
Increase in investment product and universal life insurance product
account balances 1,511,167 1,284,221
Decrease in investment product and universal life insurance product
account balances (1,210,120) (918,291)
------------ ------------
Net cash provided by financing activities 1,137,827 365,930
------------ ------------
Net increase in cash 42,603 55,230
Cash, beginning of period 43,784 9,455
------------ ------------
Cash, end of period $ 86,387 64,685
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 1997
(1) ORGANIZATION AND BASIS OF PRESENTATION
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was a
wholly owned subsidiary of Nationwide Corporation (Nationwide Corp.). On
January 27, 1997, Nationwide Corp. contributed the common stock of NLIC to
Nationwide Financial Services, Inc. (NFS). NFS was formed by Nationwide
Corp. in November 1996 as a holding company for members of the Nationwide
Insurance Enterprise that offer or distribute long-term savings and
retirement products. NLIC and its subsidiaries are collectively referred
to as "the Company."
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting
principles, which differ from statutory accounting practices prescribed or
permitted by regulatory authorities, for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
The financial information included herein reflects all adjustments (all of
which are normal and recurring in nature) which are, in the opinion of
management, necessary for a fair presentation of financial position and
results of operations. Operating results for all periods presented are not
necessarily indicative of the results that may be expected for the full
year. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and related notes for the year ended December 31, 1996 included
in the Company's annual report on Form 10-K.
(2) DIVIDENDS AND CAPITAL CONTRIBUTIONS
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the common stock of certain subsidiaries
classified as discontinued operations. As of and during the year ended
December 31, 1996, these previously wholly owned subsidiaries of NLIC were
classified as discontinued operations since they do not offer or distribute
long-term savings and retirement products. The dividend was paid by NLIC
on January 1, 1997.
On February 24, 1997, NLIC paid a dividend to NFS, which made an equivalent
dividend to Nationwide Corp., consisting of securities having an aggregate
market value of $850.0 million. NLIC recognized a gain of $14.4 million on
the transfer of securities.
On March 10, 1997 and March 11, 1997, NFS made cash capital contributions
to NLIC totaling $836.8 million.
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: PAGE
(1) Financial statements and schedule included N/A
in Prospectus.
(Part A):
Condensed Financial Information.
(2) Financial statements and schedule included 43
in Part B:
Those financial statements and schedule
required by Item 23 to be included in Part B
have been incorporated therein by reference
to the Prospectus (Part A).
Nationwide Variable Account-9: N/A
Nationwide Life Insurance Company:
Independent Auditors' Report. 43
Consolidated Balance Sheets as of December 44
31, 1996 and 1995.
Consolidated Statements of Income for the 45
years ended December 31, 1996, 1995 and
1994.
Consolidated Statements of Shareholder's 46
Equity for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for 47
the years ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements. 48
Consolidated Balance Sheets (unaudited)
for six months ended June 30, 1997 and 1996 67
Consolidated Statements of Income (unaudited)
for three and six months ended 68
June 30, 1997 and 1996
Consolidated Statements of Shareholders Equity
(unaudited) for six months ended
June 30, 1997 and 1996 69
Consolidated Statements of Cash Flow (unaudited)
for six months ended June 30, 1997 and 1996 70
Notes to Unaudited Consolidated Financial Statements
for six months ended June 30, 1997 71
Schedule I - Consolidated Summary of Investments -
Other Than Investments in Related Parties 89
Schedule III - Supplementary Insurance Information 90
Schedule IV - Reinsurance 91
Schedule V - Valuation and Qualifying Accounts 92
<PAGE>
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of
Directors authorizing the establishment of
the Registrant - Filed previously with initial registration
statement (333-23995) and is hereby incorporated by reference.
(2) Not Applicable
(3) Underwriting or Distribution of contracts
between the Registrant and Principal
Underwriter - Filed previously with initial registration
statement (333-23995) and is hereby incorporated by reference.
(4) The form of the variable annuity contract - Attached hereto
(5) Variable Annuity Application - filed previously with
initial registration statement (333-23995) and is hereby
incorporated by reference
(6) Articles of Incorporation of Depositor - Filed previously with
initial registration statement (333-23995) and is hereby
incorporated by reference.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel - Filed previously with initial
registration statement (333-23995) and is hereby incorporated
by reference.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Performance Advertising Calculation
Schedule - Filed previously with initial registration
statement (333-23995) and is hereby incorporated by reference.
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
1100 East Main Street
Marshall, MN 56258
Fred C. Finney Director
1558 West Moreland Road
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director
600 South Washington Street
Butler, PA 16001
Joseph J. Gasper President and Chief Operating Officer
One Nationwide Plaza and Director
Columbus, OH 43215
Henry S. Holloway Chairman of the
1247 Stafford Road Board and Director
Darlington, MD 21034
Dimon Richard McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Director
115 Sprague Drive
Hebron, OH 43025
C. Ray Noecker Director
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
Arden L. Shisler Director
1356 North Wenger Road
Dalton, OH 44618
Robert L. Stewart Director
88740 Fairview Road
Jewett, OH 43986
Nancy C. Thomas Director
10835 Georgetown Street NE
Louisville, OH 44641
Harold W. Weihl Director
14282 King Road
Bowling Green, OH 43402
Gordon E. McCutchan Executive Vice President,
One Nationwide Plaza Law and Corporate Services
Columbus, OH 43215 and Secretary
Robert A. Oakley Executive Vice President-
One Nationwide Plaza Chief Financial Officer
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President -
One Nationwide Plaza Chief Investment Officer
Columbus, OH 43215
James E. Brock Senior Vice President -
One Nationwide Plaza Life Company Operations
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General
One Nationwide Plaza Counsel and Assistant Secretary
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President-Chief Actuary-
One Nationwide Plaza Life, Health and Annuities
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales -
One Nationwide Plaza Financial Services
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operation
Columbus, OH 43215
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
Matthew S. Easley Vice President - Marketing,
One Nationwide Plaza Innovation and Compliance
Columbus, OH 43215
Ronald L. Eppley Vice President-
One Nationwide Plaza Applications Service
Columbus, OH 43215
Timothy E. Murphy Vice President-
One Nationwide Plaza Strategic Marketing
Columbus, OH 43215
R. Dennis Noice Vice President-
One Nationwide Plaza Retail Operations
Columbus, OH 43215
Joseph P. Rath Vice President-
One Nationwide Plaza Product and Market Compliance
Columbus, OH 43215
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
* Subsidiaries for which separate financial statements are filed
** Subsidiaries included in the respective consolidated financial
statements
*** Subsidiaries included in the respective group financial
statements filed for unconsolidated subsidiaries
**** other subsidiaries
<PAGE>
NO. VOTING
SECURITIES
(SEE
ATTACHED
CHART)
STATE UNLESS
OF OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio Life Insurance Agency
Ohio, Inc.
Allnations, Inc. Ohio Promotes cooperative
insurance corporations
worldwide
American Marine Florida Underwriting Manager
Underwriters, Inc.
Auto Direkt Insurance Germany Insurance Company
Company
The Beak and Wire Ohio Radio Tower Joint Venture
Corporation
California Cash California Investment Securities Agent
Management Company
Colonial County Mutual Texas Insurance Company
insurance Company
Colonial Insurance California Insurance Company
Company of California
Columbus Insurance Germany Insurance Broker
Brokerage and Service
GMBH
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Agency California Insurance Broker
Insurance Services of
California
Companies Agency of Alabama Insurance Broker
Alabama, Inc.
Companies Agency of Idaho Insurance Broker
Idaho, Inc.
Companies Agency of Illinois Acts as Collection Agent for
Illinois, Inc. Policies placed through
Brokers
Companies Agency of Kentucky Insurance Broker
Kentucky, Inc.
Companies Agency of Massachusetts Insurance Broker
Massachusetts, Inc.
Companies Agency of New York Insurance Broker
New York, Inc.
Companies Agency of Pennsylvania Insurance Broker
Pennsylvania, Inc.
Companies Agency of Arizona Insurance Broker
Phoenix, Inc.
Companies Agency of Texas Insurance Broker
Texas, Inc.
Companies Annuity Texas Insurance Broker
Agency of Texas, Inc.
Countrywide Services Delaware Products Liability,
Corporation Investigative and Claims
Management Services
Employers Insurance of Wisconsin Insurance Company
Wausau A Mutual
Company
** Employers Life Wisconsin Life Insurance Company
Insurance Company of
Wausau
F & B, Inc. Iowa Insurance Agency
<PAGE>
NO. VOTING
SECURITIES
(SEE
ATTACHED
CHART)
STATE UNLESS
OF OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
Farmland Mutual Iowa Insurance Company
Insurance Company
Financial Horizons Alabama Life Insurance Agency
Distributors Agency of
Alabama, Inc.
Financial Horizons Ohio Life Insurance Agency
Distributors Agency of
Ohio, Inc.
Financial Horizons Oklahoma Life Insurance Agency
Distributors Agency of
Oklahoma, Inc.
Financial Horizons Texas Life Insurance Agency
Distributors Agency of
Texas, Inc.
* Financial Horizons Massachusetts Investment Company
Investment Trust
Financial Horizons Oklahoma Broker Dealer
Securities Corporation
Gates, McDonald & Ohio Cost Control Business
Company
Gates, McDonald & Nevada Self-Insurance
Company of Nevada Administration Claims
Examinations and Data
Processing Services
Gates, McDonald & New York Workers Compensation Claims
Company of New York, Administration
Inc.
Gates, McDonald Health Ohio Managed Care Organization
Ohio Plus, Inc.
Greater La Crosse Wisconsin Writes Commercial Health and
Health Plans, Inc. Medicare Supplement
Insurance
Insurance Ohio Insurance Broker and
Intermediaries, Inc. Insurance Agency
Key Health Plan, Inc. California Pre-paid health plans
Landmark Financial New York Life Insurance Agency
Services of New York,
Inc.
Leben Direkt Insurance Germany Life Insurance Company
Company
Lone Star General Texas Insurance Agency
Agency, Inc.
** MRM Investments, Inc. Ohio Owns and operates a
Recreational Ski Facility
** National Casualty Michigan Insurance Company
Company
National Casualty Great Insurance Company
Company of America, Britain
Ltd.
** National Premium and Delaware Insurance Administrative
Benefit Administration Services
Company
** Nationwide Advisory Ohio Registered Broker-Dealer,
Services, Inc. Investment Manager and
Administrator
Nationwide Agency, Ohio Insurance Agency
Inc.
Nationwide Agribusiness Iowa Insurance Company
Company Insurance
<PAGE>
NO. VOTING
SECURITIES
(SEE
ATTACHED
CHART)
STATE UNLESS
OF OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
* Nationwide Asset Massachusetts Investment Company
Allocation Trust
Nationwide Cash Ohio Investment Securities Agent
Management Company
Nationwide Ohio Radio Broadcasting Business
Communications, Inc.
Nationwide Community Ohio Redevelopment of blighted
Urban Redevelopment areas within the City of
Corporation Columbus, Ohio
Nationwide Corporation Ohio Organized for the purpose of
acquiring, holding,
encumbering, transferring,
or otherwise disposing of
shares, bonds, and other
evidences of indebtedness,
securities, and contracts of
other persons, associations,
corporations, domestic or
foreign and to form or
acquire the control of other
corporations
* Nationwide Development Ohio Owns, leases and manages
Company commercial real estate
Nationwide Financial Delaware Insurance Agency
Institution
Distributors Agency,
Inc.
Nationwide Financial Delaware Holding Company
Services, Inc.
Nationwide General Ohio Insurance Company
Insurance Company
Nationwide HMO, Inc. Ohio Health Maintenance
Organization
* Nationwide Indemnity Ohio Reinsurance Company
Company
Nationwide Insurance Ohio Membership Non-Profit
Enterprise Foundation Corporation
Nationwide Insurance Ohio Membership Non-Profit
Golf Charities, Inc. Corporation
Nationwide Investing Michigan Investment Company
Foundation
* Nationwide Investing Massachusetts Investment Company
Foundation II
Nationwide Investment Oklahoma Registered Broker-Dealer in
Services Corporation Deferred Compensation Market
Nationwide Investors Ohio Stock Transfer Agent
Services, Inc.
** Nationwide Life and Ohio Life Insurance Company
Annuity Insurance
Company
** Nationwide Life Ohio Life Insurance Company
Insurance Company
Nationwide Lloyds Texas Texas Lloyds Company
Nationwide Management Ohio Develops and operates
Systems, Inc. Managed Care Delivery System
Nationwide Mutual Fire Ohio Insurance Company
Insurance Company
<PAGE>
NO. VOTING
SECURITIES
(SEE
ATTACHED
CHART)
STATE UNLESS
OF OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
Nationwide Mutual Ohio Insurance Company
Insurance Company
Nationwide Property, Ohio Develops, owns, and operates
Ltd. real estate and real estate
investments
Nationwide Property Ohio Insurance Company
and Casualty Insurance
Company
Nationwide Realty Ohio Develops, owns, and operates
Investors, Ltd. real estate and real estate
investments
* Nationwide Separate Massachusetts Investment Company
Account Trust
NEA Valuebuilder Delaware Life Insurance Agency
Investor Services,
Inc.
NEA Valuebuilder Alabama Life Insurance Agency
Investor Services of
Alabama, Inc.
NEA Valuebuilder Arizona Life Insurance Agency
Investor Services of
Arizona, Inc.
NEA Valuebuilder Montana Life Insurance Agency
Investor Services of
Montana, Inc.
NEA Valuebuilder Nevada Life Insurance Agency
Investor Services of
Nevada, Inc.
NEA Valuebuilder Ohio Life Insurance Agency
Investor Services of
Ohio, Inc.
NEA Valuebuilder Oklahoma Life Insurance Agency
Investor Services of
Oklahoma, Inc.
NEA Valuebuilder Texas Life Insurance Agency
Investor Services of
Texas, Inc.
NEA Valuebuilder Wyoming Life Insurance Agency
Investor Services of
Wyoming, Inc.
NEA Valuebuilder Massachusetts Life Insurance Agency
Services Insurance
Agency, Inc.
Neckura General Germany Insurance Company
Insurance Company
Neckura Holding Germany Administrative Service for
Company Neckura Insurance Group
Neckura Insurance Germany Insurance Company
Company
Neckura Life Insurance Germany Life Insurance Company
Company
NWE, Inc. Ohio Special Investments
PEBSCO of Massachusetts Markets and Administers
Massachusetts Deferred Compensation Plans
Insurance Agency, Inc. for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers
Deferred Compensation Plans
for Public Employees
<PAGE>
NO. VOTING
SECURITIES
(SEE
ATTACHED
CHART)
STATE UNLESS
OF OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
Pension Associates of Wisconsin Pension plan administration,
Wausau, Inc. record keeping and
consulting and compensation
consulting
Physicians Plus Wisconsin Health Maintenance
Insurance Corporation Organization
Prevea Health Wisconsin Health Maintenance
Insurance Plan, Inc. Organization
Public Employees Delaware Markets and Administers
Benefit Services Deferred Compensation Plans
corporation for Public Employees
Public Employees Alabama Markets and Administers
Benefit Services Deferred Compensation Plans
Corporation of Alabama for Public Employees
Public Employees Arkansas Markets and Administers
Benefit Services Deferred Compensation Plans
Corporation of for Public Employees
Arkansas
Public Employees Montana Markets and Administers
Benefit Services Deferred Compensation Plans
Corporation of Montana for Public Employees
Public Employees New Mexico Markets and Administers
Benefit Services Deferred Compensation Plans
Corporation of New for Public Employees
Mexico
Scottsdale Indemnity Ohio Insurance Company
Company
Scottsdale Insurance Ohio Excess and Surplus Lines
Company Insurance Company
Scottsdale Surplus Arizona Excess and Surplus Lines
Lines Insurance Insurance Company
Company
SVM Sales GmbH, Germany Sales support for Neckura
Neckura Insurance Insurance Group
Group
Wausau Business Wisconsin Insurance Company
Insurance Company
Wausau General Illinois Insurance Company
Insurance Company
Wausau Insurance United Insurance and Reinsurance
Company (U.K.) Limited Kingdom Company
Wausau International California Special Risks, Excess and
Underwriters Surplus Lines Insurance
Underwriting Manager
** Wausau Preferred Wisconsin Insurance and Reinsurance
Health Insurance Company
Company
Wausau Service Wisconsin Holding Company
Corporation
Wausau Underwriters Wisconsin Insurance Company
Insurance Company
** West Coast Life California Life Insurance Company
Insurance Company
<PAGE>
NO. VOTING
SECURITIES
(SEE
ATTACHED
CHART)
STATE UNLESS
OF OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
* MFS Variable Account Ohio Nationwide Life Issuer of Annuity
Separate Account Contracts
* NACo Variable Account Ohio Nationwide Life Issuer of Annuity
Separate Account Contracts
* Nationwide DC Variable Ohio Nationwide Life Issuer of Annuity
Account Separate Account Contracts
* Nationwide DCVA II Ohio Nationwide Life Issuer of Annuity
Separate Account Contracts
* Separate Account No. 1 Ohio Nationwide Life Issuer of Annuity
Separate Account Contracts
* Nationwide Multi-Flex Ohio Nationwide Life Issuer of Annuity
Variable Account Separate Account Contracts
* Nationwide VA Separate Ohio Nationwide Life Issuer of Annuity
Account-A and Annuity Contracts
* Nationwide VA Separate Ohio Nationwide Life Issuer of Annuity
Account-B and Annuity Contracts
Separate Account
Nationwide VA Separate Ohio Nationwide Life Issuer of Annuity
Account-C and Annuity Contracts
* Nationwide Variable Ohio Nationwide Life Issuer of Annuity
Account Separate Account Contracts
* Nationwide Variable Ohio Nationwide Life Issuer of Annuity
Account-II Separate Account Contracts
* Nationwide Variable Ohio Nationwide Life Issuer of Annuity
Account-3 Separate Account Contracts
* Nationwide Variable Ohio Nationwide Life Issuer of Annuity
Account-4 Separate Account Contracts
* Nationwide Variable Ohio Nationwide Life Issuer of Annuity
Account-5 Separate Account Contracts
* Nationwide Fidelity Ohio Nationwide Life Issuer of Annuity
Advisor Variable Separate Account Contracts
Account
* Nationwide Variable Ohio Nationwide Life Issuer of Annuity
Account-6 Separate Account Contracts
* Nationwide Variable Ohio Nationwide Life Issuer of Annuity
Account-8 Separate Account Contracts
* Nationwide Variable Ohio Nationwide Life Issuer of Annuity
Account-9 Separate Account Contracts
* Nationwide VL Separate Ohio Nationwide Life Issuer of Life
and Annuity Insurance Policies
Account-A Separate Account
* Nationwide VL Separate Ohio Nationwide Life Issuer of Life
Account-B and Annuity Insurance Policies
Separate Account
* Nationwide VL Separate Ohio Nationwide Life Issuer of Life
Account-C and Annuity Insurance Policies
Separate Account
* Nationwide VLI Ohio Nationwide Life Issuer of Life
Separate Account Separate Account Insurance Policies
* Nationwide VLI Ohio Nationwide Life Issuer of Life
Separate Account-2 Separate Account Insurance Policies
* Nationwide VLI Ohio Nationwide Life Issuer of Life
Separate Account-3 Separate Account Insurance Policies
* Nationwide VLI Ohio Nationwide Life Issuer of Life
Separate Account-4 Separate Account Insurance Policies
<PAGE>
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (left side)
<S> <C> <C> <C>
- ------------------------
| NATIONWIDE INSURANCE |
| GOLF CHARITIES, INC. |
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
- ------------------------
------------------------------------------
| EMPLOYERS INSURANCE OF WAUSAU |
| A MUTUAL COMPANY |
| (EMPLOYERS) |
| |========================================
| Contribution Note Cost |
| ----------------- ---- |
| Casualty $400,000,000 |
------------------------------------------
|
-----------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ---------------------------- ---------------------------
| SAN DIEGO LOTUS | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| CORPORATION | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS |
|Common Stock: 748,212 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | |
|------------ Shares | |------------ Shares | |------------ | | |
| | | | | |=========| |
| Cost | | Cost | | Cost | || | A TEXAS LLOYDS |
| ---- | | ---- | | ---- | || | |
|Employers- | |Employers- | |Employers- | || | |
|100% $29,000,000| |100% $18,683,300| |100% $176,763,000| || | |
- --------------------------- --------------------------- ---------------------------- || ---------------------------
| ||
--------------------------------------------------------------------- ||
| | | ||
| --------------------------- | ---------------------------- | || --------------------------
- -------------------------- | | | | | || | |
| WAUSAU BUSINESS | | | COMPANIES AGENCY | | | COUNTRYWIDE SERVICES | | || | |
| INSURANCE COMPANY | | | OF KENTUCKY, INC. | | | CORPORATION | | || | |
|Common Stock: 10,900,000 | | |Common Stock: 1,000 | | |Common Stock: 100 Shares | | || | COMPANIES |
|------------ Shares | | |------------ Shares | | |------------ | | || | AGENCY OF |
| |---|---| | |---| | | ||==| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | || | |
| ---- | | | ---- | | | ---- | | || | |
|WSC-100% $33,800,000| | |WSC-100% $1,000 | | |WSC-100% $145,852 | | || | |
- --------------------------- | --------------------------- | ---------------------------- | || ---------------------------
| | | ||
- --------------------------- | --------------------------- | ---------------------------- | || --------------------------
| WAUSAU UNDERWRITERS | | | COMPANIES AGENCY | | | WAUSAU GENERAL | | || | |
| INSURANCE COMPANY | | | OF MASSACHUSETTS, INC. | | | INSURANCE COMPANY | | || | |
|Common Stock: 8,750 | | |Common Stock: 1,000 | | |Common Stock: 200,000 | | || | COMPANIES ANNUITY |
|------------ Shares | | |------------ Shares | | |------------ Shares | | || | AGENCY OF |
| |---|---| | |---| | | ====| TEXAS, INC. |
| Cost | | | Cost | | | Cost | | | |
| ---- | | | ---- | | | ---- | | | |
|WSC-100% $69,560,006| | |WSC-100% $1,000 | | |WSC-100% $39,000,000 | | | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| GREATER LA CROSSE | | | COMPANIES AGENCY | | | WAUSAU INTERNATIONAL | | | AMERICAN MARINE |
| HEALTH PLANS, INC. | | | OF NEW YORK, INC. | | | UNDERWRITERS | | | UNDERWRITERS, INC. |
|Common Stock: 3,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 20 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |---|---| | |---| | |------| |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-33.3% $861,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY |
| OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | OF ILLINOIS, INC. |
| | | | | | | OF CALIFORNIA | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 250 |
|------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares |
| |---|---| | | | | | | |
| Cost | | | Cost | | | Cost | | | Cost |
| ---- | | | ---- | | | ---- | | | ---- |
|WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | | |WSC-100% $2,500 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | | COMPANIES |
| OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | | AGENCY, INC. |
| | | | | | | CORPORATION | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | | |Common Stock: 100 |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares |
| |-------| | |---|Preferred Stock: 11,540 | |------| |
| | | | | |--------------- Shares | | | |
| | | | | | | | | |
| Cost | | Cost | | | Cost | | | Cost |
| ---- | | ---- | | | ---- | | | ---- |
|WSC-100% $1,000 | |WSC-100% $1,000 | | |WSC-33 1/3% $6,215,459| | |WSC-100% $10,000 |
- --------------------------- --------------------------- | ---------------------------- | ---------------------------
| |
| ---------------------------- | ---------------------------
| | PREVEA HEALTH | | | PENSION ASSOCIATES |
| | INSURANCE PLAN, INC. | | | OF WAUSAU, INC. |
| |Common Stock: 3,000 Shares| | |Common Stock: 1,000 |
| |------------ | | |------------ Shares |
----| | -------| |
| | | |
| Cost | |Companies Cost |
| ---- | |Agency, Inc. ---- |
|WSC-33 1/3% $500,000 | |(Wisconsin)-100% $10,000 |
---------------------------- ---------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| INSURANCE COMPANY |================================================
| (CASUALTY) |
| |
| |
-----------------------------------------------------------------------------
| || |
| || -------------------------------------------------------------
| || ---------------------------------------------------------------------------------------
| || | |
- -------------------------------- || | -------------------------------- --------------------------------
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|Common Stock: 3,136 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|------------ | || | | | | |
| Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 |
| ---- | || | |------------ Shares | |------------ Shares |
|Casualty-24.5% $88,320 | || | | Cost | | Cost |
|Fire-24.5% $88,463 | || | | ---- | | ---- |
|Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 |
|--------------- | || | | | | | |
| Cost | || | | | | | |
| ---- | || | | | | | |
|Casualty-7.7% $100,000 | || | | | | | |
|Fire-7.7% $100,000 | || | | | | | |
- -------------------------------- || | -------------------------------- | --------------------------------
|| | |
- -------------------------------- || | -------------------------------- | --------------------------------
| FARMLAND MUTUAL | || | | NATIONWIDE PROPERTY | | | NECKURA |
| INSURANCE COMPANY | || | | AND CASUALTY | | | INSURANCE COMPANY |
|Guaranty Fund | || | | INSURANCE COMPANY | | | |
|------------ |========= |----|Common Stock: 60,000 | |--------|Common Stock: 6,000 |
|Certificate | | |------------ Shares | | |------------ Shares |
|----------- Cost | | | Cost | | | Cost |
| ---- | | | ---- | | |Neckura- ---- |
|Casualty $500,000 | | |Casualty-100% $6,000,000 | | |100% DM 6,000,000 |
- -------------------------------- | -------------------------------- | --------------------------------
| | |
- -------------------------------- | -------------------------------- | --------------------------------
| F & B, INC. | | | COLONIAL INSURANCE | | | NECKURA LIFE |
| | | | COMPANY OF CALIFORNIA | | | INSURANCE COMPANY |
|Common Stock: 1 Share | | | (COLONIAL) | | | |
|------------ | |----|Common Stock: 1,750 | |--------|Common Stock: 4,000 |
| Cost | | |------------ Shares | | |------------ Shares |
| ---- | | | Cost | | | Cost |
|Farmland | | | ---- | | | ---- |
|Mutual-100% $10 | | |Casualty-100% $11,750,000 | | |Neckura-100% DM 15,825,681 |
- -------------------------------- | -------------------------------- | --------------------------------
| |
- -------------------------------- | -------------------------------- | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | NECKURA GENERAL |
| INSURANCE COMPANY | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 1,000,000 | | | | | | |
|------------ Shares | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |------------------|------------ Shares | |--------|------------ Shares |
| ---- | | Cost | | | Cost |
|Casualty-99.9% $26,714,335 | | ---- | | | ---- |
|Other Capital: | |Casualty-100% $150,000,000 | | |Neckura-100% DM 1,656,925 |
|------------- | | | | | |
|Casualty-Ptd. $ 713,567 | | | | | |
- -------------------------------- -------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| SCOTTSDALE | | | COLUMBUS INSURANCE |
| SURPLUS LINES | | | BROKERAGE AND SERVICE |
| INSURANCE COMPANY | | | GmbH |
| | | |Common Stock: 1 Share |
| | |--------|------------ |
| "NEWLY FORMED" | | | Cost |
| | | | ---- |
| | | |Neckura-100% DM 51,639 |
| | | | |
| | | | |
-------------------------------- | --------------------------------
| |
-------------------------------- | --------------------------------
| NATIONAL PREMIUM & | | | LEBEN DIREKT |
| BENEFIT ADMINISTRATION | | | INSURANCE COMPANY |
| COMPANY | | | |
|Common Stock: 10,000 | | |Common Stock: 4,000 Shares |
|------------ Shares |------------------|------------ |
| Cost | | Cost |
| ---- | | ---- |
|Scottsdale-100% $10,000 | |Neckura-100% DM 4,000,000 |
| | | |
| | | |
-------------------------------- --------------------------------
-------------------------------- --------------------------------
| SVM SALES | | AUTO DIREKT |
| GmbH | | INSURANCE COMPANY |
| | | |
|Common Stock: 50 Shares | |Common Stock: 1,500 Shares |
|------------ | |------------ |
| Cost | | Cost |
| ---- | | ---- |
|Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | |
| | | |
-------------------------------- --------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (right side)
<S> <C> <C> <C>
------------------------
| NATIONWIDE INSURANCE |
| ENTERPRISE FOUNDATION|
| |
| MEMBERSHIP |
| NONPROFIT |
| CORPORATION |
------------------------
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| FIRE INSURANCE COMPANY |
| (FIRE) |
| |
| |
-----------------------------------------------------------------------------
|
- --------------- --------------------------------------------------
| |
- ----------------------------------------------------------------------------------------------------------------- |
| | | |
| -------------------------------- | -------------------------------- ----------------------------------
| | SCOTTSDALE | | | NATIONWIDE | | NATIONWIDE |
| | INDEMNITY COMPANY | | | COMMUNITY URBAN | | CORPORATION |
| | | | | REDEVELOPMENT | | |
| | | | | CORPORATION | |Common Stock: Control: |
| |Common Stock: 50,000 | | |Common Stock: 10 Shares | |------------ ------- |
|-----|------------ Shares | |----|------------ | |$13,642,432 100% |
| | Cost | | | Cost | | Shares Cost |
| | ---- | | | ---- | | ------ ---- |
| |Casualty-100% $8,800,000 | | |Casualty-100% $1,000 | |Casualty 12,992,922 $751,352,485|
| | | | | | |Fire 649,510 24,007,936|
| | | | | | | (See Page 2) |
| -------------------------------- | -------------------------------- ----------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE | | | INSURANCE |
| | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. |
| | | | | |
|-----|Common Stock: 28,000 | |----|Common Stock: 1,615 |
| |------------ Shares | | |------------ Shares |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 |
| -------------------------------- | --------------------------------
| |
| -------------------------------- | --------------------------------
| | LONE STAR | | | NATIONWIDE CASH |
| | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY |
| | | | |Common Stock: 100 Shares |
------|Common Stock: 1,000 | |----|------------ |
|------------ Shares | | | Cost |
| Cost | | | ---- |
| ---- | | |Casualty-90% $9,000 |
|Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 |
-------------------------------- | --------------------------------
|| |
-------------------------------- | --------------------------------
| COLONIAL COUNTY MUTUAL | | | CALIFORNIA CASH |
| INSURANCE COMPANY | | | MANAGEMENT |
| | | | |
|Surplus Debentures | | |Common Stock: 90 Shares |
|------------------ | |----|------------ |
| Cost | | | Cost |
| ---- | | | ---- |
|Colonial $500,000 | | |Casualty-100% $9,000 |
|Lone Star 150,000 | | | |
-------------------------------- | --------------------------------
|
| -------------------------------- --------------------------------
| | NATIONWIDE | | THE BEAK AND |
| | COMMUNICATIONS, INC. | | WIRE CORPORATION |
| |Common Stock: 14,750 | | |
| |------------ Shares | |Common Stock: 750 Shares |
-----| Cost |------------------|------------ |
| ---- | | Cost |
|Casualty-100% $11,510,000 | | ---- |
|Other Capital: | |NW Comm-100% $531,000 |
|------------- | | |
|Casualty-Ptd. 1,000,000 | | |
-------------------------------- --------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
March 6, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Left Side)
NATIONWIDE INSURANCE ENTERPRISE(R)
------------------------------------------------
| EMPLOYERS INSURANCE |
| OF WAUSAU |==========================================
| A MUTUAL COMPANY |
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
| | |
--------------------------- --------------------------- ---------------------------
| NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE FINANCIAL |
| COMPANY (NW LIFE) | | FINANCIAL SERVICES | | INSTITUTION DISTRIBUTORS |
| | | CAPITAL TRUST | | AGENCY, INC. (NFIDAI) |
| Common Stock: 3,814,779 | | Preferred Stock: | | Common Stock: 1,000 |
| ------------ Shares | | --------------- | | ------------ Shares |
| | | | | |
| NFS--100% | | NFS--100% | | NFS--100% |
--------------------------- --------------------------- ---------------------------
| ||
--------------------------- | --------------------------- --------------------------- || --------------------------
| NATIONWIDE LIFE AND | | | NATIONWIDE | | FINANCIAL HORIZONS | || | |
| ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES | | DISTRIBUTORS AGENCY | || | |
| (NW LIFE) | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 68,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OHIO, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life--100% $58,070,003 | | | NW Life--100% $5,996,261 | || | NFIDIA--100% $100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTOR SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ Shares |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life--100% $35,971,375 | | | NW Adv. Serv.--100% $5,000| || | NFIDIA--100% $10,100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | |
| SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | |
| | | | | || | | || | |
| Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF TEXAS, INC. |
| Cost | | | | || | Cost | || | |
| ---- | | | | || | ---- | || | |
| NW Life--100% $529,728 | | | COMMON LAW TRUST | || | NFIDIA--100% $153,000 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE LIFE INSURANCE | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| COMPANY OF NEW YORK | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Common Stock: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------------ Shares |--| | |==|| | ------------ Shares |__||==| AGENCY OF |
| Cost | | | | || | | | OHIO, INC. |
| ---- | | | | || | Cost | | |
| NW Life--100% | | | | || | ---- | | |
| (Proposed) | | | COMMON LAW TRUST | || | NFIDIA--100% $100 | | |
--------------------------- | --------------------------- || --------------------------- --------------------------
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | INVESTING | ||
| | | | FOUNDATION II | ||
| Units: | | | | ||
| ------ | | | |==||
| | | | | ||
| | | | | ||
| NW Life--90% | | | | ||
| NW Mutual--10% | | | COMMON LAW TRUST | ||
--------------------------- | --------------------------- ||
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE REALTY | | | NATIONWIDE | ||
| INVESTORS, LTD. | | | SEPARATE ACCOUNT | ||
| | | | TRUST | ||
| Units: | | | | ||
| ------ |__| | |__||
| | | |
| | | |
| NW Life--97.6% | | |
| NW Mutual--2.4% | | COMMON LAW TRUST |
--------------------------- ---------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Center)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| INSURANCE COMPANY |==========================================
| (CASUALTY) |
------------------------------------------------
|
| ----------------------------------------------------
| |
---------------------------------------
| NATIONWIDE CORPORATION (NW CORP) |
| Common Stock: Control |
| ------------ ------- |
| 13,642,432 100% |
| Shares Cost |
| ------ ---- |
| Casualty 12,992,922 $751,352,485 |
| Fire 649,510 24,007,936 |
---------------------------------------
|
----------------------------------------------------------------------------------------------------------------------
| | | |
--------------------------- -------------------------- ----------------------------- ----------------------------
| NATIONWIDE FINANCIAL | | MRM INVESTMENTS, INC. | | WEST COAST LIFE | | NATIONAL CASUALTY |
| SERVICES, INC. (NFS) | | | | INSURANCE COMPANY | | COMPANY |
| | | | | | | (NC) |
| Common Stock: Control | | Common Stock: 1 | | Common Stock: 1,000,000 | | Common Stock: 100 |
| ------------ ------- | | ------------ Share | | ------------ Shares | | ------------ Shares |
| | | | | | | |
| | | Cost | | Cost | | Cost |
| Class A Public--100% | | ---- | | ---- | | ---- |
| Class B NW Corp--100% | | NW Corp.--100% $1,339,218 | | NW Corp.--100% $152,946,930 | | NW Corp.--100% $73,442,439 |
--------------------------- --------------------------- ----------------------------- ----------------------------
| |
- -------------------------------------------------------------------------------- |
| | |
--------------------------- --------------------------- ----------------------------
| PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | NCC OF AMERICA, INC. |
| SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | (INACTIVE) |
| (PEBSCO) | | (NEA) | | |
| Common Stock: 236,494 |==|| | Common Stock: 500 | | |
| ------------ Shares | || | ------------ Shares | | |
| | || | | | |
| NFS--100% | || | NFS--100% | | NFS--100% |
--------------------------- || ----------------------------- ----------------------------
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ALABAMA | || | INVESTOR SERVICES | ||
| | || | OF ALABAMA, INC. | ||
| Common Stock: 100,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $5,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF | || | NEA VALUEBUILDER | ||
| ARKANSAS | || | INVESTOR SERVICES | ||
| | || | OF ARIZONA, INC | ||
| Common Stock: 50,000 | || | Common Stock: 100 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $500 | || | NEA--100% $1,000 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- ||
| PEBSCO OF MASSACHUSETTS | || | NEA VALUEBUILDER | ||
| INSURANCE AGENCY, INC. | || | INVESTOR SERVICES | ||
| | || | OF MONTANA, INC. | ||
| Common Stock: 1,000 | || | Common Stock: 500 | ||
| ------------ Shares |--|| | ------------ Shares |--||
| | || | | ||
| Cost | || | Cost | ||
| ---- | || | ---- | ||
| PEBSCO--100% $1,000 | || | NEA--100% $500 | ||
--------------------------- || --------------------------- ||
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| MONTANA | || | INVESTOR SERVICES | || | |
| | || | OF NEVADA, INC. | || | NEA VALUEBUILDER |
| Common Stock: 500 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OHIO, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $500 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ---------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | |
| NEW MEXICO | || | INVESTOR SERVICES | || | |
| | || | OF WYOMING, INC. | || | NEA VALUEBUILDER |
| Common Stock: 1,000 | || | Common Stock: 500 | || | INVESTOR SERVICES |
| ------------ Shares |--|| | ------------ Shares | ||==| OF OKLAHOMA, INC. |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO--100% $1,000 | || | NEA--100% $500 | || | |
--------------------------- || --------------------------- || ---------------------------
|| ||
--------------------------- || --------------------------- || ----------------------------
| | || | NEA VALUEBUILDER | || | |
| | || | SERVICES INSURANCE | || | |
| PEBSCO OF | || | AGENCY, INC. | || | NEA VALUEBUILDER |
| TEXAS, INC. | || | Common Stock: 100 | || | INVESTOR SERVICES |
| |==|| | ------------ Shares |__||==| OF TEXAS, INC. |
| | | | | |
| | | Cost | | |
| | | ---- | | |
| | | NEA--100% $1,000 | | |
--------------------------- --------------------------- ----------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| FIRE INSURANCE COMPANY |
| (FIRE) |
------------------------------------------------
|
- -----------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------
| | |
--------------------------- ------------------------------ ------------------------------
| GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE HMO, INC. |
| & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | (NW HMO) |
| | | | | |
| Common Stock: 254 | | Common Stock: 250,000 | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | Cost |
| | ---- | | | ---- | | | ---- |
| | NW CORP.--100% $25,683,532 | | | NW CORP.--100% $126,509,480 | | | NW CORP.--100% $14,603,732 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| --------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | WAUSAU PREFERRED | | | NATIONWIDE MANAGEMENT |
| | OF NEW YORK, INC. | | | HEALTH INSURANCE CO. | | | SYSTEMS, INC. |
| | | | | | | | |
| | Common Stock: 3 | | | Common Stock: 250,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | | |
| | Cost | | | Cost | | | NW HMO Cost |
| | ---- | | | ---- | | | ---- |
| | GATES--100% $106,947 | | | NW CORP.--100% $57,413,193 | | | Inc.--100% $25,149 |
| ----------------------------- | ------------------------------ | ------------------------------
| | |
| ----------------------------- | ------------------------------ | ------------------------------
| | GATES, MCDONALD & COMPANY | | | KEY HEALTH PLAN, INC. | | | NATIONWIDE |
| | OF NEVADA | | | | | | AGENCY, INC. |
| | | | | | | | |
| | Common Stock: 40 | | | Common Stock: 1,000 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | |
| | Cost | | Cost | | | NW HMO Cost |
| | ---- | | ---- | | | ---- |
| | Gates--100% $93,750 | | ELIOPW--80% $2,700,000 | | | Inc.--99% $116,077 |
| ----------------------------- ------------------------------ | ------------------------------
|
| -----------------------------
| | GATES, MCDONALD |
| | HEALTH PLUS, INC. |
| | |
| | Common Stock: 200 |
|-- | ------------ Shares |
| |
| Cost |
| ---- |
| NW CORP.--100% $2,000,000 |
-----------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
March 6, 1997
Page 2
</TABLE>
<PAGE>
Item 27. NUMBER OF CONTRACT OWNERS
Not applicable.
Item 28. INDEMNIFICATION
Provision is made in the Company's Amended and Restated Code of
Regulations and expressly authorized by the General Corporation Law
of the State of Ohio, for indemnification by the Company of any
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of
the fact that such person is or was a director, officer or employee
of the Company, against expenses, including attorneys fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action,
suit or proceeding, to the extent and under the circumstances
permitted by the General Corporation Law of the State of Ohio.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
(a) Nationwide Advisory Services, Inc. ("NAS") acts as principal
underwriter and general distributor for the Nationwide Multi-
Flex Variable Account, Nationwide DC Variable Account,
Nationwide DCVA II, Nationwide Variable Account-II, Nationwide
Variable Account-5, Nationwide Variable Account-8, Nationwide
Variable Account-9, Nationwide VA Separate Account-A,
Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C, Nationwide VL Separate Account-A, Nationwide VL
Separate Account-B, Nationwide VL Separate Account-C,
Nationwide VLI Separate Account-2, Nationwide VLI Separate
Account-3, Nationwide VLI Separate Account-4, NACo Variable
Account and the Nationwide Variable Account, all of which are
separate investment accounts of the Company or its affiliates.
NAS also acts as principal underwriter for Nationwide Investing
Foundation, Nationwide Separate Account Trust, Financial
Horizons Investment Trust, Nationwide Asset Allocation Trust
and Nationwide Investing Foundation II, which are open-end
management investment companies.
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
NAME AND BUSINESS ADDRESS POSITIONS AND OFFICES
WITH UNDERWRITER
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
Dimon Richard McFerson Chairman of the Board of Directors
One Nationwide Plaza and Chairman and Chief Executive
Columbus, OH 43215 Officer-Nationwide Insurance
Enterprise and Director
Gordon E. McCutchan Executive Vice President-Law and
One Nationwide Plaza Corporate Services and Director
Columbus, OH 43215
<PAGE>
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
Robert A. Oakley Executive Vice President - Chief
One Nationwide Plaza Financial Officer and Director
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President - Chief
One Nationwide Plaza Investment Officer and Director
Columbus, OH 43215
W. Sidney Druen Senior Vice President and
One Nationwide Plaza General Counsel and
Columbus, OH 43215 Assistant Secretary
James F. Laird, Jr. Vice President - General
One Nationwide Plaza Manager & Acting Treasurer
Columbus, OH 43215
Edwin P. Mc Causland Vice President-Fixed Income
One Nationwide Plaza Securities
Columbus, OH 43215
Harry S. Schermer Vice President - Investments
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President -Compliance
One Nationwide Plaza
Columbus, OH 43215
William G. Goslee Vice President
One Nationwide Plaza
Columbus, OH 43215
Peter J. Neckermann Vice President
One Nationwide Plaza
Columbus, OH 43215
Rae M. Pollina Secretary
One Nationwide Plaza
Columbus, OH 43215
(c) NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
Nationwide N/A N/A N/A N/A
Advisory
Services,
Inc.
<PAGE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Robert O. Cline
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43215
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never
more than 16 months old for so long as payments under the
variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant
can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or
included in the prospectus that the applicant can remove to
send for a Statement of Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under this
form promptly upon written or oral request.
The Registrant represents that any of the Contracts which are issued
pursuant to Section 403(b) of the Code, are issued by the Company
through the Registrant in reliance upon, and in compliance with, a
no-action letter issued by the Staff of the Securities and Exchange
Commission to the American Council of Life Insurance (publicly
available November 28, 1988) permitting withdrawal restrictions to
the extent necessary to comply with Section 403(b)(11) of the Code.
The Company represents that the fees and charges deducted under the
Contract in the aggregate are reasonable in relation to the services
rendered, the expenses expected to be incurred and risks assumed by
the Company.
<PAGE>
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE VARIABLE ACCOUNT - 9
INDIVIDUAL MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
PROSPECTUS
October 27, 1997
<PAGE>
SCHEDULE I
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Summary of Investments-
Other Than Investments in Related Parties
As of December 31, 1996
($000's omitted)
<TABLE>
<CAPTION>
- -------------------------------------------------- ----------- -------------- ---------------
Column A Column B Column C Column D
- -------------------------------------------------- ----------- -------------- ---------------
Amount at which
shown in the
consolidated
Type of Investment Cost Market value balance sheet
- -------------------------------------------------- ---------- -------------- ---------------
<S> <C> <C> <C>
Fixed maturity securities available-for-sale:
Bonds:
U.S. Government and government agencies and
authorities $ 3,757,887 3,834,762 3,834,762
States, municipalities and political
subdivisions 6,242 6,690 6,690
Foreign governments 100,656 101,940 101,940
Public utilities 1,798,736 1,843,938 1,843,938
All other corporate 6,307,357 6,517,309 6,517,309
----------- ----------- -----------
Total fixed maturity securities
available-for-sale 11,970,878 12,304,639 12,304,639
----------- ----------- -----------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 43,501 50,405 50,405
Non-redeemable preferred stock 389 8,726 8,726
----------- ----------- -----------
Total equity securities
available-for-sale 43,890 59,131 59,131
----------- ----------- -----------
Mortgage loans on real estate, net 5,327,317 5,272,119 (1)
Real estate, net:
Investment properties 253,383 217,611 (1)
Acquired in satisfaction of debt 57,933 48,148 (1)
Policy loans 371,816 371,816
Other long-term investments 27,370 28,668 (2)
Short-term investments 4,789 4,789
----------- -----------
Total investments $18,057,376 18,306,921
----------- -----------
----------- -----------
</TABLE>
- -------------
(1) Difference from Column B is primarily due to valuation of allowances due
to impairments on mortgage loans on real estate and due to accumulated
depreciation and valuation allowances due to impairments on real estate. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations and note 5 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains on
investments in limited partnerships.
See accompanying independent auditors' report.
<PAGE>
SCHEDULE III
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Supplemental Insurance Information
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ------------------- ----------------- ------------------ ----------------- ------------------ ------------------
Future policy Other policy claims
Deferred policy benefits, losses, Unearned and benefits
acquisition claims and premiums payable Premium
Segment costs loss expenses (1) (2) revenue
- ------------------- ----------------- ------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
1996: Variable Annuities $ 791,611 - - -
Fixed Annuities 242,421 14,952,877 687 24,030
Life Insurance 414,417 1,995,802 395,739 174,612
Corporate and Other (81,940) 230,381 25,048 -
----------- ---------- -------- --------
Total $1,366,509 17,179,060 421,474 198,642
----------- ---------- -------- --------
----------- ---------- -------- --------
1995: Variable Annuities 571,283 - - -
Fixed Annuities 221,111 14,221,622 455 32,774
Life Insurance 366,876 1,898,641 383,983 166,332
Corporate and Other (138,914) 238,351 28,886 -
----------- ---------- -------- --------
Total $1,020,356 16,358,614 413,324 199,106
----------- ---------- -------- --------
----------- ---------- -------- --------
1994: Variable Annuities 395,397 - - -
Fixed Annuities 198,639 12,633,253 240 20,134
Life Insurance 327,079 1,806,762 371,984 156,524
Corporate and Other 74,445 233,569 26,927 -
----------- ---------- -------- --------
Total $ 995,560 14,673,584 399,151 176,658
----------- ---------- -------- --------
----------- ---------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Column A Column G Column H Column I Column J Column K
- ------------------- ----------------- ------------------ ----------------- ------------------ ------------------
Net investment Benefits, claims, Amortization Other
income losses and settlement of deferred policy operating expenses Premiums
Segment (3) expenses acquisition costs (3) written
- ------------------- ----------------- ------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
1996: Variable Annuities $ (21,449) 4,624 57,412 132,357
Fixed Annuities 1,050,557 838,533 38,635 79,737
Life Insurance 174,002 211,386 37,347 78,965
Corporate and Other 154,649 106,037 - 51,335
----------- ---------- ---------- --------
Total $1,357,759 1,160,580 133,394 342,394
----------- ---------- ---------- --------
----------- ---------- ---------- --------
1995: Variable Annuities (17,640) 2,881 26,264 109,089
Fixed Annuities 1,002,718 804,980 29,499 80,260
Life Insurance 171,255 201,986 31,021 68,832
Corporate and Other 137,700 105,646 (4,089) 14,773
----------- ---------- ---------- --------
Total $1,294,033 1,115,493 82,695 272,954
----------- ---------- ---------- --------
----------- ---------- ---------- --------
1994: Variable Annuities (13,415) 2,277 22,135 83,701
Fixed Annuities 903,572 702,082 29,849 69,975
Life Insurance 166,329 191,006 29,495 69,861
Corporate and Other 154,325 97,302 4,089 17,115
----------- ---------- ---------- --------
Total $1,210,811 992,667 85,568 240,652
----------- ---------- ---------- --------
----------- ---------- ---------- --------
</TABLE>
(1) Unearned premiums are included in Column C amounts.
(2) Column E agrees to the sum of the Balance Sheet captions, Policyholders'
dividend accumulations and Other policyholder funds.
(3) Allocations of net investment income and certain general expenses are
based on a number of assumptions and estimates, and reported operating
results would change by segment if different methods were applied.
See accompanying independent auditors' report.
<PAGE>
SCHEDULE IV
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Reinsurance
As of December 31, 1996, 1995 and 1994
and for each of the years then ended
($000's omitted)
<TABLE>
<CAPTION>
- ------------------------ ------------ --------------- --------------- ---------- -------------
Column A Column B Column C Column D Column E Column F
- ------------------------ ------------ --------------- --------------- ---------- -------------
Percentage
Ceded to Assumed from of amount
Gross amount other companies other companies Net amount assumed to net
- ------------------------ ------------ --------------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1996:
Life insurance in force $47,071,264 6,633,567 288,593 40,726,290 0.7%
------------ --------------- --------------- ---------- -------------
------------ --------------- --------------- ---------- -------------
Premiums:
Life insurance 225,615 29,282 2,309 198,642 1.2%
Accident and health
insurance 291,871 305,789 13,918 - N/A
------------ --------------- --------------- ---------- -------------
Total $ 517,486 335,071 16,227 198,642 8.2%
------------ --------------- --------------- ---------- -------------
------------ --------------- --------------- ---------- -------------
1995:
Life Insurance in force $41,087,025 8,935,743 391,174 32,542,456 1.2%
------------ --------------- --------------- ---------- -------------
------------ --------------- --------------- ---------- -------------
Premiums:
Life insurance 221,257 24,360 2,209 199,106 1.1%
Accident and health
insurance 298,058 313,036 14,978 - N/A
------------ --------------- --------------- ---------- -------------
Total $ 519,315 337,396 17,187 199,106 8.6%
------------ --------------- --------------- ---------- -------------
------------ --------------- --------------- ---------- -------------
1994:
Life Insurance in force $35,926,633 7,550,623 829,742 29,205,752 2.8%
------------ --------------- --------------- ---------- -------------
------------ --------------- --------------- ---------- -------------
Premiums:
Life insurance 198,705 24,912 2,865 176,658 1.6%
Accident and health
insurance 303,435 321,696 18,261 - N/A
------------ --------------- --------------- ---------- -------------
Total $ 502,140 346,608 21,126 176,658 12.0%
------------ --------------- --------------- ---------- -------------
------------ --------------- --------------- ---------- -------------
</TABLE>
- ---------------
Note: The life insurance caption represents principally premiums from
traditional life insurance and life-contingent immediate annuities
and excludes deposits on investment products and universal life
insurance products.
See accompanying independent auditors' report.
<PAGE>
SCHEDULE V
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
- ---------------------------------------------------- ------------ -------------------------- ---------- -------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------- ------------ -------------------------- ---------- -------------
Balance at Charged to
beginning of costs and Charged to Deductions Balance at
Description period expenses other accounts (1) end of period
- ---------------------------------------------------- ------------ ---------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1996:
Valuation allowances - mortgage loans on real estate $49,128 4,497 - 2,587 51,038
Valuation allowances - real estate 25,819 (10,600) - - 15,219
------------ ---------- -------------- ---------- -------------
Total $74,947 (6,103) - 2,587 66,257
------------ ---------- -------------- ---------- -------------
------------ ---------- -------------- ---------- -------------
1995:
Valuation allowances - fixed maturity securities - 8,908 - 8,908 -
Valuation allowances - mortgage loans on real estate 46,382 7,433 - 4,686 49,128
Valuation allowances - real estate 27,330 (1,511) - - 25,819
------------ ---------- -------------- ---------- -------------
Total $73,711 14,830 - 13,594 74,947
------------ ---------- -------------- ---------- -------------
------------ ---------- -------------- ---------- -------------
1994:
Valuation allowances - fixed maturity securities 4,800 (4,800) - - -
Valuation allowances - mortgage loans on real estate 42,150 20,445 - 16,214 46,381
Valuation allowances - real estate 31,357 (4,027) - - 27,330
------------ ---------- -------------- ---------- -------------
Total $78,307 11,618 - 16,214 73,711
------------ ---------- -------------- ---------- -------------
------------ ---------- -------------- ---------- -------------
</TABLE>
- --------------
(1) Amounts represent direct write-downs charged against the valuation
allowance.
See accompanying independent auditors' report.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company Act
of 1940, the Registrant, NATIONWIDE VARIABLE ACCOUNT-9, has caused this
Pre-Effective Amendment No. 1 to the Registration Statement to be signed on
its behalf in the City of Columbus, and State of Ohio, on this 2nd day of
October, 1997.
NATIONWIDE VARIABLE ACCOUNT-9
------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
(Depositor)
By/s/JOSEPH P. RATH
------------------------------------
Joseph P. Rath
Vice President - Product and Market Compliance
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the 2nd day of
October, 1997.
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- ----------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- ----------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ----------------------------
Willard J. Engel
FRED C. FINNEY Director
- ----------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- ----------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief Operating Officer and Director
- ----------------------------
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board and Director
- ----------------------------
Henry S. Holloway
DIMON RICHARD MCFERSON Chairman and Chief Executive Officer-Nationwide
- ---------------------------- Insurance Enterprise and Director
Dimon Richard McFerson
DAVID O. MILLER Director
- ----------------------------
David O. Miller
C. RAY NOECKER Director
- ----------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President- Chief Financial Officer
- ----------------------------
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ---------------------------- -----------------------
James F. Patterson Joseph P. Rath
ARDEN L. SHISLER Director Attorney-in-Fact
- ----------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- ----------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ----------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- ----------------------------
Harold W. Weihl
<PAGE>
EXHIBIT NO. 4
THE VARIABLE ANNUITY CONTRACT FORM
<PAGE>
NATIONWIDE
[LOGO] INSURANCE
Nationwide is on your side
NATIONWIDE LIFE INSURANCE COMPANY
Home Office Columbus, Ohio
(HEREINAFTER CALLED THE COMPANY)
- --------------------------------------------------------------------------------
APPLICATION FOR GROUP MODIFIED SINGLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT, NON-PARTICIPATING
MADE TO
NATIONWIDE LIFE INSURANCE COMPANY
(Called Nationwide)
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
[Applicant]
- --------------------------------------------------------------------------------
(Exact Name of Applicant)
The Applicant applies for Group Modified Single Purchase Payment Deferred
Variable Annuity Form No. APO-3416
The Applicant approves and accepts the terms of the Contract.
The Applicant certifies that to the best of his or her knowledge the Applicant
has authority to enter into the Contract.
If Nationwide fails to accept this Application, the amounts received will be
refunded without interest or charge.
[January 1, 1994] [John Doe]
- ----------------------------------------- ----------------------------------
Date Agent Signature
[January 1, 1994] [Mary Doe]
- ----------------------------------------- ----------------------------------
Date Person Signing for Applicant
[January 1, 1994] [Officer]
- ----------------------------------------- ----------------------------------
Date of Issue Title
<PAGE>
[LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 16609
COLUMBUS, OHIO 43218-2008
1-800-848-6331
(HEREINAFTER CALLED THE COMPANY)
In consideration of the Application for this Contract made by
Key Trust, Trustee, Nationwide BEST OF AMERICA -Registered Trademark- Group
Master Trust
- --------------------------------------------------------------------------------
(hereinafter called the Contract Holder)
FBO Customers of Re:
------------------------------ ---------------------------------------
(Name of B/D) (Indicate NQ, IRA , 403(b), 401,or CRT)
and of the payment of Purchase Payments as provided herein, the Company agrees
to pay, in accordance with and subject to the terms and conditions of this
Contract, the benefits herein set forth with respect to each Certificate Owner.
CONTRACT: Group Modified Single Purchase Payment Deferred Variable Annuity,
Non-Participating, Non-Qualified Contract.
Executed for the Company on the Date of Issue.
/s/ Gorden E. McCutchen /s/ Joseph J. Gasfer
SECRETARY PRESIDENT
READ YOUR CONTRACT CAREFULLY
ANNUITY PAYMENTS, DEATH BENEFITS, SURRENDER VALUES AND OTHER CONTRACT VALUES
PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE
ACCOUNT, OR WHEN SUBJECT TO MARKET VALUE ADJUSTMENT, ARE VARIABLE, MAY INCREASE
OR DECREASE IN ACCORDANCE WITH THE FLUCTUATIONS IN THE NET INVESTMENT FACTOR,
AND ARE NOT GUARANTEED AS TO FIXED-DOLLAR AMOUNT.
<PAGE>
TABLE OF CONTENTS
DEFINITIONS.................................................................. 3
GENERAL PROVISIONS........................................................... 5
CERTIFICATE ACCOUNT
LIMITATION ON CONTRACT OWNER'S RIGHTS
ENTIRE CONTRACT
NON-PARTICIPATING
INCONTESTABILITY
ALTERATION OR MODIFICATION
ASSIGNMENT
MISSTATEMENT OF AGE
PROTECTION OF PROCEEDS
INFORMATION-RECORDS
REPORTS
NUMBER AND GENDER
DEDUCTIONS AND CHARGES....................................................... 6
OWNERSHIP PROVISIONS......................................................... 6
DEATH PROVISIONS............................................................. 6
DEATH BENEFIT PAYMENT PROVISIONS
ACCUMULATION PROVISIONS...................................................... 7
MODIFIED SINGLE PURCHASE PAYMENTS
CONTRACT VALUE
SURRENDERS AND WITHDRAWALS................................................... 7
DISTRIBUTIONS PROVISIONS..................................................... 8
ANNUITIZATION PROVISIONS..................................................... 8
2
<PAGE>
DEFINITIONS
ANNUITANT - The person designated with respect to each Certificate Owner's
account 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 Certificate 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 received.
ANNUITIZATION DATE - The date the annuity payments commence.
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
Certificate Agreement, and is subject to change by the Certificate Owner.
ANNUITY PAYMENT OPTION - The chosen form of annuity payments. Several options
are available under the Certificate Agreement.
BENEFICIARY - The person designated with respect to the Certificate Owner's
account 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 Certificate Owner as set forth in the Certificate Agreement.
CERTIFICATE AGREEMENT - The document which describes a Certificate Owner's
rights and benefits.
CERTIFICATE ACCOUNT - An account in which all financial transactions occurring
under the Contract prior to the Annuitization Date with respect to the
Certificate Owner are recorded.
CERTIFICATE ACCOUNT VALUE - With respect to a Certificate Account, the sum of
the value of all Accumulation Units attributable to the Certificate Account,
plus any amount attributable to the Fixed Account, plus any amount attributable
to the Variable Account and held under a Guaranteed Term Option (GTO) which may
be subject to Market Value Adjustment.
CERTIFICATE EFFECTIVE DATE - With respect to each Certificate Owner, the first
date Purchase Payments are credited on the Certificate Owner's behalf to the
Contract.
CERTIFICATE OWNER (OWNER) - The person who possesses all rights under the
Contract, including the right to designate and change any designations of the
Certificate Owner, Contingent Certificate Owner, Annuitant, Contingent
Annuitant, Beneficiary, Contingent Beneficiary, Annuity Payment Option, and
Annuity Commencement Date. The Certificate Owner is the person named as owner
in the enrollment form unless a subsequent change is made.
CODE - The Internal Revenue Code of 1986, as amended.
COMPANY - Nationwide Life Insurance Company.
CONTINGENT ANNUITANT - The Contingent Annuitant may be the recipient of certain
rights or benefits under the Certificate Agreement when the Annuitant dies
before the Annuitization Date. If the Annuitant dies before the Annuitization
Date, The Contingent Annuitant becomes the Annuitant. All provisions of the
Contract which are based on the death of the Annuitant prior to the
Annuitization Date will be based on the death of the last survivor of the
Annuitant and Contingent Annuitant. A Contingent Annuitant may not be named for
Contracts issued as Qualified Contracts, Individual Retirement Annuities, SEP-
IRAs, 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 CERTIFICATE OWNER - A Contingent Certificate Owner succeeds to the
rights of the Certificate Owner upon the Certificate Owner's death before
Annuitization. A Contingent Certificate Owner may not be named for contracts
issued as qualified contracts, Individual Retirement Annuities, SEP IRAs, or Tax
Sheltered Annuities.
3
<PAGE>
CONTRACT - The Group Modified Single Premium Deferred Variable Annuity issued to
the Contract Holder and described herein.
CONTRACT ANNIVERSARY - Each 12 month anniversary the Contract remains in force
commencing with Date of Issue.
CONTRACT HOLDER - The Entity named on the face page. The Contract Holder
possesses no rights under the Contract.
DATE OF ISSUE - The date the first Purchase Payment is applied to the Contract.
DEATH BENEFIT - The benefit that is payable upon the death of the Annuitant
prior to Annuitization. This benefit does not apply upon the death of the
Certificate Owner when the Certificate 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 Certificate Owner's Certificate
Account Value.
FIXED ACCOUNT - The Fixed Account is made up of all assets of the Company other
than those in the Variable Account or any other segregated asset account of the
Company.
GUARANTEED TERM OPTION (GTO) - A funding option offered under the Contract
which provides a guaranteed interest rate (the Specified Interest Rate), paid
over certain maturity durations (the Guaranteed Term), so long as certain
conditions are met.
HOME OFFICE - The Home Office is the main office of the Company located in
Columbus, Ohio.
JOINT CERTIFICATE OWNER - The Joint Certificate Owner, if any, possesses an
undivided interest in the entire Certificate Account in conjunction with the
Certificate Owner. If a Joint Certificate Owner is named, references to
"Certificate Owner" or "Joint Certificate Owner" will apply to both the
Certificate Owner and Joint Certificate Owner or either of them. Where such a
restriction is permitted by state law, Joint Owners must be spouses at the time
joint ownership is requested. Joint ownership may be selected only for a
Non-Qualified Contract.
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
(IRAs) 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 between the Variable Account and Fixed
Account, or among the Sub-Accounts.
VARIABLE ACCOUNT - 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.
4
<PAGE>
GENERAL PROVISIONS
CERTIFICATE ACCOUNT
The Company shall establish and maintain a Certificate Account for each
Certificate Owner under this Contract.
LIMITATIONS ON CONTRACT HOLDER'S RIGHTS
The Contract Holder rights under the Contract with respect to a Certificate
Account are delegated to the Certificate Owner. A Certificate Owner has the
sole authority to exercise contractual rights with respect to the Certificate
Account. These rights are described in the Certificate Agreement.
ENTIRE CONTRACT
The Contract is the entire agreement between the Company and the Contract
Holder. All statements made in the application will be deemed to be
representations and not warranties.
NON-PARTICIPATING
The Contract is non-participating. It will not share in the surplus of the
Company.
INCONTESTABILITY
The Contract will not be contested.
ALTERATION OR MODIFICATION
The Company reserves the right to: (1) not accept any new Certificate Owners in
the Contract as of a specified date; (2) discontinue the Fixed Account option
for any new Certificate Owner as of a specified date: and (3) not accept future
deposits into the Fixed Account from existing Certificate Owners.
The Company reserves the right to change any other provision of this Contract as
of the first Contract Anniversary, and at any time thereafter, by giving written
notice to the Contract Holder not less than 90 days before the effective date of
the change. No such change will adversely affect the rights of any Certificate
Owner with an interest in the Contract prior to the effective date of the change
unless: (1) the change is required by a governmental agency, or (2) the consent
of every Certificate Owner with a contractual interest is obtained.
All changes in or to the terms of the Contract must be: (1) made in writing;
and (2) signed by the President or Secretary of the Company. No other person
can alter or change any of the terms or conditions of this Contract.
ASSIGNMENT
Where permitted, the Certificate Owner may assign some or all rights under this
Contract at any time during the lifetime of the Annuitant, prior to the
Annuitization Date. The Company shall not be liable as to any payment or other
settlement made by the Company before recording of the assignment. The Company
is not responsible for the validity or tax consequences of any assignment. Such
assignment will take effect upon receipt and recording by the Company at its
Home Office of written notice executed by the Certificate Owner. Where
necessary for proper administration of the terms of the Contract, an assignment
will not be recorded until the Company has received sufficient direction from
the Certificate Owner and assignee as to the proper allocation of Contract
rights under the assignment.
5
<PAGE>
The value of any portion of the Contract which is assigned, pledged or
transferred by gift may be treated like a cash withdrawal for federal tax
purposes and may be subject to a tax penalty. All rights in the Contract are
personal to the Certificate Owner and may not be assigned without written
consent of the Company.
MISSTATEMENT OF AGE
If the age or sex of any Annuitant has been misstated, all payments and benefits
under the Contract will be adjusted as provided for in the Certificate
Agreement.
PROTECTION OF PROCEEDS
Proceeds of any interest under the Contract are not assignable by any
Beneficiary prior to the time they are due. Proceeds are not subject to the
claims of creditors or to legal process, except as mandated by applicable laws.
INFORMATION - RECORDS
The Contract Holder or Certificate Owner shall furnish all information which the
Company may reasonably require for the administration of the Contract or
Certificate Agreement. The Company will not be liable for the fulfillment of
any obligations until it receives all information in a satisfactory form.
REPORTS
At least once each year, prior to the Annuitization Date, a report showing the
Certificate Account Value will be provided to the Certificate Owner.
Number and Gender
Unless otherwise provided, all references in the Contract which are in the
singular form will include the plural; all references in the plural form will
include the singular; and all references in the male gender will include the
female and neuter genders.
DEDUCTIONS AND CHARGES
The Company will charge against each Certificate Account Value the amount of any
premium taxes levied by a state or any other government entity.
The Company will deduct a Mortality and Expense Risk Charge equal on an annual
basis to [not greater than 1.25%] . This charge will be applied to the daily
net asset value of each Certificate Variable Account value.
All deductions and charges will be made for the purposes of and in the manner
prescribed in the Certificate Agreement.
OWNERSHIP PROVISIONS
All ownership rights of the Certificate Owner, Joint Certificate Owner,
Contingent Certificate Owner, Annuitant, Contingent Annuitant and Beneficiary
are defined in the Certificate Agreement.
6
<PAGE>
DEATH PROVISIONS
Upon the death of any Certificate Owner, prior to Annuitization, the Certificate
Owner's entire interest in the Contract will be distributed in accordance with
and in the manner described under the Death Provisions of the Certificate
Agreement and as required by Section 72(s) of the Code.
Prior to Annuitization, a Death Benefit is payable upon the death of the
Annuitant. The Death Benefit will be distributed in accordance with and in the
manner described under the Death Provisions of the Certificate Agreement and as
required by Section 72(s) of the Code.
In the event that an interest under this Contract is owned by a person that is
not a natural person (e.g., a trust or corporation), then, for purposes of the
Required Distribution Provisions of the Certificate Agreement, (i) the death of
the Annuitant shall be treated as the death of any Certificate Owner, (ii) any
change of the Annuitant shall be treated as the death of any Certificate Owner,
and (iii) in either case the appropriate distribution required under the
distribution rules shall be made upon such death or change, as the case may be.
The Annuitant is the primary annuitant as defined by Section 72(s)(6)(B) of the
Code.
Each interest in the Contract is intended to be treated as an "annuity contract"
for federal income tax purposes. Accordingly all provisions of the Contract
shall be interpreted and administered in accordance with the requirements of
Section 72(s) of the Code. In no event shall any payment be deferred beyond the
limits permitted by Section 72(s) of the Code. The Company reserves the right
to amend the Contract to comply with requirements set out in the Code and
regulations and rulings thereunder, as they may exit from time to time.
DEATH BENEFIT PAYMENT PROVISIONS
The value of the Death Benefit will be determined as of the date specified in
the Certificate Agreement and will be calculated in the manner described
therein.
ACCUMULATION PROVISIONS
MODIFIED SINGLE PURCHASE PAYMENTS
A Certificate Owner's interest in the Contract is bought for the initial
Purchase Payment and any subsequent Purchase Payments. The cumulative total of
all Purchase Payments for any one Annuitant under this and any other annuity
contract(s) issued by the Company having the same Annuitant may not exceed
$1,000,000 without the prior written consent of the Company.
The initial Purchase Payment is due on the Certificate Effective Date. The
initial Purchase Payment made on behalf of each Certificate Owner may not be
less than $15,000. Certificate Owner Purchase Payments, if any, after the
initial Purchase Payment must be at least $1,000 and may be made at any time.
Based on the Certificate Owner's election, Purchase Payments will be allocated
to the Variable Account, the Fixed Account, or to a Guaranteed Term Option.
These accounts and options, applicable provisions, and restrictions and rights
applicable to the Certificate Owner, are defined and described in the
Certificate Agreement.
CONTRACT VALUE
The Contract Value at any time will be the sum of all (1) Variable Certificate
Account Values; and (2) Fixed Certificate Account Values, and (3) amounts
allocated under each Certificate Account to a GTO.
7
<PAGE>
SURRENDERS AND WITHDRAWALS
SURRENDERS
The Certificate Owner may surrender part or all of the Certificate Account Value
at any time a Certificate Agreement is in force and prior to the earlier of the
Annuitization Date or the death of the Annuitant. All conditions and
restrictions applicable to Certificate Account surrenders are prescribed in the
Certificate Agreement.
The Company has the right to suspend or delay the date of any surrender payment
from the Variable Account for any period defined in the Certificate Agreement.
CONTINGENT DEFERRED SALES CHARGE
If part or all of the Certificate Account Value is surrendered, a Contingent
Deferred Sales Charge (CDSC) may be made by the Company. The CDSC is designed
to cover expenses relating to the sale of the Certificate Account interest. All
provisions governing the applicability of CDSC, including the waivers of CDSC,
are prescribed in the Certificate Agreement.
SYSTEMATIC WITHDRAWALS
The Certificate Owner may elect in writing on a form provided by the Company to
take Systematic Withdrawals as prescribed in the Certificate Agreement.
TRANSFER PROVISIONS
A Certificate Owner may transfer among the accounts available under a
Certificate Agreement. Restrictions and limitations regarding the Certificate
Owner's right to make transfers are described in the Certificate Agreement.
DISTRIBUTION PROVISIONS
The events will give rise to a Distribution of a Certificate Account are defined
in the Certificate Agreement.
ANNUITIZATION PROVISIONS
All Annuitization Provisions, including the selection and change of Annuity
Payment Options, the Annuity Commencement Date, calculation and frequency of
payments, and the available Annuity Payment Options are prescribed in the
Certificate Agreement.
A Supplementary Agreement will be issued to the Annuitant within 30 days
following the Annuitization Date. The Supplementary Agreement will set forth
the terms of the Annuity Payment Option selected.
8
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
P.O. BOX 16609
COLUMBUS, OHIO 43216-6609
5% ENHANCED DEATH BENEFIT RIDER
This Rider is made a part of the Certificate Agreement or Contract to which it
is attached and is effective on the Date of Issue of the Certificate Agreement
or Contract. Reference throughout this rider to "Contracts" shall also mean
"Certificates" issued under group contracts; references to "Owner" shall also
mean "Certificate Owner"; references to "Contract Value" shall also mean
"Certificate Account Value"; and references to "Contract Anniversary Date" shall
also mean "Certificate Anniversary Date".
The benefits described in this rider will cease upon termination of the
Contract.
THE FOLLOWING LANGUAGE IS ADDED UNDER THE [DEDUCTIONS AND CHARGES ]SECTION:
ADDITIONAL CHARGE
For the additional Death Benefits provided by this Rider, the Company will
deduct a charge at an annual maximum rate of 0.15% computed on a quarterly
basis of the daily net asset value of the Variable Account. The Company
reserves the right to charge less than the maximum rate.
THE PARAGRAPH WITHIN THE ["DEATH BENEFIT PAYMENT PROVISIONS"] SECTION OF THE
CONTRACT WHICH DEFINES THE VALUE OF THE DEATH BENEFIT IS REPLACED BY THE
FOLLOWING:
If the Annuitant dies at any time prior to the Annuitization Date, the
dollar amount of the Death Benefit will be the greater of: (1) the
Contract Value, or (2) the 5% Interest Anniversary Value.
The 5% Interest Anniversary Value is equal to the net of Purchase Payments
and amounts surrendered, accumulated at 5% simple interest from the date of
each payment or surrender to the most recent Contract Anniversary prior to
the deceased Annuitant's 86th birthday, less an adjustment for amounts
subsequently surrendered, plus Purchase Payments received since that most
recent Contract Anniversary. 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 will reduce the 5% Interest Anniversary Value in the
same proportion that the Contract Value was reduced on the date of the
partial surrender.
THE FOLLOWING PROVISION IS ADDED AFTER THE ["WITHDRAWALS WITHOUT CHARGES"]
SECTION:
ADDITIONAL WAIVER OF SURRENDER CHARGES
The surrender charge will not apply if the Owner is confined to a Long Term Care
Facility or Hospital for a continuous 90 day period commencing on or after the
third Contract Anniversary Date. Request for waiver must be received by the
Company during the period of confinement or no later than 90 days after the
confinement period ends. Also, the surrender charge will not apply if the Owner
is diagnosed by a Physician to have a Terminal Illness at any time the Contract
is in force.
Written notice and proof of Terminal Illness or confinement for 90 days in a
Hospital or Long Term Care Facility must be received in a form satisfactory to
the Company and recorded at the Home Office prior to the waiver of surrender
charges.
"Confined" means confined as a patient. To be covered, confinement must
commence on or after the third Contract Anniversary Date and be required by
sickness or injury. Such confinement must have been upon the written
recommendation of a physician.
"Injury" means accidental bodily injury which is sustained while this
Contract is in force.
"Sickness" means sickness or disease which manifests itself while this
Contract is in force.
"Physician" means a person who is state licensed to give medical care or
treatment and is acting within the scope of that license. This person cannot be
the Owner, the Annuitant, Contingent Annuitant, nor a member of the immediate
family of these persons.
<PAGE>
"Terminal Illness" means diagnosis of an illness by a Physician which is
expected to result in death within 12 months of diagnosis. The diagnosis of
"Terminal Illness" must occur after the Contract is in force.
"Long Term Care Facility" means a state Skilled Nursing Facility or
Intermediate Care Facility. Long Term Care Facility does not mean: A place that
primarily treats drug addicts or alcoholics; a home for the aged or mentally
ill, a community living center, or a place that primarily provides domiciliary,
residency, or retirement care; or a place owned or operated by a member of the
Owner's immediate family.
"Skilled Nursing Facility" means a licensed facility which is operated as a
Skilled Nursing Facility according to the law of the jurisdiction in which it is
located; provides skilled nursing care under the supervision of a physician;
provides continuous 24 hour a day nursing service by or under the supervision of
a registered graduate professional nurse (R.N.); and maintains a daily medical
record of each patient.
"Intermediate Care Facility" means a licensed facility which is operated as
an Intermediate Care Facility according to the law of the jurisdiction in which
it is located; provides continuous 24 hours a day nursing service by or under
the supervision of a registered graduate professional nurse (R.N.) or a licensed
practical nurse (L.P.N.); and maintains a daily medical record of each patient.
"Hospital" means a state licensed facility which is operated as a Hospital
according to the law of the jurisdiction in which it is located; operates
primarily for the care and treatment of sick or injured persons as inpatients;
provides continuous 24 hours a day nursing service by or under the supervision
of a registered graduate professional nurse (R.N.) or a licensed practical nurse
(L.P.N.); is supervised by a staff of physicians; and has medical, diagnostic,
and major surgical facilities or has access to such facilities on a prearranged
basis.
/s/ Gorden E. McCutchen /s/ Joseph J. Gasfer
Secretary President
2
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
P.O. BOX 16609
COLUMBUS, OHIO 43216-6609
MAXIMUM ANNIVERSARY ENHANCED DEATH BENEFIT RIDER
This Rider is made a part of the Certificate Agreement or Contract to which it
is attached and is effective on the Date of Issue of the Certificate Agreement
or Contract. Reference throughout this rider to "Contracts" shall also mean
"Certificates" issued under group contracts; references to "Owner" shall also
mean "Certificate Owner"; references to "Contract Value" shall also mean
"Certificate Account Value"; and references to "Contract Anniversary Date" shall
also mean "Certificate Anniversary Date".
The benefits described in this rider will cease upon termination of the
Contract.
THE FOLLOWING LANGUAGE IS ADDED UNDER THE ["DEDUCTIONS AND CHARGES"] SECTION:
ADDITIONAL CHARGE
For the additional Death Benefits provided by this Rider, the Company will
deduct a charge at an annual maximum rate of 0.15% computed on a quarterly
basis of the daily net asset value of the Variable Account. The Company
reserves the right to charge less than the maximum rate.
THE PARAGRAPH WITHIN THE ["DEATH BENEFIT PAYMENT PROVISIONS"] SECTION OF THE
CONTRACT WHICH DEFINES THE VALUE OF THE DEATH BENEFIT IS REPLACED BY THE
FOLLOWING:
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 Account Value; or (2) the sum of all Purchase Payments, less an
adjustment for amounts surrendered; or (3) the greatest Contract Value on
any Contract Anniversary Date prior to the deceased Annuitant's 86th
birthday, less an adjustment for amounts subsequently surrendered, plus
Purchase Payments received after that Contract Anniversary Date.
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.
THE FOLLOWING PROVISION IS ADDED AFTER THE ["WITHDRAWALS WITHOUT CHARGES"]
SECTION:
ADDITIONAL WAIVER OF SURRENDER CHARGES
The surrender charge will not apply if the Owner is confined to a Long Term Care
Facility or Hospital for a continuous 90 day period commencing on or after the
third Contract Anniversary Date. Request for waiver must be received by the
Company during the period of confinement or no later than 90 days after the
confinement period ends. Also, the surrender charge will not apply if the Owner
is diagnosed by a Physician to have a Terminal Illness at any time the Contract
is in force.
Written notice and proof of Terminal Illness or confinement for 90 days in a
Hospital or Long Term Care Facility must be received in a form satisfactory to
the Company and recorded at the Home Office prior to the waiver of surrender
charges.
"Confined" means confined as a patient. To be covered, confinement must
commence on or after the third Contract Anniversary Date and be required by
sickness or injury. Such confinement must have been upon the written
recommendation of a physician.
"Injury" means accidental bodily injury which is sustained while this
Contract is in force.
"Sickness" means sickness or disease which manifests itself while this
Contract is in force.
"Physician" means a person who is state licensed to give medical care or
treatment and is acting within the scope of that license. This person cannot be
the Owner, the Annuitant, Contingent Annuitant, nor a member of the immediate
family of these persons.
"Terminal Illness" means diagnosis of an illness by a Physician which is
expected to result in death within 12 months of diagnosis. The diagnosis of
"Terminal Illness" must occur after the Contract is in force.
<PAGE>
"Long Term Care Facility" means a state Skilled Nursing Facility or
Intermediate Care Facility. Long Term Care Facility does not mean: A place that
primarily treats drug addicts or alcoholics; a home for the aged or mentally
ill, a community living center, or a place that primarily provides domiciliary,
residency, or retirement care; or a place owned or operated by a member of the
Owner's immediate family.
"Skilled Nursing Facility" means a licensed facility which is operated as a
Skilled Nursing Facility according to the law of the jurisdiction in which it is
located; provides skilled nursing care under the supervision of a physician;
provides continuous 24 hour a day nursing service by or under the supervision of
a registered graduate professional nurse (R.N.); and maintains a daily medical
record of each patient.
"Intermediate Care Facility" means a licensed facility which is operated as
an Intermediate Care Facility according to the law of the jurisdiction in which
it is located; provides continuous 24 hours a day nursing service by or under
the supervision of a registered graduate professional nurse (R.N.) or a licensed
practical nurse (L.P.N.); and maintains a daily medical record of each patient.
"Hospital" means a state licensed facility which is operated as a Hospital
according to the law of the jurisdiction in which it is located; operates
primarily for the care and treatment of sick or injured persons as inpatients;
provides continuous 24 hours a day nursing service by or under the supervision
of a registered graduate professional nurse (R.N.); or a licensed practical
nurse (L.P.N.); is supervised by a staff of physicians; and has medical,
diagnostic, and major surgical facilities or has access to such facilities on a
prearranged basis.
/s/ Gorden E. McCutchen /s/ Joseph J. Gasfer
Secretary President
2
<PAGE>
DATA PAGE
CERTIFICATE AGREEMENT OWNER CERTIFICATE AGREEMENT NUMBER
[John Doe [9999999]
1222 High Street
Anycity, Anystate 55555] DATE OF ISSUE
[January 1, 1993]
ANNUITANT ANNUITY COMMENCEMENT DATE
[Jane Doe] [December 31, 2033]
SEX OF ANNUITANT PURCHASE PAYMENT
[Female] [$15,000]
AGE OF ANNUITANT PLAN TYPE
[35] [Non-Qualified]
The Purchase Payment will be applied to the General Account of Nationwide Life
Insurance Company or toward the purchase of shares at Net Asset Value of the
following funds--
NATIONWIDE SEPARATE ACCOUNT TRUST (NSAT)
CAPITAL APPRECIATION FUND GOVERNMENT BOND FUND
MONEY MARKET FUND SMALL COMPANY FUND
TOTAL RETURN FUND
NATIONWIDE LIFE INSURANCE COMPANY
FIXED ACCOUNT
For use with the Nationwide VA Separate Account-9
Although rates can fluctuate annually, in no event will the Guaranteed Interest
Account earn less than [3.0%] Annualized Interest.
<PAGE>
[Logo]
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 16609
COLUMBUS, OHIO 43218-2008
1-800-848-6331
(HEREINAFTER CALLED THE COMPANY)
CERTIFICATE AGREEMENT
------------------------------------
Certificate Effective Date
- ---------------------- -------------------------- ----------------------
Certificate Owner Name Date of Birth Social Security
Number
NATIONWIDE LIFE INSURANCE COMPANY
COLUMBUS OHIO
Nationwide Life Insurance Company ("Nationwide") issues this Certificate of
Participation ("Certificate Agreement") to the Certificate Owner named below.
The terms of the Certificate Owner's rights, benefits, and options are shown in
the following pages.
This Certificate Agreement describes the Certificate Owner's rights and
benefits. It is not part of, nor does it modify any provisions of the Contract.
Group Contract Number:
---------------------------------------------------------
Group Contract Holder: TRUSTEE, NATIONWIDE BEST OF AMERICA-Registered Trademark-
GROUP MASTER TRUST
---------------------------------------------------------
FBO Re:
------------------------------- ---------------------------------------
(Name of B/D) (Indicate NQ, IRA, 403(b), 401, or CRT)
To be sure that the Certificate Owner is satisfied with this Certificate, the
Certificate Owner has a TEN DAY "FREE LOOK". Within ten days of the day the
Certificate is received by the Certificate Owner, it may be returned to the Home
Office of the Company. When the Certificate is received at the Home Office, the
Certificate Account Value will be refunded in full.
/s/ Gorden E. McCutchen /s/ Joseph J. Gasfer
SECRETARY PRESIDENT
ANNUITY PAYMENTS, DEATH BENEFITS, SURRENDER VALUES, AND OTHER CONTRACT VALUES
PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE
ACCOUNT, OR WHEN SUBJECT TO A MARKET VALUE ADJUSTMENT, ARE VARIABLE, MAY
INCREASE OR DECREASE IN ACCORDANCE WITH THE FLUCTUATIONS IN THE NET INVESTMENT
FACTOR OR APPLICATION OF A MARKET VALUE ADJUSTMENT, AS APPLICABLE, AND ARE NOT
GUARANTEED AS TO FIXED-DOLLAR AMOUNT, UNLESS OTHERWISE SPECIFIED.
NOTICE - The details of the variable provisions in the
Certificate may be found on Pages 16 and 24
<PAGE>
SUMMARY OF PARTICIPATION
As a Certificate Owner in the Group Modified Single Purchase Payment Deferred
Variable Annuity, you are entitled to certain rights, benefits and options.
Here is a summary of your rights. A more detailed description is provided in
this Certificate Agreement (and any applicable endorsements).
You have the right to:
- - choose from a variety of fund options in which your purchase payments will
be invested;
- - make additional purchase payments (a minimum of $1,000) after the initial
payment;
- - transfer variable assets among the various funds without a charge;
- - make telephone exchanges where permitted by state law;
- - withdraw free of a contingent deferred sales charge each year, 10% of your
purchase payments (non-cumulative);
- - make withdrawals pursuant to a systematic withdrawal program;
- - choose a beneficiary of the death benefit;
- - choose an annuity commencement date, as permitted by the Internal Revenue
Code;
- - choose an annuity option when you annuitize your interest in the Contract.
Your rights under this Certificate Agreement cannot be taken away from you.
Your benefits under this Certificate Agreement cannot be denied. However, this
does not mean that the benefits must be paid to you immediately. The provisions
of the Internal Revenue Code are designed to discourage receiving benefits
before retirement.
If this Certificate Agreement is issued pursuant to an Individual Retirement
Annuity contract, this Certificate Agreement and the benefits under it cannot be
sold, assigned, discounted or pledged as collateral for a loan or as security
for the performance of an obligation or for any purpose, to any person other
than the Company.
<PAGE>
CONTENTS
DATA PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INSERT
CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
GENERALPROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CERTIFICATE ACCOUNT
ENTIRE CONTRACT
NON-PARTICIPATING
INCONTESTABILITY
CONTRACT SETTLEMENT
EVIDENCE OF SURVIVAL
ALTERATION OR MODIFICATION
ASSIGNMENT
PROTECTION OF PROCEEDS
MISSTATEMENT OF AGE OR SEX
INFORMATION - RECORDS
REPORTS
NUMBER AND GENDER
DEDUCTIONS AND CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . .10
DEDUCTION FOR PREMIUM TAXES
MORALITY AND EXPENSE RISK CHARGE
OWNERSHIP PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .11
CERTIFICATE OWNERSHIP PROVISIONS
JOINT CERTIFICATE OWNERSHIP PROVISIONS
CONTINGENT CERTIFICATE OWNERSHIP PROVISIONS
BENEFICIARY PROVISIONS
DEATH PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
DEATH OF CERTIFICATE OWNER
DEATH OF CERTIFICATE OWNER/ANNUITANT PROVISIONS
DEATH OF ANNUITANT PROVISIONS
REQUIRED DISTRIBUTION PROVISIONS
DEATH BENEFIT PAYMENT PROVISIONS
ACCUMULATION PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . .14
MODIFIED SINGLE PURCHASE PAYMENTS
ALLOCATION OF PURCHASE PAYMENTS
CERTIFICATE ACCOUNT VALUE
CONTRACT VALUE
FIXED ACCOUNT CERTIFICATE VALUE
FIXED ACCOUNT PROVISIONS
INTEREST TO BE CREDITED
VARIABLE ACCOUNT CERTIFICATE VALUE
THE VARIABLE ACCOUNT
INVESTMENTS OF THE VARIABLE ACCOUNT
VALUATION OF ASSETS
VARIABLE ACCOUNT ACCUMULATION UNITS
VARIABLE ACCOUNT ACCUMULATION UNIT VALUE
NET INVESTMENT FACTOR
THE MULTIPLE MATURITY ACCOUNT
GUARANTEED TERM OPTIONS
MARKET VALUE ADJUSTMENT FORMULA
<PAGE>
SURRENDERS, WITHDRAWALS AND TRANSFERS. . . . . . . . . . . . . . . . . . .18
SURRENDERS
SURRENDER VALUE
SUSPENSION OR DELAY IN PAYMENT OF SURRENDER
CONTINGENT DEFERRED SALES CHARGE
WITHDRAWALS WITHOUT CHARGE
SYSTEMATIC WITHDRAWALS
TRANSFER PROVISIONS
DISTRIBUTION PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . .21
ANNUITIZATION PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . .21
ANNUITIZATION
ANNUITY COMMENCEMENT DATE
CHANGE OF ANNUITY COMMENCEMENT DATE
CHANGE OF ANNUITY PAYMENT OPTION
SELECTION OF PAYMENT OPTION
SUPPLEMENTARY AGREEMENT
FREQUENCY AND AMOUNT OF PAYMENTS
FIXED ANNUITY PROVISION
VARIABLE ANNUITY PROVISIONS
DETERMINATION OF FIRST VARIABLE ANNUITY PAYMENT
ANNUITY UNIT VALUE
VARIABLE ANNUITY PAYMENTS AFTER THE FIRST PAYMENT
ANNUITY PAYMENT OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . .23
GENERAL
INDIVIDUAL CERTIFICATE
LIFE ANNUITY
JOINT AND LAST SURVIVOR ANNUITY
LIFE ANNUITY - MONTHLY PAYMENTS GUARANTEED
ANY OTHER OPTION
TABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
<PAGE>
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate the Variable
Account value prior to the Annuitization Date.
ANNIVERSARY VALUE - The Certificate Account Value on a Certificate Anniversary.
ANNUITANT - The person designated with respect to a Certificate Owner's account
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 Certificate Agreement 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 received.
ANNUITIZATION DATE - The date the annuity payments actually commence.
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
Certificate Agreement, and is subject to change by the Certificate 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 with respect to a Certificate Owner's
account to receive certain benefits under the Certificate Agreement upon the
death of the Annuitant prior to the Annuitization Date. The Beneficiary can be
changed by the Certificate Owner as set forth in the Certificate Agreement.
CERTIFICATE AGREEMENT - The document which describes a Certificate Owner's
rights and benefits.
CERTIFICATE ACCOUNT - An account in which all financial transactions occurring
under the Contract prior to the Annuitization Date with respect to a Certificate
Owner are recorded.
CERTIFICATE ACCOUNT VALUE - With respect to a Certificate Account, the sum of
the value of all Accumulation Units, plus any amount attributable to the Fixed
Account, plus any amount held under a Guaranteed Term Option (GTO) which may be
subject to Market Value Adjustment.
CERTIFICATE ANNIVERSARY - Each 12-month anniversary of the Certificate Effective
Date.
CERTIFICATE EFFECTIVE DATE - With respect to each Certificate Owner, the first
date Purchase Payments are credited on a Certificate Owner's behalf to the
Contract.
CERTIFICATE OWNER (OWNER) - A person who possesses all rights under the
Contract, including the right to designate and change any designations of a
Certificate Owner, Contingent Certificate Owner, Annuitant, Contingent
Annuitant, Beneficiary, Contingent Beneficiary, Annuity Payment Option, and the
Annuity Commencement Date. A Certificate Owner is the person named as owner in
the Enrollment Card unless a subsequent change is made.
CERTIFICATE YEAR - Each year the Certificate Agreement remains in force
commencing with the Certificate Effective Date.
CODE - The Internal Revenue Code of 1986, as amended.
COMPANY - Nationwide Life Insurance Company.
CONSTANT MATURITY TREASURY RATES (CMT RATES) OR CMT RATES(S) - The formula (the
MVA Formula) for deriving the MVA Factor is based on Constant Maturity Treasury
(CMT) Rates which are published by the Federal Reserve Board on a regular basis.
The Company utilizes CMT Rates in its MVA Formula because they represent a
readily available and consistently reliable interest rate benchmark in financial
markets. CMT Rates for 1, 2, 3, 5, 7 and 10 years are published by the Federal
Reserve Board on a regular basis.
5
<PAGE>
CONTINGENT ANNUITANT - The Contingent Annuitant may be the recipient of certain
rights or benefits under the Certificate Agreement when the Annuitant dies
before the Annuitization Date. If the Annuitant dies before the Annuitization
Date, the Contingent Annuitant becomes the Annuitant. All provisions of the
Contract which are based on the death of the Annuitant prior to the
Annuitization Date will be based on the death of the last survivor of the
Annuitant and Contingent Annuitant. A Contingent Annuitant may not be named for
Contracts issued as Qualified Contracts, Individual Retirement Annuities, SEP-
IRAs, 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 CERTIFICATE OWNER - A Contingent Certificate Owner succeeds to the
rights of a Certificate Owner upon the Certificate Owner's death before
Annuitization. A Contingent Certificate Owner may not be named for Contracts
issued as Qualified Contracts, Individual Retirement Annuities, SEP IRAs, or Tax
Sheltered Annuities.
CONTRACT - The Group Modified Single Premium Deferred Variable Annuity issued to
the Contract Holder.
CONTRACT ANNIVERSARY - Each 12 month anniversary the Contract remains in force
commencing with Date of Issue.
CONTRACT HOLDER - The Entity named on the face page. The Contract Holder
possesses no rights under Contract.
DATE OF ISSUE - The date the first Purchase Payment is applied to the Contract.
DEATH BENEFIT - The benefit that is payable upon the death of the Annuitant or
the Contingent Annuitant, if applicable. This benefit does not apply upon the
death of the Certificate Owner when the Certificate 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 a Certificate Owner's Certificate
Account Value.
ENROLLMENT CARD - The form required for participation in the Contract.
FIXED ACCOUNT - The Fixed Account is 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 - The three, five, seven or ten year period corresponding
respectively to a three, five, seven or ten year Guaranteed Term Option (GTO).
Amounts allocated to a GTO shall be credited with a Specified Interest Rate over
the corresponding Guaranteed Term, so long as such amounts are not distributed
from the GTO prior to the Maturity Date.
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 of the GTO.
GUARANTEED TERM OPTION (GTO) - A funding option offered under the Contract
which provides a guaranteed interest rate (the "Specified Interest Rate"), paid
over certain maturity durations (the "Guaranteed Term"), so long as certain
conditions are met. Three, five, seven and ten year GTOs are offered. If
amounts allocated to a GTO are not distributed from the GTO during the duration
of its Guaranteed Term, the value of the amounts allocated under the GTO will
reflect the amount of the allocation plus interest accrued at the Specified
Interest Rate and will be available for distribution with no Market Value
Adjustment during the Maturity Period. Prior to the Maturity Period for the GTO
selected, amounts allocated to such GTO will be subject, upon distribution, to
fluctuations in value in accordance with a Market Value Adjustment. GTOs are
available only prior to Annuitization.
HOME OFFICE - The main office of the Company located in Columbus, Ohio.
6
<PAGE>
INDIVIDUAL RETIREMENT ANNUITY (IRA) - An annuity which qualifies for favorable
tax treatment under Section 408 of the Internal Revenue 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, 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.
INVESTMENT PERIOD - The period of time beginning with a declaration by the
Company of new GTO interest rates (the different Specified interest Rates for
each of the GTOs) and ending with the subsequent declaration of new Specified
Interest Rates by the Company. The interest rates in effect during any
particular Investment Period will be guaranteed for GTO allocations (made during
the Investment Period) for the duration of the Guaranteed Term associated with
the GTO.
JOINT CERTIFICATE OWNER- The Joint Certificate Owner, if any, possesses an
undivided interest in the entire Certificate Account in conjunction with the
Certificate Owner. If a Joint Certificate Owner is named, references to
"Certificate Owner" or "Joint Certificate Owner" will apply to both the
Certificate Owner and Joint Certificate Owner or either of them. Where such a
restriction is permitted by state law, Joint Certificate Owners must be spouses
at the time joint ownership is requested. Joint ownership may be selected only
for a Non-Qualified Contract.
MARKET VALUE ADJUSTMENT (MVA) - The upward or downward adjustment in value, of
amounts allocated to a GTO which prior to the Maturity Period for the GTO are:
1) distributed pursuant to a surrender; 2) reallocated to another investment
option available under this Contract; 3) distributed pursuant to the death of
the Owner or Annuitant; or 4) annuitized under this Contract at any time other
than the Maturity Period. A Market Value Adjustment generally reflects the
relationship between the prevailing interest rates at the time of investment,
prevailing interest rates at the time of distribution, and the amount of time
remaining in the Guaranteed Term of the GTO selected. Generally, if the
Specified Interest Rate is lower than prevailing interest rates, application of
the Market Value Adjustment will result in a downward adjustment of amounts
allocated to a GTO. If the Specified Interest Rate is higher than prevailing
interest rates, application of the Market Value Adjustment will result in an
upward adjustment of amounts allocated to a GTO. The Market Value Adjustment is
applied only when amounts allocated to a GTO are distributed from the GTO prior
to a Maturity Period.
MVA FACTOR - The value multiplied by the Specified Value, or that portion of the
Specified Value being distributed from a GTO in order to effect a Market Value
Adjustment. The MVA Factor will either be less than 1 (in which case the amount
distributed will be decreased) or greater than 1 (in which case the amount
distributed will be increased). If the MVA Factor is exactly 1, the amount
distributed will neither be increased or decreased. The MVA Factor is derived
from the MVA Formula.
MVA FORMULA - The MVA Formula is utilized when a distribution is made from a GTO
during the Guaranteed Term which is subject to a Market Value Adjustment. The
MVA Formula is a calculation expressing the relationship between three factors:
(1) the CMT Rate for a period equivalent to the Guaranteed Term at the time of
deposit in the GTO; (2) the CMT Rate at the time of distribution for a period of
time equivalent to the time remaining in the GTO; and (3) the number of days
remaining until the Maturity Date of the GTO. The result of the MVA Formula is
the MVA Factor.
MATURITY DATE - The date on which a particular GTO matures. Such date will be
the last day of a calendar quarter on which the third, fifth, seventh or tenth
anniversary of the date on which amounts are allocated to a three, five, seven
or ten year GTO, respectively.
MATURITY PERIOD - The period of time during which the value of amounts allocated
under a GTO, may be distributed without any Market Value Adjustment. The
Maturity Period shall begin on the day following the Maturity Date and will end
on the thirtieth day thereafter.
7
<PAGE>
MULTIPLE MATURITY ACCOUNT - A separate account of the Company established for
the purpose of facilitating accounting and investment processes associated with
the offering of GTOs under the Contracts.
MUTUAL FUNDS (FUNDS) - The registered management investment companies 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
(IRAs) 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 between the Variable Account and Fixed
Account, among the Sub-Accounts or to or from a GTO.
SPECIFIED INTEREST RATE - The interest rate guaranteed to be credited to amounts
allocated under a selected GTO so long as such allocations are not distributed
for any reason from the GTO prior to the GTO Maturity Period or Maturity Date.
Each GTO in the same Investment Period has its own Specified Interest Rate for
the Guaranteed Term relating to the selected GTO. The Company, however,
reserves the right to change the Specified Interest Rate at any time for
prospective allocations to GTOs.
SPECIFIED VALUE - The amount of a GTO allocation minus withdrawals and transfers
out of the GTO, plus interest accrued at the Specified Interest Rate. The
Specified Value is subject to an MVA at all times other than during the Maturity
Period.
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.
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 such
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.
VARIABLE ACCOUNT - 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.
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GENERAL PROVISIONS
CERTIFICATE ACCOUNT
Each Certificate Owner's Purchase Payments are deposited to the Contract. The
Company shall establish and maintain a Certificate Account for each Certificate
Owner under the Contract.
ENTIRE CONTRACT
The Certificate Agreement and endorsements, if any, make up the Entire Agreement
between the Company and the Certificate Owner. The Contract Holder delegates
rights to each Certificate Owner with respect to a Certificate Owner's
Certificate Account.
NON-PARTICIPATING
The Contract is non-participating. It will not share in the surplus of the
Company.
INCONTESTABILITY
Neither the Contract, Certificate Agreement, endorsements nor attachments will
be contested.
CONTRACT SETTLEMENT
The Company may require the Certificate Agreement to be returned to the Home
Office prior to making any payments. All sums payable to or by the Company
under this Certificate Agreement are payable at the Home Office.
EVIDENCE OF SURVIVAL
Where any payments under this Certificate Agreement depend on the recipient
being alive on a given date, proof that such person is living may be required by
the Company. Such proof may be required prior to making the payments.
ALTERATION OR MODIFICATION
All changes in or to the terms of the Contract or the Certificate Agreement must
be: (1) made in writing; and (2) signed by the President or Secretary of the
Company. No other person can alter or change any of the terms or conditions of
the Contract or Certificate Agreement.
The Company reserves the right to: (1) not accept any new Certificate Owners
into the Contract as of a specified date; (2) discontinue the Fixed Account
option for any new Certificate Owner as of a specified date; and not accept
future deposits into the Fixed Account from existing Certificate Owners.
ASSIGNMENT
Where permitted, a Certificate Owner may assign some or all rights under this
Contract at any time during the lifetime of the Annuitant, prior to the
Annuitization Date. The Company shall not be liable as to any payment or other
settlement made by the Company before recording of the assignment. The Company
is not responsible for the validity or tax consequences of any assignment. Such
assignment will take effect upon receipt and recording by the Company at its
Home Office of written notice executed by the Certificate Owner. Where
necessary for proper administration of the terms of the Contract, an assignment
will not be recorded until the Company has received sufficient direction from
the Certificate Owner and assignee as to the proper allocation of Contract
rights under the assignment.
The value of any portion of the Contract which is assigned, pledged or
transferred by gift may be treated like a cash withdrawal for federal tax
purposes and may be subject to a tax penalty. All rights in this Contract are
personal to the Certificate Owner and may not be assigned without written
consent of the Company.
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PROTECTION OF PROCEEDS
Proceeds under this Certificate Agreement are not assignable by any Beneficiary
prior to the time they are due. Proceeds are not subject to the claims of
creditors or to legal process, except as mandated by applicable laws.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, all payments and benefits
under the Certificate Agreement will be adjusted. Payments and benefits will be
made, based on the correct age or sex. Proof of age of an Annuitant may be
required at any time, in a form satisfactory to the Company. When the age or
sex of an Annuitant has been misstated, the dollar amount of any overpayment
will be deducted from the next payment or payments due under the Certificate
Agreement. The dollar amount of any underpayment made by the Company as a
result of any such misstatement will be paid in full with the next payment due
under the Certificate Agreement.
REPORTS
At least once each year, prior to the Annuitization Date, a report showing the
Certificate Account Value will be provided to the Certificate Owner.
NUMBER AND GENDER
Unless otherwise provided, all references in this Certificate Agreement which
are in the singular form will include the plural; all references in the plural
form will include the singular; and all references in the male gender will
include the female and neuter genders.
DEDUCTIONS AND CHARGES
DEDUCTION FOR PREMIUM TAXES
The Company will charge against the Certificate Account Value the amount of any
premium taxes levied by a state or any other government entity upon Purchase
Payments received by the Company. The method used to recoup premium taxes 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
Certificate Owner's Account Value either (1) at the time the Certificate
Agreement is surrendered, (2) at Annuitization, or (3) at such earlier date as
the Company may be subject to such taxes.
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct a Mortality and Expense Risk Charge equal, on an annual
basis, to not greater than 1.25% of the daily net asset value of the Certificate
Owner's Variable Account. This deduction is made to compensate the Company for
assuming the mortality risks and expense risks under this Contract. The Company
assumes a "mortality risk" that fixed and variable annuity payments will not be
affected by the death rates of persons receiving such payments or of the general
population by virtue of annuity rates incorporated in the Contract which cannot
be changed. The Company also assumes a mortality risk by its promise to pay in
certain circumstances a Death Benefit that is greater than the Certificate
Account Value. The "expense risk" involves the guaranty by the Company that it
will not increase charges for administration of the Contract regardless of the
Company's actual administrative expenses. Mortality and Expense Risk Charges
which may be assessed under a Certificate Account will not be assessed against
any allocation to a GTO.
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OWNERSHIP PROVISIONS
CERTIFICATE OWNERSHIP PROVISIONS
Unless otherwise provided, the Certificate Owner has all rights under the
Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF AS OWNER, THE
PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT. Prior to the Annuitization
Date, the Certificate Owner may name a new Certificate Owner. Such change may
be subject to state and federal gift taxes and may also result in current
federal income taxation. Any change of Certificate Owner designation will
automatically revoke any prior Certificate Owner designation. Any request for
change of Certificate Owner must be (1) made by proper written application, (2)
received and recorded by the Company at its Home Office, and (3) may require a
signature guarantee as specified in the "Surrender" provision of the Contract.
Such a request must be signed by both the Certificate Owner and the person
designated as the new Certificate Owner. Once the change is received and
recorded by the Company, the change will become effective as of the date the
written request is signed. Any change of Certificate Owner will not apply to
any payment made or action taken by the Company prior to the time it was
received and recorded by the Company.
Prior to the Annuitization Date, the Certificate Owner may request a change in
the Annuitant, Contingent Annuitant, Contingent Certificate Owner, Beneficiary,
or Contingent Beneficiary. Such request must be received by the Company at its
Home Office prior to the Annuitization Date. Any change to the Annuitant or
Contingent Annuitant is subject to underwriting and approval by the Company.
Notwithstanding any provisions in this Contract, if any Certificate Owner is not
a natural person the change of the Annuitant will be treated as the death of the
Certificate Owner and will result in a distribution, regardless of whether a
Contingent Annuitant is also named. Distributions shall be made as if the
Certificate Owner died at the time of such change.
On the Annuitization Date, the Annuitant shall become the Certificate Owner.
JOINT CERTIFICATE OWNERSHIP PROVISIONS
Where such a restriction is permitted by state law, Joint Certificate Owners
must be spouses at the time joint ownership is requested. If a Joint Certificate
Owner is named, the Joint Owner will possess an undivided interest in the
Certificate Account. Unless otherwise provided, the exercise of any ownership
right in the Contract (including the right to surrender or partially surrender
the Certificate Account, to change the Certificate Owner, the Contingent
Certificate 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 Certificate Owners.
CONTINGENT CERTIFICATE OWNERSHIP PROVISIONS
The Contingent Certificate Owner is the person who may receive certain benefits
under the Certificate Agreement if the Certificate Owner, who is not the
Annuitant, dies prior to the Annuitization Date and there is no surviving Joint
Certificate Owner. If more than one Contingent Certificate Owner survives the
Certificate Owner, each will share equally unless otherwise specified in the
Contingent Certificate Owner designation. If no Contingent Certificate Owner
survives a Certificate Owner and there is no surviving Joint Certificate Owner,
all rights and interest of the Contingent Certificate Owner will vest in the
Certificate Owner's estate.
If a Certificate Owner, who is also the Annuitant, dies before the Annuitization
Date, then the Contingent Certificate Owner does not have any rights in the
Contract. However, if the Contingent Certificate Owner is also the Beneficiary,
the Contingent Certificate Owner will have all the rights of a beneficiary.
Subject to the terms of any existing assignment, the Certificate Owner may
change the Contingent Certificate Owner prior to the Annuitization Date by
written notice to the Company. The change, upon receipt and recording by the
Company at its Home Office, will take effect as of the time the written notice
was signed, whether or not the Certificate 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.
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BENEFICIARY PROVISIONS
The Beneficiary is the person or persons who may receive certain benefits under
the Certificate Agreement 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
Beneficiary survives the Annuitant, all rights and interests of the Contingent
Beneficiary will vest with the Certificate Owner or the estate of the last
surviving Certificate Owner.
Subject to the terms of any existing assignment, the Certificate Owner may
change the Beneficiary or Contingent Beneficiary during the lifetime of the
Annuitant by written notice to the Company. The change, upon receipt and
recording by the Company at Home Office, will take effect as of the time the
written notice was signed, whether or not the Annuitant is living at the time of
the recording, but without further liability as to any payment or settlement
made by the Company before receipt of such change.
DEATH PROVISIONS
DEATH OF CERTIFICATE OWNER PROVISIONS
If any Certificate Owner and the Annuitant are not the same person and such
Certificate Owner dies prior to the Annuitization Date then the Joint
Certificate Owner, if any, becomes the new Certificate Owner. If there is no
surviving Joint Certificate Owner, the Contingent Certificate Owner becomes the
new Certificate Owner. If there is no surviving Contingent Certificate Owner,
the last surviving Certificate Owner's estate becomes the new Certificate Owner.
The entire interest in the Certificate Account Value must be distributed in
accordance with the "Required Distribution Provisions".
DEATH OF CERTIFICATE OWNER/ANNUITANT PROVISIONS
If any Certificate Owner and the Annuitant are the same person, and such person
dies prior to the Annuitization Date, the Death Benefit shall be payable to the
Beneficiary, the Contingent Beneficiary, the Certificate Owner, or the last
surviving Certificate Owner's estate, as specified in the "Beneficiary
Provisions", and distributed in accordance with the "Required Distribution
Provisions".
DEATH OF ANNUITANT PROVISIONS
If the Certificate 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 Certificate Owner, or the
last surviving Certificate Owner's estate, as specified in the Beneficiary
Provision, unless there is a surviving Contingent Annuitant. In such case, the
Contingent Annuitant becomes the Annuitant.
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 Annuity Payment Option selected.
REQUIRED DISTRIBUTION PROVISIONS
Upon the death of any Owner, Certificate Owner or Joint Certificate Owner
(including an Annuitant or Annuitant who becomes the Certificate Owner of the
Contract on the Annuitization Date) (each of the foregoing "a deceased
Certificate Owner"), certain distributions are required by Section 72(s) of the
Code. Nothwithstanding any provision of the Certificate Agreement to the
contrary, the following distributions shall be made in accordance with such
requirements.
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1. If any deceased Certificate Owner died on or after the Annuitization
Date and before the entire interest under the Certificate Agreement 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 Certificate Owner's death.
2. If any deceased Certificate Owner died prior to the Annuitization Date,
then the entire interest in the Certificate Agreement (consisting of either the
Death Benefit or the Certificate Account Value reduced by certain charges as set
forth elsewhere in the Contract) shall be distributed within 5 years of the
death of the deceased Certificate 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 Certificate Owner, Contingent Certificate
Owner, Joint Certificate 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 Certificate Owner's
death (or such longer period as may be permitted by federal income tax
regulations).
(b) If the designated beneficiary is the surviving spouse of the deceased
Certificate Owner, such spouse may elect to become the Certificate Owner of this
Contract, and the distributions required under these Required Distribution
Provisions will be made upon the death of such spouse.
In the event that the Certificate Owner is 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
Certificate Owner, (ii) any change of the Annuitant shall be treated as the
death of any Certificate 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 Certificate
Agreement 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. Such contracts
include, but are not limited to, any Certificate Agreement (i) which is provided
under a plan described in Section 401(a) of the Code which includes a trust
exempt from tax under Section 501 of the Code; (ii) which is provided under a
plan described in Section 403(a) of the Code; (iii) which is described in
Section 403(b) of the Code; (iv) which is an individual retirement annuity or
provided under an individual retirement account or annuity as described in
Section 408 of the Code; or (v) which is a qualified funding asset (as defined
in Section 130(d) of the Code, but without regard to whether there is a
qualified assignment).
This Certificate Agreement is intended to be treated as an "annuity contract"
for federal income tax purposes. Accordingly, all provisions of this Contract
shall be interpreted and administered in accordance with the requirements of
Section 72(s) of the Code. In no event shall any payment be deferred beyond the
time limits permitted by Section 72(s) of the Code. The Company reserves the
right to amend this Certificate Agreement to comply with requirements set out in
the Code and regulations and rulings thereunder, as they may exist from time to
time.
Upon the death of a "deceased Certificate 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 made
with 60 days of the Certificate Owner's death.
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 distribution method; and (3) any applicable
state required form(s).
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Proof of death is either:
(1) a copy of a certified death certificate;
(2) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death;
(3) a written statement by a medical doctor who attended the
deceased; or
(4) any other proof satisfactory to the Company.
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 Certificate
Account Value; or (2) the sum of all Purchase Payments, less an adjustment for
amounts surrendered; or (3) the Certificate Account Value as of the most recent
five-year Certificate Anniversary occurring prior to the Annuitant's 86th
birthday, less an adjustment for amounts subsequently surrendered, plus Purchase
Payments received after that five-year Certificate Anniversary date.
The adjustment for amounts surrendered will reduce items (2) and (3) above in
the same proportion that the Certificate Value was reduced on the date of the
partial surrender.
ACCUMULATION PROVISIONS
MODIFIED SINGLE PURCHASE PAYMENTS
The Certificate Agreement is provided in return for the initial Purchase Payment
and any subsequent Purchase Payments. The cumulative total of all Purchase
Payments under this and any other annuity Contract(s) issued by the Company
having the same Annuitant may not exceed $1,000,000 without the prior written
consent of the Company.
The initial Purchase Payment is due on the Certificate Effective Date and may
not be less than $15,000. Purchase payments, if any, after the initial Purchase
Payment must be at least $1,000 and may be made at any time.
ALLOCATION OF PURCHASE PAYMENTS
The Owner elects to have the Purchase Payments allocated among the Fixed
Account, the Sub-Accounts of the Variable Account, and the GTOs under the
Multiple Maturity Account at the time of application. The allocation of future
Purchase Payments may be changed by the Certificate Owner by a proper submission
that is received and recorded by the Company.
CERTIFICATE ACCOUNT VALUE
The value of a Certificate Account at any time will be: (1) the Variable
Account value held on behalf of the Certificate Owner; (2) the Fixed Account
value held on behalf of the Certificate Owner; and (3) the value of amounts
allocated to GTOs under the Multiple Maturity Account which may be subject to a
Market Value Adjustment.
FIXED ACCOUNT CERTIFICATE VALUE
The Fixed Account Certificate Value at any time will be: the sum of all amounts
credited to the Fixed Account under this Contract less any amounts canceled or
withdrawn for charges, deductions, or surrenders.
FIXED ACCOUNT PROVISIONS
The Fixed Account is the general account of the Company. It is made up of all
assets of the Company other than: (1) those in the Variable Account; and (2)
those in any other segregated asset account.
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INTEREST TO BE CREDITED
The Company will credit interest to the Fixed Account Certificate Value. Such
interest will be credited at such rate or rates as the Company prospectively
declares from time to time, at the sole discretion of the Company. Such rates
will be declared to the Certificate Owner in writing after each quarterly
period. Any such rate or rates so determined, for which deposits are received,
will remain in effect for a period of not less than 12 months. However, the
Company guarantees that it will credit interest at not less than 3.0% per year
or any lesser amount as permitted by state law.
VARIABLE ACCOUNT CERTIFICATE VALUE
The Variable Account Certificate Value is the sum of the value of all Variable
Account Accumulation Units under this Certificate Agreement.
If: (1) part or all of the Variable Account Certificate Value is surrendered;
or (2) charges or deductions are made against the Variable Account Certificate
Value; then, an appropriate number of Accumulation Units will be canceled or
surrendered to equal such amount.
THE VARIABLE ACCOUNT
The Variable Account is a separate investment account of the Company. The
Company has allocated a part of its assets for the Contract and certain other
contracts to the Variable Account. Such assets of the Variable Account remain
the property of the Company. However, they may not be charged with the
liabilities from any other business in which the Company may take part.
The Variable Account is divided into Sub-Accounts which invest in shares of the
Mutual Funds. Purchase payments are allocated among one or more of these
Sub-Accounts, as designated by the Certificate Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Purchase Payments applied to the Variable Account will be invested at net
asset value in one or more of the Sub-Accounts.
VALUATION OF ASSETS
Mutual Fund shares in the Variable Account will be valued at their net asset
value.
VARIABLE ACCOUNT ACCUMULATION UNITS
The number of Accumulation Units for each Sub-Account of the Variable Account is
found by dividing: (1) the net amount allocated to the Sub-Account; by (2) the
Accumulation Unit value for the Sub-Account for the Valuation Period during
which the Company received the Purchase Payment.
VARIABLE ACCOUNT ACCUMULATION UNIT VALUE
The value of an Accumulation Unit for each Sub-Account of the Variable Account
was arbitrarily set at $10 when the first Mutual Fund shares were available for
purchase. The value for any later Valuation Period is found as follows:
The Accumulation Unit value for each Sub-Account for the last prior Valuation
Period is multiplied by the Net Investment Factor for the Sub-Account for the
next following Valuation Period. The result is the Accumulation Unit value.
The value of an Accumulation Unit may increase or decrease from one Valuation
Period to the next. The number of Accumulation Units will not change as a
result of investment experience.
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NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than one; therefore, the value of an
Accumulation Unit may increase or decrease.
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by: dividing (1) by (2) and subtracting (3) from the result, where:
1. is the sum of:
a. the net asset value per share of the Mutual Fund held in the
Sub-Account, determined at the end of the current Valuation Period;
plus
b. the per share amount of any dividend or capital gain Distributions
made by the Mutual Fund held in the Sub-Account, if the "ex-dividend"
date occurs during the current Valuation Period.
2. is the net result of:
a. the net asset value per share of the Mutual Fund held in the
Sub-Account, determined at the end of the last prior Valuation Period;
plus or minus
b. the per share charge or credit for any taxes reserved for the last
prior Valuation Period, plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by the Company to have resulted from the investment
operations of the Sub-Account.
3. is a factor representing the Mortality and Expense Risk Charge deducted
from the Variable Account. Such factor is equal, on an annual basis, to
not greater than 1.25% of the daily net asset value of the Variable
Account.
For funds that credit dividends on a daily basis and pay such dividends once a
month, the Net Investment Factor allows for the monthly reinvestment of these
daily dividends.
THE MULTIPLE MATURITY ACCOUNT
The Multiple Maturity Account is a separate account of the Company established
for the purpose of facilitating accounting and investment processes undertaken
by the Company in offering GTOs under the Contract. The Company will purchase
and account for Multiple Maturity Account assets in a manner which will support
the crediting of Specified Interest Rates under the various GTOs and the
satisfaction of obligations incurred by the Company in the form of GTOs.
GUARANTEED TERM OPTIONS (GTOs)
At any particular time under this Contract, four GTOs will be available: a three
year GTO, a five year GTO, a seven year GTO and a ten year GTO. Amounts
allocated to a three year GTO will have a Guaranteed Term of three years, a five
year GTO will have a Guaranteed Term of five years, and so on. Regardless of
the source from which a GTO allocation is made, the minimum allocation is
$1,000.
GTOs are not available as funding options if the Contract is annuitized. If a
variable annuity Contract is annuitized while a GTO is in effect, and prior to
the Maturity Date of the GTO, an MVA will apply to amounts transferred to other
investment options under the Contract which may be used during Annuitization.
For the duration of the Guaranteed Term of a GTO, the Company will credit a
Specified Interest Rate on amounts remaining allocated under the GTO. A Market
Value Adjustment will apply against all amounts which are transferred or
surrendered from allocations under a GTO prior to
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the Maturity Period for the particular GTO. During the Maturity Period,
allocations under a GTO may be transferred, surrendered, or distributed for any
other reason without any Market Value Adjustment (a Contingent Deferred Sales
Charge may apply on amounts surrendered). At all times other than during a
Maturity Period, a Market Value Adjustment will apply to amounts distributed
from allocations under a GTO.
At least 15 days and at most 30 days prior to the end of each calendar quarter,
variable annuity contract holders having GTOs with Maturity Dates coinciding
with the end of the calendar quarter will be notified of the impending
expiration of the GTO. Contract holders will then have the option of directing
the withdrawal or transfer of the GTO without application of any MVA during the
Maturity Period. Withdrawals or transfers during the Maturity Period, beginning
the day after the Maturity Date and ending thirty days after the Maturity Date,
will not be subject to a MVA. For the period commencing with the first day after
the Maturity Date and ending on the thirtieth day following the Maturity Date,
the GTO will be credited with the same Specified Interest Rate in effect before
the Maturity Date.
If no such direction is received by the thirtieth day following the Maturity
Date, amounts in the GTO will be automatically transferred to the Money Market
sub-account of the variable annuity. The Company reserves the right to restrict
transfers into and out of the Multiple Maturity Account to 1 per calendar year
at all times other than during a Maturity Period.
MARKET VALUE ADJUSTMENT FORMULA
The formula for determining the MVA Factor is:
1 + a
-------------
t
(1 + b + .0025)
Where:
a = the CMT Rate for a period equivalent to the Guaranteed Term at the
time of deposit in the GTO;
b = the CMT rate at the time of distribution for a period of time with
maturity equal to the time remaining in the Guaranteed Term. In
determining the number of years to maturity, any partial year will be
counted as a full year, unless this would cause the number of years to
exceed the Guaranteed Term.
t = the number of days until the Maturity Date, divided by 365.25.
In the case of A above, the CMT Rate utilized will be the rate published by the
Federal Reserve Board, the Friday preceding the Wednesday before the Investment
Period during which the allocation to the GTO was made.
In the case of B above, the CMT Rate utilized will be the rate published the
Friday preceding the Wednesday preceding withdrawal, transfer or other
distribution giving rise to the MVA.
For periods which do not coincide with the available CMT periods, rates used in
A and B will be linearly interpolated (where the difference in rates is
proportional to the difference in years).
The MVA Factor will be equal to 1 during the Investment Period. That is, for
the period of time following a GTO allocation during which the Specified
Interest Rate for GTOs of the same duration is not changed, the MVA Factor will
be equal to 1.
The MVA Formula shown above also accounts for some of the administrative and
processing expenses incurred when fixed-interest investments are liquidated.
This is represented in the addition of .0025 in the MVA Formula. The result of
the MVA Formula shown above is the MVA Factor. The MVA Factor will either be
greater, less than or equal to 1 and will be multiplied by the Specified Value
or that portion of the Specified Value being withdrawn, transferred or
distributed for any other reason. If the result is greater than 1, a gain will
be realized by the
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Contract Owner; if less than 1, a loss will be realized. If the MVA Factor is
exactly 1, no gain or loss will be realized.
If the Federal Reserve Board halts publication of CMT Rates, or if, for any
other reason, CMT Rates are not available to be relied upon, the Company will
use appropriate rates based on treasury bond yields.
SURRENDERS, WITHDRAWALS AND TRANSFERS
SURRENDERS
The Certificate Owner may surrender part or all of the Certificate Account Value
at any time this Certificate Agreement is in force and prior to the earlier of
the Annuitization Date or the death of the Annuitant or Contingent Annuitant, if
any. All surrenders will have the following conditions:
1. The request for surrender must be in writing or in a form otherwise
acceptable to the Company.
2. The surrender value will be paid to the Certificate Owner after proper
written application and any proof of interest satisfactory to the Company
are received at the Home Office.
3. The Company reserves the right to 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. Payment of the Variable
Certificate Account Value will be made within seven days of receipt of both
proper written application and proof of interest satisfactory to the
Company. Payment of the Fixed Certificate Account Value may be deferred up
to six months following receipt of application.
4. When written application and proof of interest are received, the Company
will surrender the number of Variable Account Accumulation Units, any
amount from the Fixed Account; and any amount from any GTO under the
Multiple Maturity Account needed to equal: (a) the dollar amount requested;
plus (b) any Contingent Deferred Sales Charge which applies.
5. If a partial surrender is requested, unless the Certificate Owner has
instructed otherwise, the surrender will be made as follows: (a) from the
Variable Certificate Account; (b) from the Fixed Certificate Account; and
(c) from the GTOs under the Multiple Maturity Account. The amounts
surrendered from the Fixed Account, the Variable Account, and the GTOs will
be in the same proportion that the Certificate Owner's interest in the
Fixed Account, the Variable account, and the GTOs bear to the total
Certificate Account Value.
SURRENDER VALUE
The surrender value is the amount that will be paid if the full Certificate
Account is surrendered. The surrender value at any time will be:
The Certificate Account Value Less;
1. any Contingent Deferred Sales Charge which applies.
2. premium taxes, if applicable.
SUSPENSION OR DELAY IN PAYMENT OF SURRENDER
The Company has the right to suspend or delay the date of any Surrender payment
from the Variable Account for any period:
1. When the New York Stock Exchange is closed;
2. When trading on the New York Stock Exchange is restricted;
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<PAGE>
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 fairly determine the value of the net assets of
the Variable Account;
4. During any other period when the Securities and Exchange Commission,
byorder, so permits for the protection of security holders; or
5. When the request for Surrender is not made in a form acceptable by the
Company.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth in numbers 1, 2, 3, and 4 above exist.
The Company further reserves the right to delay payment of a total surrender of
Certificate Owner's Fixed Account Value for up to six months in those states
where applicable law requires the Company to reserve such right.
CONTINGENT DEFERRED SALES CHARGE
If part or all of the Certificate Account Value is surrendered, a Contingent
Deferred Sales Charge may be made by the Company. The Contingent Deferred Sales
Charge is designed to cover expenses relating to the sale of the Certificate
Agreement.
The Contingent Deferred Sales Charge is calculated by multiplying the applicable
Contingent Deferred Sales Charge percentages noted below by the Purchase
Payments that are surrendered. For purposes of calculating the amount of the
Contingent Deferred Sales Charge, surrenders are considered to come first from
the oldest Purchase Payment attributed to the Certificate Account, then from the
next oldest Purchase Payment and so forth, with any earnings attributable to
such Purchase Payments considered only after all Purchase Payments attributed
to the Certificate Account have been considered. (For tax purposes, a
surrender is treated as a withdrawal of earnings first.)
<TABLE>
<CAPTION>
Number of Completed Contingent Deferred Number of Completed Contingent Deferred
Years from Date of Sales Charge Years From Date of Sales Charge
Purchase Payment Percentage Purchase Payment Percentage
- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
0 7% 4 4%
1 7% 5 3%
2 6% 6 2%
3 5% 7 0%
</TABLE>
Contingent Deferred Sales Charges, if applicable, will be assessed against full
or partial surrenders from GTOs. If any such surrender occurs prior to the
Maturity Date for any particular GTO, the amount surrendered will be subject to
an MVA in addition to Contingent Deferred Sales Charges.
WITHDRAWALS WITHOUT CHARGE
During each Certificate Year, the Certificate Owner may withdraw without a
Contingent Deferred Sales Charge (CDSC) a total amount equal to 10% of the sum
of all Purchase Payments made to the Certificate Account. This CDSC-free
withdrawal privilege is non-cumulative; that is, free amounts not taken during
any given Certificate Year cannot be taken as free amounts in a subsequent
Certificate Year.
A CDSC will not be assessed against the withdrawal of any: (1) Purchase
Payments which have been held under this Certificate Account for at least 84
months; (2) earnings attributable to Purchase Payments made to this Certificate
Account; (3) Death Benefit payments made upon the death of the Annuitant prior
to the Annuitization Date; (4) amounts applied to an Annuity Payment Option
after two years from the Date of Issue; or (5) amounts transferred among the
Sub-Accounts or among the Fixed Certificate Account, the Variable Certificate
Account and the GTOs under the Multiple Maturity Account.
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<PAGE>
In addition, when a Certificate Agreement described herein is exchanged for
another Contract or Certificate Agreement issued by the Company or any of its
affiliate insurance companies, of the type and class which the Company
determines is eligible for such exchange, the Company will waive the Contingent
Deferred Sales Charge on the first contract. A Contingent Deferred Sales Charge
may apply to the contract received in the exchange.
When a Certificate Account is held by a Charitable Remainder Trust, the amount
which may be withdrawn from this Certificate Account without application of a
Contingent Deferred Sales Charge, shall be the larger of (a) or (b) where (a)
is: the amount which would otherwise be available for withdrawal without
application of a Contingent Deferred Sales Charge; and where (b) is the
difference between the total Purchase Payments attributed to the Certificate
Account as of the date of the withdrawal (reduced by previous withdrawals of
such Purchase Payments), and the Certificate Account Value at the close of the
day prior to the date of the withdrawal.
The amount of Contingent Deferred Sales Charge on the Certificate Account may be
reduced when sales of the Contract interest are made to a trustee, employer or
similar entity pursuant to a retirement plan or when sales are made in a similar
arrangement where offering the contract to a group of individuals under which
such program results in savings of sales expenses. The entitlement of such a
reduction in Contingent Deferred Sales Charge will be determined by the Company.
SYSTEMATIC WITHDRAWALS
The Certificate 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 of the Sub-Accounts in which the Certificate
Owner has an interest, and the Fixed Account. A Contingent Deferred Sales
Charge may apply to Systematic Withdrawals in accordance with the
considerations set forth in the "Contingent Deferred Sales Charge" and
"Withdrawals Without Charge" provisions of the Contract. Each Systematic
Withdrawal is subject to federal income taxes on the taxable portion. In
addition, a 10% federal penalty tax may be assessed on Systematic Withdrawals
if the Contract Owner is under age 59 1/2. Unless otherwise directed by the
Certificate Owner, the Company will withhold federal income taxes from each
Systematic Withdrawal. An age-based Systematic Withdrawal program will
terminate automatically at the end of each Certificate Year and may be
reinstated only on or after the next Certificate Anniversary pursuant to a
new request. Unless the Certificate Owner has made an irrevocable election
of distributions of substantially equal periodic payments, the Systematic
Withdrawals may be discontinued at any time by notification to the Company in
writing.
If the Certificate Owner withdraws amounts pursuant to a Systematic Withdrawal
program, then the Certificate Owner may withdraw each Certificate Year without a
CDSC an amount up to the greater of (i) 10% of the total sum of all Purchase
Payments made to the Contract at the time of withdrawal, or (ii) the specified
percentage of the Certificate Account based on the Certificate Owner's age, as
shown in the following table:
CERTIFICATE OWNER'S AGE PERCENTAGE OF CERTIFICATE ACCOUNT VALUE
- ----------------------- ---------------------------------------
Under 59-1/2 5%
59-1/2 to 70-1/2 7%
70-1/2 to 75 9%
75 and Over 13%
If the total amounts withdrawn in any Certificate 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 "Withdrawals Without
Charge" provision of the Certificate Agreement, and the total amount of CDSC
charged during the Certificate Year will be determined in accordance with that
provision.
20
<PAGE>
The Certificate Account value and the Certificate Owner's age for purposes of
applying the CDSC-free withdrawal percentage described above are determined as
of the date the request for a Systematic Withdrawal program is received and
recorded by the Company at its Home Office. (In the case of Joint Certificate
Owners, the older Certificate Owner's age will be used.) The Certificate Owner
may elect to take such CDSC-free amounts only once each Certificate Year.
Furthermore, this CDSC-free withdrawal privilege for Systematic Withdrawals is
non-cumulative, that is, free amounts not taken during any given Certificate
Year cannot be taken as free amounts in a subsequent Certificate Year.
Systematic Withdrawals are not available prior to the expiration of the free
look provision of the Contract. The Company also reserves the right to assess a
processing fee for this service.
TRANSFER PROVISIONS
A Certificate Owner may annually transfer a portion of the value held on his
behalf in the Fixed Account to the Variable Account and a portion of the
Variable Account to the Fixed Account, without penalty or adjustment. Within
any Certificate Year, the Company reserves the right to restrict transfers from
the Variable Account to the Fixed Account to 10% of the Certificate Owner's
Variable Account Value.
For purposes of the provisions in this section describing limitations or
potential limitations on transfers to or from the Fixed Account, where
available, the term "Variable Account" will be defined to include all GTO
allocations under the Certificate Account. The Company reserves the right to
restrict transfers into and out of the Multiple Maturity Account to one per
calendar year at all times other than during the Maturity Period.
A Certificate Owner may annually transfer at the end of an Interest Rate
Guarantee Period, a minimum of 10% of the funds held on his behalf with a
maturing interest rate guarantee from the Certificate Owner's Fixed Certificate
Account to the Variable Certificate Account without penalty or adjustment. The
maximum allowable transfer amount from the Fixed Certificate Account to the
Variable Certificate Account will be determined by the Company at its sole
discretion. Transfers from the Fixed Certificate Account must be made within 45
days after the expiration date of the Interest Rate Guarantee Period.
The Company reserves the right to refuse transfers or Purchase Payments into the
fixed portion of the Certificate Account if the Certificate Owner's Fixed
Account Certificate Value is greater than or equal to 30% of the total of the
Certificate Account Value at the time such transfer is requested or such
Purchase Payment is tendered. Transfers must be made prior to the Annuitization
date. Transfers may occur among the Sub-Accounts once daily.
DISTRIBUTION PROVISIONS
The following events will give rise to a Distribution:
1. Reaching the Annuitization Date - Distribution will be made pursuant to the
Annuity Payment Option selected.
2. Death of the Annuitant prior to the Annuitization Date - Distribution to be
made in accordance with the options available under the Annuitant
provisions of this Certificate Agreement. When the Certificate Owner is a
non-natural person, upon the death of the Annuitant, Distribution will be
made in a manner that is consistent with the Required Distribution
Provisions of this Certificate Agreement.
3. Death of an Owner - Distribution to be made in a manner consistent with the
Required Distribution Provisions a this Certificate Agreement.
4. Other Surrender - Distribution to be made in accordance with the Surrender
provisions of this Certificate Agreement.
21
<PAGE>
ANNUITIZATION PROVISIONS
ANNUITIZATION
This is the process of selecting an Annuity Payment Option to begin the payout
phase of the Certificate Agreement. When making the Annuitization election the
Annuitant must chose: (1) an Annuity Payout Option; and (2) elect either a
Fixed Annuity, Variable Annuity or other annuity that may be available at the
time of Annuitization.
As of the Annuitization Date, the Certificate Account Value is surrendered and
applied to the purchase rate then in effect for the option selected. The
purchase rates for any options guaranteed to be available will be determined on
a basis not less favorable than the 1983 "Table a" with ages set back six years,
with minimum interest at 3.0%. The rates shown in the Annuity Tables are
calculated on this guarantee basis. Annuitization is irrevocable once payments
have begun.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date may be the first day of a calendar month or any
other agreed upon date. It must be at least two years after the Date of Issue.
The Annuity Commencement Date may not be later than the first day of the first
calendar month after the Annuitant's [90th] birthday, unless a later date has
been requested by the Certificate Owner and approved by the Company. This date
is selected by the Certificate Owner at the time of application. Any applicable
premium taxes not already deducted may be deducted from the Certificate Account
value at the Annuitization Date. The remaining Certificate Account Value will
then be applied to the Annuity Payment Option selected by the Certificate Owner.
CHANGE OF ANNUITY COMMENCEMENT DATE
The Certificate Owner may change the Annuity Commencement Date. A change of
Annuity Commencement Date must be made by written request, approved by the
Company, and must comply with Annuity Commencement Date Provisions above.
CHANGE OF ANNUITY PAYMENT OPTION
The Certificate Owner may change the Annuity Payment Option prior to the
Annuitization Date. A change of the Annuity Payment Option must be made by
written request and must be received at the Home Office prior to the
Annuitization Date. After a change of Annuity Payment Option is received at the
Home Office, it will become effective as of the date it was requested. A change
of Annuity Payment Option will not apply to any payment made or action taken by
the Company before it is received.
SELECTION OF ANNUITY PAYMENT OPTION
An Annuity Payment Option may be selected prior to Annuitization. Any Annuity
Payment Option NOT set forth in the Certificate Agreement or a combination of
available options which is satisfactory to both the Company and the Annuitant
may be selected. Options available for qualified contracts may be limited based
on the age of the Annuitant and distribution requirements under the Code.
SUPPLEMENTARY AGREEMENT
A Supplementary Agreement will be issued within 30 days following the
Annuitization Date. The Supplementary Agreement will set forth the terms of the
Annuity Payment Option selected.
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<PAGE>
FREQUENCY AND AMOUNT OF PAYMENTS
Payments will be made based on the Annuity Payment Option selected. However, if
the net amount to be applied to any annuity payment option at the Annuitization
Date is less than $5,000, the Company has the right to pay such amount in one
lump sum.
If any payment provided for would be or becomes less than $50, the Company has
the right to change the frequency of payment to an interval that will result in
payments of at least $50. In no event will the Company make payments under an
annuity option less frequently than annually, unless otherwise required.
FIXED ANNUITY PROVISIONS
A Fixed Annuity is an annuity with level payments which are guaranteed by the
Company as to dollar amount during the annuity payment period. At the
Annuitization Date, a designated portion of the Certificate Account Value will
be applied to the applicable Annuity Table. This will be done in accordance
with the Annuity Payment Option selected.
VARIABLE ANNUITY PROVISIONS
A Variable Annuity is a series of payments which are not predetermined or
guaranteed as to dollar amount and which vary in amount with the investment
experience of the Variable Account.
DETERMINATION OF FIRST VARIABLE ANNUITY PAYMENT
At the Annuitization Date, a designated portion of the Certificate Account Value
will be applied to purchase rates not less favorable than those based on 1983
"Table a" with ages set back six years and 3.5% interest.
ANNUITY UNIT VALUE
An Annuity Unit is used to calculate the value of annuity payments. The value
of an Annuity Unit for each Sub-Account was arbitrarily set at $10 when the
first Mutual Fund shares were bought. The value for any later Valuation Period
is found as follows:
1. The Annuity Unit Value for each Sub-Account for the last prior Valuation
Period is multiplied by the Net Investment Factor for the Sub-Account for
the Valuation Period for which the Annuity Unit Value is being calculated.
2. The result is multiplied by an interest factor. This is done because the
Assumed Investment Rate of 3.5% per year is built into the Annuity Tables.
VARIABLE ANNUITY PAYMENTS AFTER THE FIRST PAYMENT
Variable Annuity payments after the first vary in amount. The payment amount
changes with the investment performance of the Sub-Accounts within the Variable
Account. The dollar amount of such payments is determined as follows:
1. The dollar amount of the first annuity payment is divided by the unit value
as of the Annuitization Date. This result establishes the fixed number of
Annuity Units for each monthly annuity payment after the first. This
number of Annuity Units remains fixed during the annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit Value
for the Valuation Date for which the payment is due. This result
establishes the dollar amount of the payment.
The Company guarantees that the dollar amount of each payment after the first
will not be affected by variations in expenses or mortality experience.
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<PAGE>
ANNUITY PAYMENT OPTIONS
GENERAL
All annuity payments will be mailed within 10 working days of the first of the
month in which they are scheduled to be made. The following is a list of options
guaranteed to be made available by the Company.
INDIVIDUAL CERTIFICATE
The Company will issue an annuity certificate to each Annuitant or other person
for whom an annuity is purchased under this Certificate Agreement, as of the
date of the first payment under such annuity. Each certificate will set forth
in substance the benefit to which such person entitled under the annuity. In
addition if any applicable law so requires, the Company will issue a descriptive
certificate to each Annuitant or other person for whom an annuity is purchased
under the Contract. Each such certificate will set forth in substance the
benefits to which such Annuitant or other person is entitled. The certificate
will not be considered a part of the Contract.
LIFE ANNUITY
The amount to be paid under this option will be paid during the lifetime of the
Annuitant. Payments will cease with the last payment due prior to the death of
the Annuitant.
JOINT AND LAST SURVIVOR ANNUITY
The amount to be paid under this option will be paid during the lifetimes of the
Annuitant and designated second person. Payments will continue as long as
either is living.
LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
The amount to be paid under this option will be paid during the lifetime of the
Annuitant. A guaranteed period of 120 or 240 months may be selected. If the
Annuitant dies prior to the end of this guaranteed period, the recipient chosen
by the Annuitant will receive the remaining guaranteed payments.
ANY OTHER OPTION
The amount and period under any other option will be determined by the Company.
Payment options not set forth in the Certificate Agreement are available only if
they are approved by both the Company and the Annuitant.
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<PAGE>
MONTHLY BENEFITS PER $1000 APPLIED
ANNUITY TABLES
JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENTS
ANNUITANT'S AGE LAST BIRTHDAY
FEMALE AGE
50 55 60 65 70
---- ---- ---- ---- ----
MALE AGE 50 3.36 3.46 3.56 3.64 3.71
55 3.42 3.56 3.69 3.82 3.93
60 3.47 3.64 3.82 3.99 4.16
65 3.70 3.92 4.15 4.39
70 4.00 4.30 4.61
LIFE ANNUITY: MONTHLY ANNUITY PAYMENTS
MALE GUARANTEED PERIOD FEMALE GUARANTEED PERIOD
ANNUITANT'S ANNUITANT'S
ATTAINED AGE 120 240 ATTAINED AGE 120 240
LAST BIRTHDAY NONE MONTHS MONTHS LAST BIRTHDAY NONE MONTHS MONTHS
- ------------- ---- ------ ------ ------------- ---- ------ ------
50 3.87 3.85 3.77 50 3.59 3.58 3.55
51 3.93 3.90 3.82 51 3.64 3.63 3.59
52 3.99 3.96 3.87 52 3.68 3.67 3.63
53 4.05 4.02 3.92 53 3.74 3.72 3.68
54 4.12 4.09 3.97 54 3.79 3.78 3.72
55 4.19 4.15 4.03 55 3.85 3.83 3.77
56 4.27 4.22 4.08 56 3.90 3.89 3.82
57 4.34 4.30 4.14 57 3.97 3.95 3.88
58 4.43 4.37 4.20 58 4.03 4.01 3.93
59 4.51 4.45 4.26 59 4.10 4.08 3.99
60 4.60 4.54 4.32 60 4.18 4.15 4.04
61 4.70 4.62 4.39 61 4.25 4.22 4.11
62 4.80 4.72 4.45 62 4.34 4.30 4.17
63 4.91 4.82 4.51 63 4.42 4.38 4.23
64 5.03 4.92 4.58 64 4.52 4.47 4.30
65 5.15 5.03 4.65 65 4.61 4.56 4.37
66 5.28 5.14 4.71 66 4.72 4.66 4.44
67 5.43 5.27 4.78 67 4.83 4.76 4.51
68 5.58 5.39 4.84 68 4.95 4.87 4.58
69 5.74 5.53 4.90 69 5.08 4.98 4.65
70 5.91 5.66 4.96 70 5.21 5.10 4.72
71 6.10 5.81 5.02 71 5.36 5.22 4.79
72 6.30 5.96 5.08 72 5.51 5.36 4.86
73 6.51 6.12 5.13 73 5.67 5.50 4.93
74 6.73 6.28 5.18 74 5.85 5.65 5.00
75 6.97 6.44 5.23 75 6.04 5.80 5.06
76 7.23 6.61 5.27 76 6.25 5.97 5.12
77 7.51 6.79 5.31 77 6.47 6.14 5.18
78 7.80 6.96 5.34 78 6.71 6.32 5.23
79 8.12 7.14 5.37 79 6.98 6.50 5.28
80 8.46 7.32 5.40 80 7.26 6.69 5.32
25
