<PAGE> 1
As filed with the Securities and Exchange Commission.
'33 Act File No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
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
DENNIS W. CLICK, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
Approximate date of proposed public offering: (Upon the effective date of this
Registration Statement).
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 date as the Commission, acting pursuant to said Section 8(a),
may determine.
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NATIONWIDE VARIABLE ACCOUNT-9
REFERENCE TO ITEMS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 ITEM PAGE
Part A INFORMATION REQUIRED IN A PROSPECTUS
<S> <C> <C>
Item 1. Cover page...................................................................................3
Item 2. Definitions..................................................................................5
Item 3. Synopsis or Highlights......................................................................15
Item 4. Condensed Financial Information............................................................N/A
Item 5. General Description of Registrant, Depositor, and Portfolio Companies.......................15
Item 6. Deductions and Expenses.....................................................................17
Item 7. General Description of Variable Annuity Contracts...........................................18
Item 8. Annuity Period..............................................................................24
Item 9. Death Benefit and Distributions.............................................................26
Item 10. Purchases and Contract Value................................................................18
Item 11. Redemptions.................................................................................21
Item 12. Taxes.......................................................................................30
Item 13. Legal Proceedings...........................................................................37
Item 14. Table of Contents of the Statement of Additional Information................................37
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 15. Cover Page..................................................................................47
Item 16. Table of Contents...........................................................................47
Item 17. General Information and History.............................................................47
Item 18. Services....................................................................................47
Item 19. Purchase of Securities Being Offered........................................................47
Item 20. Underwriters................................................................................48
Item 21. Calculation of Performance Information......................................................48
Item 22. Annuity Payments............................................................................48
Item 23. Financial Statements........................................................................49
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits...........................................................95
Item 25. Directors and Officers of the Depositor.....................................................97
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant..............99
Item 27. Number of Contract Owners..................................................................109
Item 28. Indemnification............................................................................109
Item 29. Principal Underwriter......................................................................109
Item 30. Location of Accounts and Records...........................................................111
Item 31. Management Services........................................................................111
Item 32. Undertakings...............................................................................111
</TABLE>
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NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 16609
Columbus, Ohio 43216-6609, 1-800-848-6331
TDD 1-800-238-3035
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-9
The Contracts described in this prospectus are Modified Single Premium Variable
Annuity Contracts (collectively referred to as the "Contracts"). Reference
throughout the prospectus to such Contracts will mean individual contracts as
well as Certificates issued under Group Modified Single Premium Retirement
Contracts. For such Group Contracts, references to "Contract Owner" will mean
the individual group member unless the group Contract Owner is permitted or
required to exercise contractual rights. The Contracts are sold for use in
retirement plans which may qualify for special federal tax treatment under the
Internal Revenue Code (the "Code"). The Contracts are sold as either:
Non-Qualified Contracts; Investment Only Contracts issued to Qualified Pension,
Profitsharing or Stock Bonus Plans as defined by Section 401(a) of the Code;
IRAs; Roth IRAs; SEP IRAs; or Tax Sheltered Annuities. Annuity payments 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 Underlying Mutual Fund options are available as investment
options in variable life insurance policies or variable annuity contracts issued
by life insurance companies, or in some cases, through participation in certain
qualified pension or retirement plans. The Variable Account uses its assets to
purchase shares at Net Asset Value in one or more of the following Underlying
Mutual Fund options:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.,
A MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS
American Century VP Income & Growth American Century VP International
American Century VP Value
DREYFUS
The Dreyfus Socially Responsible Dreyfus Stock Index Fund, Inc.
Growth Fund, Inc.
Dreyfus Variable Investment Fund - Capital Appreciation Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Fund Equity-Income Portfolio: VIP Fund Growth Portfolio:
Service Class Service Class
VIP Fund High Income Portfolio: VIP Fund Overseas Portfolio:
Service Class Service Class*
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP Fund II Contrafund Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
VIP Fund III Growth Opportunities Portfolio: Service Class
MORGAN STANLEY
Morgan Stanley Universal Funds, Inc. - Emerging Markets Debt Portfolio
Van Kampen American Capital Life Investment Trust -
Morgan Stanley Real Estate Securities Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund Government Bond Fund
Money Market Fund Total Return Fund
Nationwide Balanced Fund
Nationwide Equity Income Fund
Nationwide Global Equity Fund
Nationwide High Income Bond Fund*
Nationwide Multi Sector Bond Fund*
Nationwide Select Advisers Mid Cap Fund
Nationwide Small Cap Value Fund
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<PAGE> 4
Nationwide Small Company Fund
Nationwide Strategic Growth Fund
Nationwide Strategic Value Fund
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
AMT Guardian Portfolio AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Aggressive Growth Fund
(formerly "Oppenheimer Capital Appreciation Fund")
Oppenheimer Growth Fund Oppenheimer Growth & Income Fund
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Emerging Markets Fund Worldwide Hard Assets Fund
WARBURG PINCUS TRUST
Growth & Income Portfolio International Equity Portfolio
Post-Venture Capital Portfolio
* These Funds invest primarily in lower quality debt securities commonly
referred to as "junk bonds."
This prospectus provides you with the basic information you should know about
the Contracts issued by the Variable Account before investing. You should read
it and keep it for future reference. A Statement of Additional Information dated
______, 1998, containing further information about the Contracts and the
Variable Account has been filed with the Securities and Exchange Commission
("SEC"). You can obtain a copy without charge from the Company by calling
1-800-848-6331, TDD 1-800-238-3035, or by writing P.O. Box 16609, Columbus, Ohio
43216-6609.
Purchase Payments not allocated to the Variable Account may be allocated to the
Guaranteed Term Options ("GTOs"). GTOs 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
GTOs, 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 GTOS
AND OTHER BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN EVERY
JURISDICTION. PLEASE REFER TO YOUR CONTRACT FOR SPECIFIC BENEFIT INFORMATION.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, ANY ADVISER 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. ANY INVESTMENT IN THE CONTRACT
INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SEC MAINTAINS A WEB SITE, WWW.SEC.GOV, THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION AS WELL AS ANY MATERIAL INCORPORATED BY REFERENCE
RELATING TO THIS PROSPECTUS.
INFORMATION ABOUT THIS PRODUCT AND OTHER BEST OF AMERICA PRODUCTS CAN BE
OBTAINED ON THE WORLD- WIDE WEB AT WWW.BESTOFAMERICA.COM.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED ______, 1998, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 35 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS ______, 1998.
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<PAGE> 5
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 during
Annuitization and upon whose continuation of life any annuity payment 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 received.
ANNUITIZATION DATE- The date on which annuity payments 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. The Annuity Commencement Date may be changed by the Contract Owner
with the consent of the Company.
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 when the Annuitant dies 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 the 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 Qualified Contracts, IRAs,
Roth IRAs, 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 OWNER- A Contingent Owner 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" will mean "Owner's Beneficiary." A Contingent Owner may not be named for
Contracts issued as Qualified Contracts, IRAs, Roth IRAs, SEP IRAs or Tax
Sheltered Annuities.
CONTRACT- The Deferred Variable Annuity Contract described in this prospectus.
CONTRACT ANNIVERSARY- An anniversary of the Date of Issue of the Contract.
CONTRACT OWNER- The person who possesses all rights under the Contract,
including the right to designate and change any designations of the Contract
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 application, unless
changed.
CONTRACT VALUE- The sum of the value of all Accumulation Units attributable to
the Contract, plus any amount held in GTOs, 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 Contract Owner and Annuitant are not the
same person. If the Annuitant dies after the Annuitization Date, any benefit
that may be payable will be as specified in the Annuity Payment Option elected.
DISTRIBUTION- Any payment of part or all of the Contract Value.
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FIXED PAYMENT ANNUITY- An annuity providing for payments which are guaranteed by
the Company as to dollar amount during Annuitization.
GUARANTEED TERM OPTION ("GTO")- An investment option offered under the Contract
which provides a guaranteed interest rate over a certain maturity duration
(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 ("MVA")
if distributed for any reason prior to the end of the selected term. GTOs are
not part of the Variable Account and are not subject to Variable Account
charges. GTOs are not available during the Annuitization phase of the Contract
and may not be available in every 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 ACCOUNT- An account that qualifies for favorable tax
treatment under Section 408 of the Code, but does not include Roth Individual
Retirement Accounts, which qualify for favorable tax treatment under Section
408A of the Code.
INDIVIDUAL RETIREMENT ANNUITY ("IRA")- An annuity contract which qualifies for
favorable tax treatment under Section 408 of the Code, but does not include Roth
IRAs, which qualify for favorable tax treatment under Section 408A of the Code.
INVESTMENT- ONLY CONTRACT- A contract purchased by a Qualified Plan which does
not, by its terms, comply with Section 401 or 403(a) of the Code. The Qualified
Plan purchasing the Investment- Only Contract may impose limitations or
restrictions on benefits discussed in this prospectus.
JOINT OWNER- The Joint Owner possesses an undivided interest in the entire
Contract in conjunction with the Contract Owner. If a Joint Owner is named,
references to "Contract Owner" or "Joint Owner" will apply to both the Contract
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.
MARKET VALUE ADJUSTMENT ("MVA")- The upward or downward adjustment in value of
amounts allocated to a GTO, which are distributed prior to maturity for any
reason.
NET ASSET VALUE- The worth of one share of an Underlying Mutual Fund at the end
of a market day or at the close of the New York Stock Exchange. Net Asset Value
is computed by adding the value of all portfolio holdings plus other assets,
deducting liabilities and then dividing the result by the number of shares
outstanding.
NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax
treatment under Sections 401 and 403(a) (Qualified Plans), 408 (IRAs), 408A
(Roth IRAs) or 403(b) (Tax Sheltered Annuities) of the Code.
PLAN PARTICIPANT- The person for whom contributions are being made to a
Qualified Contract or Tax Sheltered Annuity either through employer
contributions or employee salary reduction contributions.
PURCHASE PAYMENT- A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers among the Sub-Accounts or transfers from the
Sub-Account to a GTO, or GTO to the Sub-Accounts.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Code.
ROTH IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408A of the Code.
SEP IRA- A retirement plan which receives favorable tax treatment under Section
408(k) of the Code.
STANDARD CONTRACTUAL DEATH BENEFIT- The Death Benefit provided under the
Contract when neither of the optional Death Benefit is chosen. The Standard
Contract Death Benefit is the Five-Year Reset Death Benefit.
SUB-ACCOUNTS- Separate and distinct divisions of the Variable Account, to which
specific Underlying Mutual Fund shares are allocated and for which Accumulation
Units and Annuity Units are separately maintained.
TAX SHELTERED ANNUITY- An annuity which qualifies for favorable tax treatment
under Section 403(b) of the Code.
UNDERLYING MUTUAL FUND- A registered open-end management investment company in
which the assets of the Sub-Accounts will be invested.
VALUATION DATE- Each day the New York Stock Exchange and the Home Office are
open for business or any other day during which there is a sufficient degree of
trading of the Underlying Mutual Fund shares that the current Variable Account
Contract Value might be materially affected.
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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- 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 PAYMENT 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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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GLOSSARY OF SPECIAL TERMS...........................................................................................3
SUMMARY OF CONTRACT EXPENSES........................................................................................8
UNDERLYING MUTUAL FUND ANNUAL EXPENSES..............................................................................9
EXAMPLE............................................................................................................11
SYNOPSIS...........................................................................................................13
NATIONWIDE LIFE INSURANCE COMPANY..................................................................................13
NATIONWIDE ADVISORY SERVICES, INC..................................................................................13
THE VARIABLE ACCOUNT...............................................................................................14
Underlying Mutual Fund Options..........................................................................14
Voting Rights...........................................................................................14
Substitution of Securities..............................................................................15
GTO ALLOCATIONS....................................................................................................15
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS......................................................................15
Variable Account Charges................................................................................15
Optional Death Benefit Charges..........................................................................15
Premium Taxes...........................................................................................16
OPERATION OF THE CONTRACT..........................................................................................16
Investments of the Variable Account.....................................................................16
Allocation of Purchase Payments and Contract Value......................................................16
Value of an Accumulation Unit...........................................................................16
Net Investment Factor...................................................................................17
Determining the Contract Value..........................................................................17
Right to Revoke.........................................................................................17
Transfers...............................................................................................17
Contract Ownership......................................................................................18
Joint Ownership.........................................................................................18
Contingent Ownership....................................................................................18
Beneficiary.............................................................................................19
Surrender (Redemption)..................................................................................19
Surrenders Under a Tax Sheltered Annuity Contract.......................................................19
Loan Privilege..........................................................................................20
Assignment..............................................................................................21
CONTRACT OWNER SERVICES............................................................................................21
Asset Rebalancing.......................................................................................21
Dollar Cost Averaging...................................................................................22
Systematic Withdrawals..................................................................................22
ANNUITY PAYMENT PERIOD, DEATH BENEFIT AND OTHER DISTRIBUTIONS......................................................22
Annuity Commencement Date...............................................................................22
Annuitization...........................................................................................22
Fixed Payment Annuity-First and Subsequent Payments.....................................................22
Variable Payment Annuity-First and Subsequent Payments..................................................23
Variable Payment Annuity-Assumed Investment Rate........................................................23
Variable Payment Annuity - Value of an Annuity Unit.....................................................23
Variable Payment Annuity-Exchanges Among Underlying Mutual Fund Options.................................23
Frequency and Amount of Annuity Payments................................................................23
Annuity Payment Options.................................................................................23
Death of Contract Owner- Non-Qualified Contracts........................................................24
Death of Annuitant- Non-Qualified Contracts.............................................................24
Death of Contract Owner/Annuitant.......................................................................24
Death Benefit Payment...................................................................................24
Five-Year Reset Death Benefit (Standard Contractual Death Benefit)...............................24
One-Year Step Up Death Benefit (Option 1)........................................................25
5% Enhanced Death Benefit (Option 2).............................................................25
Required Distributions for Non-Qualified Contracts......................................................25
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Required Distributions for Tax Sheltered Annuities......................................................26
Required Distributions for IRAs or SEP IRAs.............................................................27
Required Distributions for Roth IRAs....................................................................28
FEDERAL TAX CONSIDERATIONS.........................................................................................28
Federal Income Taxes....................................................................................28
Puerto Rico.............................................................................................29
Non-Qualified Contracts- Natural Persons as Contract Owners.............................................29
Non-Qualified Contracts- Non-Natural Persons as Contract Owners.........................................30
IRAs, SEP IRAs and Tax Sheltered Annuities..............................................................31
Roth IRAs...............................................................................................31
Withholding.............................................................................................31
Non-Resident Aliens.....................................................................................32
Federal Estate, Gift, and Generation-Skipping Transfer Taxes............................................32
Charge for Tax..........................................................................................32
Diversification.........................................................................................32
Tax Changes.............................................................................................33
GENERAL INFORMATION................................................................................................33
Contract Owner Inquiries................................................................................33
Statements and Reports..................................................................................33
Advertising.............................................................................................33
YEAR 2000 COMPLIANCE ISSUES........................................................................................35
LEGAL PROCEEDINGS..................................................................................................35
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS..............................................................35
APPENDIX...........................................................................................................36
</TABLE>
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SUMMARY OF CONTRACT EXPENSES
<TABLE>
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VARIABLE ACCOUNT CHARGES.......................................................................................1.30%(1)
</TABLE>
OPTIONAL DEATH BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Optional One-Year Stepped Up Death Benefit (Option 1) .................................0.05%(2)
Total Variable Account Annual Expenses (Including Option 1)...................................1.35%
Optional 5% Enhanced Death Benefit (Option 2)..........................................0.10%(2)
Total Variable Account Annual Expenses (Including Option 2)...................................1.40%
</TABLE>
(1) The Company assesses Variable Account charges equal to an annual rate of
1.30% of the daily net assets of the Variable Account (see "Variable
Account Charges"). This charge includes the Five-Year Reset Death Benefit
which is the Standard Contractual Death Benefit provided when neither of
the optional Death Benefits is chosen (see "Death Benefit Payment").
(2) At the time of application, the applicant may choose one of two Death
Benefits in lieu of receiving the Standard Contractual Death Benefit.
Should the applicant choose an Optional Death Benefit, the Company will
deduct an additional charge equal to an annual rate of 0.05% for Option
1, or 0.10% for Option 2, of the daily net assets of the Variable Account
(see "Death Benefit Payment" provision).
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES(1)
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS,
AFTER EXPENSE REIMBURSEMENT)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Management Total Mutual
Fees Other Expenses Fund Expenses
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, 0.70% 0.00% 0.70%
Inc.-American Century VP Income & Growth
- -------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 1.50% 0.00% 1.50%
Inc.-American Century VP International
- -------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 1.00% 0.00% 1.00%
Inc.-American Century VP Value
- -------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 0.25% 0.03% 0.28%
- -------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Capital 0.75% 0.05% 0.80%
Appreciation Portfolio
- -------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth 0.75% 0.01% 0.76%
Fund, Inc.
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income Portfolio: 0.50% 0.15% 0.65%
Service Class(2),(3)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth Portfolio: 0.60% 0.17% 0.77%
Service Class(2),(3)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income Portfolio: 0.59% 0.21% 0.80%
Service Class(3)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas Portfolio: 0.75% 0.26% 1.01%
Service Class(2),(3)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund Portfolio: 0.60% 0.18% 0.78%
Service Class(2),(3)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund III-Growth Opportunities 0.60% 0.23% 0.83%
Portfolio: Service Class(2),(3)
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Inc.- 0.04% 1.26% 1.30%
Emerging Markets Debt Portfolio(2)
- -------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 0.60% 0.09% 0.69%
- -------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.08% 0.58%
- -------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.40% 0.08% 0.48%
- -------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.60% 0.07% 0.67%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Balanced Fund 0.75% 0.15% 0.90%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Equity Income Fund 0.80% 0.15% 0.95%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Global Equity Fund 1.00% 0.20% 1.20%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide High Income Bond Fund 0.80% 0.15% 0.95%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Multi-Sector Bond Fund 0.75% 0.15% 0.90%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Select Advisors Mid Cap Fund 1.05% 0.15% 1.20%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small Cap Value Fund 0.90% 0.25% 1.15%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small Company Fund 1.00% 0.11% 1.11%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Strategic Growth Fund 0.90% 0.10% 1.00%
- -------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Strategic Value Fund 0.90% 0.10% 1.00%
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust 0.60% 0.40% 1.00%
- -AMT Guardian Portfolio
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.60% 0.40% 1.00%
Trust-AMT Mid Cap Growth Portfolio
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.80% 0.06% 0.86%
Trust-AMT Partners Portfolio
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds 0.71% 0.02% 0.73%
- -Oppenheimer Aggressive Growth Fund
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 0.73% 0.02% 0.75%
Funds-Oppenheimer Growth Fund
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds- 0.75% 0.08% 0.83%
Oppenheimer Growth & Income Fund
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES(1)
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS,
AFTER EXPENSE REIMBURSEMENT)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Van Eck Worldwide Insurance Trust- 0.80% 0.00% 0.80%
Worldwide Emerging Markets Fund(2)
- -------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust- 1.00% 0.17% 1.17%
Worldwide Hard Assets Fund(2)
- -------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment 1.00% 0.07% 1.07%
Trust-Morgan Stanley Real Estate
Securities Portfolio
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Growth & Income 0.65% 0.35% 1.00%
Portfolio(2)
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity 1.00% 0.35% 1.35%
Portfolio(2)
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Post-Venture 1.07% 0.33% 1.40%
Capital Portfolio(2)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Mutual Fund expenses shown above are assessed at the Underlying
Mutual Fund level and are not direct charges against Variable 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 prospectus for each 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. Except as otherwise noted below,
the Management Fees and Other Expenses are not currently subject to fee
waivers or expense reimbursements.
(2) The investment advisers for the indicated Underlying Mutual Funds have
voluntarily agreed to reimburse a portion of the management fees and/or
other expenses resulting in a reduction of total expenses. Absent any
partial reimbursement, "Management Fees" and "Other Expenses" would have
been 0.50% and 0.18% for Fidelity VIP Equity-Income Portfolio, 0.60% and
0.19% for Fidelity VIP Growth Portfolio, 0.75% and 0.27% for Fidelity VIP
Overseas Portfolio, 0.60% and 0.21% for Fidelity VIP II Contrafund
Portfolio, 0.60% and 0.24% for Fidelity VIP III Growth Opportunities
Portfolio, 0.80% and 1.26% for Morgan Stanley Universal Funds, Inc.-
Emerging Markets Debt Portfolio, 0.75% and 4.15% for NSAT-Nationwide
Balanced Fund, 0.80% and 4.83% for NSAT-Nationwide Equity Income Fund,
1.00% and 1.84% for NSAT- Nationwide Global Equity Fund, 0.80% and 1.38%
for NSAT-Nationwide High Income Bond Fund, 0.75% and 3.66% for
NSAT-Nationwide Multi-Sector Bond Fund, 1.05% and 2.26% for
NSAT-Nationwide Select Advisers Mid Cap Fund, 0.90% and 5.41% for
NSAT-Nationwide Small Cap Value Fund, 0.90% and 5.43% for NSAT-Nationwide
Strategic Growth Fund, 0.90% and 4.64% for NSAT-Nationwide Strategic
Value Fund, 1.00% and 0.34% for Van Eck Worldwide Insurance
Trust-Worldwide Emerging Markets Fund, 1.00% and 0.18% for Van Eck
Worldwide Insurance Trust-Worldwide Hard Assets Fund, 0.75% and 0.45% for
Warburg Pincus Trust-Growth & Income Portfolio, 1.00% and 0.36% for
Warburg Pincus Trust-International Equity Portfolio, 1.25% and 0.33% for
Warburg Pincus Trust-Post-Venture Capital Portfolio.
(3) The "Other Expenses" reflect the payment of 0.10% pursuant to a Rule
12b-1 Plan adopted by the Underlying Mutual Funds.
10
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<PAGE> 13
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
If you surrender your If you do not surrender If you annuitize your
Contract your Contract at the end Contract
at the end of the of the applicable time at the end of the
applicable period applicable
time period time period
- ----------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century Variable 22 68 117 250 22 68 117 250 * 68 117 250
Portfolios, Inc.-American
Century VP Income & Growth
- ----------------------------------------------------------------------------------------------------------------------
American Century Variable 30 93 158 333 30 93 158 333 * 93 158 333
Portfolios, Inc.-American
Century VP International
- ----------------------------------------------------------------------------------------------------------------------
American Century Variable 25 77 132 282 25 77 132 282 * 77 132 282
Portfolios, Inc.-American
Century VP Value
- ----------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially 23 70 120 257 23 70 120 257 * 70 120 257
Responsible Growth Fund, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, 18 55 94 204 18 55 94 204 * 55 94 204
Inc.
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 23 71 122 261 23 71 122 261 * 71 122 261
Fund-Capital Appreciation
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund- 22 67 116 248 22 67 116 248 * 67 116 248
Equity-Income Portfolio:
Service Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 23 71 121 260 23 71 121 260 * 71 121 260
Portfolio: Service Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High 23 71 122 262 23 71 122 262 * 71 122 262
Income Portfolio: Service
Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 25 78 133 283 25 78 133 283 * 78 133 283
Portfolio: Service Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II- 23 71 122 262 23 71 122 262 * 71 122 262
Contrafund Portfolio:
Service Class
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund III- 24 72 124 265 24 72 124 265 * 72 124 265
Growth Opportunities
Portfolio: Service Class
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal 28 87 148 313 28 87 148 313 * 87 148 313
Funds, Inc.-Emerging
Markets Debt Portfolio
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation 22 68 116 249 22 68 116 249 * 68 116 249
Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 21 64 110 237 21 64 110 237 * 64 110 237
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 20 61 105 227 20 61 105 227 * 61 105 227
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 22 67 115 247 22 67 115 247 * 67 115 247
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Balanced Fund 24 74 127 272 24 74 127 272 * 74 127 272
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Equity 25 76 130 277 25 76 130 277 * 76 130 277
Income Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Global 27 84 143 303 27 84 143 303 * 84 143 303
Equity Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide High Income 25 78 130 277 25 78 130 277 * 78 130 277
Bond Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Multi-Sector 24 74 127 272 24 74 127 272 * 74 127 272
Bond Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Select 27 84 143 303 27 84 143 303 * 84 143 303
Advisers Mid-Cap Fund
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
11
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<PAGE> 14
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NSAT-Nationwide Small Cap 26 79 135 287 26 79 135 287 * 79 135 287
Value Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small 26 81 137 293 26 81 137 293 * 81 137 293
Company Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Strategic 25 77 132 282 25 77 132 282 * 77 132 282
Growth Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic 25 77 132 282 25 77 132 282 * 77 132 282
Value Fund
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 25 77 132 282 25 77 132 282 * 77 132 282
Guardian Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 25 77 132 282 25 77 132 282 * 77 132 282
Mid-Cap Growth Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 24 73 125 267 24 73 125 267 * 73 125 267
Partners Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 22 89 118 254 22 89 118 254 * 89 118 254
Funds-Oppenheimer
Aggressive Growth Fund
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 23 70 119 256 23 70 119 256 * 70 119 256
Funds-Oppenheimer Growth
Fund
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 23 72 123 264 23 72 123 264 * 72 123 264
Funds-Oppenheimer Growth &
Income Fund
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 23 71 122 261 23 71 122 261 * 71 122 261
Trust-Worldwide Emerging
Markets Fund
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 27 83 141 300 27 83 141 300 * 83 141 300
Trust-Worldwide Hard
Assets Fund
- ----------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 26 80 136 289 26 80 136 289 * 80 136 289
Life Investment Trust-
Morgan Stanley Real Estate
Securities Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 25 77 132 282 25 77 132 282 * 77 132 282
Growth & Income Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 29 88 151 318 29 88 151 318 * 88 151 318
International Equity
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust- 29 90 153 323 29 92 153 323 * 92 153 323
Post-Venture Capital
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Contracts sold under this prospectus do not permit annuitizations during
the first two Contract Years.
The Example takes into consideration the maximum amount which could be assessed
to a Contract (1.40%), for the election of the 5% Enhanced Death Benefit
(Option 2) (see "Optional Death Benefit Charges" and "Death Benefit Payment"
provisions for additional details on the charges assessed). For those Contracts
under which the 5% Enhanced Death Benefit Option 2 has not been elected, 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 Fund options 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 Fund options, see the prospectus for each Underlying Mutual Fund.
Deductions for premium taxes may also apply but are not reflected in the Example
shown above (see "Premium Taxes").
12
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<PAGE> 15
SYNOPSIS
The Contracts can be categorized as follows: (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) IRAs; (4) Roth IRAs; (5) SEP IRAs;
and (6) Tax Sheltered Annuities.
The initial first year Purchase Payment for Contracts issued as Non-Qualified
Contracts, IRAs, Roth IRAs, SEP IRAs or Tax Sheltered Annuities must be at least
$15,000 and subsequent Purchase Payments, if any, at least $1,000. In addition,
any amounts allocated to the GTO(s) must be at least $1,000. Please refer to the
prospectus for the GTO(s) for additional details regarding Purchase Payments
made to the GTO(s). For Investment Only Contracts, 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 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 by the Company 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, nor is any sales charge deducted upon the surrender of the Contract.
The Company deducts Variable Account Charges equal to an annual rate of 1.30% of
the daily net assets of the Variable Account (see "Charges of the Variable
Account and Other Deductions"). These charges compensate the Company for
administrative expenses incurred and risks assumed in supporting the Company's
obligations under the Contracts. If the Contract Owner has elected a Death
Benefit Option at the time of application, the Company deducts: (1) a One-Year
Step Up Death Benefit (Option 1) charge equal to an annual rate of 0.05% of the
daily net assets of the Variable Account; or (2) a 5% Enhanced Death Benefit
(Option 2) charge equal to an annual rate of 0.10% of the daily net assets of
the Variable Account, depending on which Death Benefit Option was chosen (see
"Optional Death Benefit Charges" and "Death Benefit Payment" 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 on the Annuitization Date is less than $5,000, the Contract Value
may be distributed in lump sum in lieu of annuity payments. If any annuity
payment would be less than $50, the Company will 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").
Taxation of the Contracts will depend on the type of Contract issued (see
"FEDERAL TAX CONSIDERATIONS"). In addition, 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").
The Contract Owner has a ten day free look to examine the Contract. Within ten
days of the date the Contract is received, it may be returned for any reason to
the Home Office at the address shown on page 1 of this prospectus. If the
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
law. State and/or federal law may provide additional free look privileges. All
IRA, Roth IRA and SEP IRA refunds will be return of Purchase Payments (see
"Right to Revoke").
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 provider of life insurance, annuities and
retirement products. It is admitted to do business in all states, the District
of Columbia and Puerto Rico.
NATIONWIDE ADVISORY SERVICES, INC.
The Contracts are distributed by the General Distributor, Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a
wholly owned subsidiary of Nationwide Life Insurance Company.
13
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<PAGE> 16
THE VARIABLE ACCOUNT
The Variable Account was established by the Company on May 22, 1997 pursuant to
Ohio law. The Company has caused the Variable Account to be registered with the
SEC as a unit investment trust pursuant to the Investment Company Act of 1940
("1940 Act"). Such registration does not involve supervision of the management
of the Variable Account or of the Company by the SEC.
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 of the Variable Account,
whether or not realized, are credited to or charged against the Variable Account
without regard to other income, gains, or losses of the Company.
Purchase Payments are allocated among one or more Sub-Accounts corresponding to
one or more of the Underlying Mutual Funds 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 Fund shares attributable to
Accumulation Units under IRAs, Roth IRAs, SEP-IRAs and Tax Sheltered Annuities
and one such Sub-Account contains the Underlying Mutual Fund shares attributable
to Accumulation Units under Non-Qualified Contracts.
UNDERLYING MUTUAL FUND OPTIONS
A Contract Owner may choose from among a number of different Underlying Mutual
Fund options. See the Appendix which contains a summary of investment objectives
for each Underlying Mutual Fund. More detailed information may be found in the
current prospectus for each Underlying Mutual Fund. Prospectuses for the
Underlying Mutual Funds should be read in conjunction with this prospectus. A
copy of each prospectus may be obtained without charge from the 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 are NOT available to the
general public directly.
The Underlying Mutual Funds are available as investment options in variable life
insurance policies or variable annuity contracts issued by life insurance
companies or, in some cases, through participation in certain qualified pension
or retirement plans.
Some of the Underlying Mutual Funds have been established by investment advisers
which manage publicly traded mutual funds having similar names and investment
objectives. While some of the Underlying Mutual Funds may be similar to, and may
in fact be modeled after, publicly traded mutual funds, contract purchasers
should understand that the Underlying Mutual Funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the investment
performance of publicly traded mutual funds and any corresponding Underlying
Mutual Funds may differ substantially.
The Underlying Mutual Funds 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
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 in which the Underlying Mutual Funds participate. A conflict
may occur due to a number of reasons including: a change in law affecting the
operations of variable life insurance policies and variable annuity contracts or
differences in the voting instructions of the Contract Owners and those of other
companies. In the event of conflict, the Company will take any steps necessary
to protect the Contract Owners and variable annuity payees, including withdrawal
of the Variable Account from participation in the Underlying Mutual Fund(s)
involved in the conflict.
VOTING RIGHTS
Voting rights under the Contracts apply ONLY with respect to amounts allocated
to the Sub-Accounts.
In accordance with its view of applicable law, the Company will vote the shares
of the Underlying Mutual Funds at regular and special meetings of the
shareholders. These shares will be voted in accordance with instructions
received from Contract Owners. If the 1940 Act or any regulation thereunder
should be amended or if the present interpretation changes permitting the
Company to vote the shares of the Underlying Mutual Funds in its own right, it
may elect to do so.
The Contract Owner is 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 by the Net Asset Value of the Underlying Mutual Fund corresponding
to the Sub-Account. The number of shares which may be voted will be determined
as of the date 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.
14
16 of 118
<PAGE> 17
Voting instructions will be solicited by written communication at least 21 days
prior to such meeting. Underlying Mutual Fund shares 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 shares of the Underlying Mutual Fund options are no longer 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 is
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 SEC.
GTO ALLOCATIONS
GTOs are separate investment options under the Contract. GTOs provide a
guaranteed rate of interest over four different maturity durations of 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 a Distribution
occurs, the proceeds will be subject to a MVA, resulting in either an upward or
downward adjustment in the value of the distributed proceeds, depending on
interest rate fluctuations. No MVA will 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.
Allocations to the GTOs are not subject to Variable Account Charges.
Generally, the MVA 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 MVA should
be carefully considered prior to surrender or transfer from 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 Asset Rebalancing,
Dollar Cost Averaging or Systematic Withdrawals.
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.
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS
VARIABLE ACCOUNT CHARGES
The Variable Account charges apply to allocations made to the Sub-Accounts. The
Company deducts charges from the Variable Account equal to an annual rate of
1.30% of the daily net assets of the Variable Account. The Variable Account
charges compensate the Company for administrative expenses incurred relating to
the issuance and maintenance of the Contracts and for mortality risks assumed in
connection with the death benefit and annuity features of the Contracts. This
deduction is made from each Sub-Account in the same proportion that the value in
each Sub-Account bears to the total value in the Variable Account.
It is the opinion of the Company that the Variable Account charges, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed.
OPTIONAL DEATH BENEFIT CHARGES
If a Death Benefit Rider is chosen, the Company will deduct a charge equal to an
annual rate of either 0.05% or 0.10% of the daily net assets of the Variable
Account depending on which Death Benefit option was chosen (see "Death Benefit
Payment" provision). These charges are designed to reimburse the Company for
increased expenses and mortality risks. The Company may generate a profit from
these charges.
15
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<PAGE> 18
PREMIUM TAXES
The Company will charge against the Contract Value any premium taxes levied by a
state or any other government entity upon Purchase Payments received by the
Company. Premium tax rates currently range from 0% to 3.5%. This range is
subject to change. The method used to recoup premium tax will be determined by
the Company at its sole discretion in compliance with state law. The Company
currently deducts such charges from the Contract Value either at: (1) the time
the Contract is surrendered; (2) Annuitization; or (3) such earlier date as the
Company may become subject to such taxes.
OPERATION OF THE CONTRACT
INVESTMENTS OF THE VARIABLE ACCOUNT
The Contract Owner may have Purchase Payments allocated among one or more of the
Sub-Accounts. Shares of the Underlying Mutual Fund options 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 allocation of Purchase Payments or may exchange amounts among the
Sub-Accounts. Such transactions may be subject to conditions imposed by the
Underlying Mutual Funds, as well those set forth in the Contract.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments are allocated to the GTOs or to one or more Sub-Accounts in
accordance with the designation of the Underlying Mutual Funds by the Contract
Owner and converted into Accumulation Units.
The initial first year Purchase Payment for Contracts issued as Non-Qualified
Contracts, IRAs, Roth IRAs, SEP IRAs 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 GTO(s) must be at least $1,000. Please
refer to the prospectus for the GTO(s) for additional details regarding Purchase
Payments made to the GTO(s). For Investment Only Contracts, 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 for Contracts
issued in the state of Oregon and may not be permitted in other states under
certain circumstances.
The Contract Owner may increase or decrease Purchase Payments or change the
frequency of payment. The Contract Owner is not obligated to continue Purchase
Payments in the amount or at the frequency elected. There are no penalties for
failure to continue Purchase Payments. The cumulative total of all purchase
payments under contracts issued by the Company on the life of any Annuitant may
not exceed $1,000,000 without prior consent of the Company.
The initial Purchase Payment allocated to designated Sub-Accounts will be priced
no later than 2 business days after receipt of an order to purchase, if the
application and all information necessary for processing the purchase order are
complete. The Company may, however, retain the Purchase Payment for up to 5
business days while attempting to complete an incomplete application. If the
application cannot be made complete within 5 business 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 application is
complete. Thereafter, subsequent Purchase Payments will be priced on the basis
of the Accumulation Unit 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; Martin Luther King, Jr. Day; Presidents Day; Good
Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving; and Christmas.
VALUE OF AN ACCUMULATION UNIT
The Accumulation Unit value for any 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. Though the number of Accumulation Units
will not change as a result of investment experience, the value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period.
16
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<PAGE> 19
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; and
(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 Asset Value per share of the Underlying Mutual Fund held
in the Sub-Account determined at the end of the immediately preceding
Valuation Period.
(c) is a factor representing the daily Variable Account charges. Such
factor is equal to an annual rate of 1.30% of the daily net assets of
the Variable Account (1.35% or 1.40% if one of the optional Death
Benefits is chosen).
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 the Variable Account Charges.
DETERMINING THE CONTRACT VALUE
The Contract Value is the sum of the value of all Accumulation Units, amounts
allocated and credited to the Account, and amounts allocated and credited to a
GTO which may be subject to a Market Value Adjustment. The number of
Accumulation Units credited to each Sub-Account is determined by dividing the
net amount allocated to the Sub-Account by the Accumulation Unit value for the
Sub-Account for the Valuation Period during which the Purchase Payment is
received by the Company. 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 and an appropriate amount from the GTOs will be deducted
in the same proportion that the Contract Owner's interest in each of the
Sub-Accounts and GTOs bears to the total Contract Value.
RIGHT TO REVOKE
The Contract Owner has a ten day free look to examine the Contract. Within ten
days of the date the Contract is received, it may be returned for any reason to
the Home Office at the address shown on page 1 of this prospectus. If the
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
law. State and/or federal law may provide additional free look privileges. All
IRA, Roth IRA and SEP-IRA refunds will be return of Purchase Payments.
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 among the Sub-Accounts are permitted 12 times per year. The Contract
Owner's value in each Sub-Account will be determined as of the date the transfer
request is received in good order at the Home Office. Once the Contract has been
Annuitized, transfers may only be made on each anniversary of the Annuitization
Date.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. This telephone exchange privilege is made available to Contract
Owners automatically without the Contract Owner's election. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include the following: requesting
identifying information, such as name, contract number, Social Security Number,
and/or personal identification number; tape recording all telephone
transactions; or 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
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actions taken by the Company in reliance on telephone instructions reasonably
believed to be genuine will be borne by the Contract Owner.
Contracts described in this prospectus may 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 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 or 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
Unless the Contract otherwise provides, the Contract Owner has all rights under
the Contract. PURCHASERS NAMING SOMEONE OTHER THAN THEMSELVES AS OWNER 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 recorded
by the Home Office, the change will become effective as of the date the written
request was signed. A change of Contract 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 recorded by the Home Office.
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 the Contract Owner. Such request
must be received at the Home Office prior to the Annuitization Date. Any such
change is subject to review and approval by the Company. If the Contract Owner
is not a natural person and there is a change of the Annuitant, Distributions
will be made as if the Contract Owner died at the time of such change.
On the Annuitization Date, the Annuitant will become the Contract Owner.
JOINT OWNERSHIP
Joint Owners must be spouses at the time joint ownership is requested, unless
otherwise required by law. If a Joint Owner is named, the Joint Owner will
possess an undivided interest in the Contract. The exercise of any ownership
right in the Contract will 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 Joint Owner.
CONTINGENT OWNERSHIP
The Contingent Owner is the person who may receive certain benefits under the
Contract if a Contract Owner, who is not the Annuitant, dies prior to the
Annuitization Date and there is no surviving Joint Owner. 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,
the Contingent Owner will not have any rights in the Contract, unless the
Contingent Owner is also the named 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. Once proper notice of the change is recorded by the Home Office, the
change will become effective as of the date the written request was signed,
whether or not the Contract Owner is living at the
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time of recording, but without further liability as to any payment or settlement
made by the Company before receipt of such change.
BENEFICIARY
The Beneficiary is the person(s) 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 will vest in the
Contingent Beneficiary. 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. Once proper notice of the change is recorded
by the Home Office, the change will become effective as of the date the written
request was signed, 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)
Prior to the earlier of the Annuitization Date or the death of the Annuitant,
the Company will allow the Contract Owner to surrender a portion or all of the
Contract Value. The request for surrender must be made in writing and must
include the Contract when surrendering the Contract in full. In some cases the
Company will require additional documentation. 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 GTOs to
equal the gross dollar amount requested. 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 an
amount from the GTOs. The number of Accumulation Units surrendered from each
Sub-Account and the amount surrendered from the GTOs will be in the same
proportion that the Contract Owner's interest in the Sub-Accounts and GTOs bears
to the total Contract Value.
The Company will pay any amounts surrendered from the Sub-Accounts within 7
days. However, the Company reserves the right to suspend or postpone the date of
any payment for any Valuation Period when: (1) the New York Stock Exchange
("Exchange") is closed; (2) trading on the Exchange is restricted; (3) an
emergency exists as a result of which disposal of securities held in the
Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or (4)
the SEC, by order, permits such suspension or postponement for the protection of
security holders. The applicable rules and regulations of the SEC will 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 and Variable Account Charges.
SURRENDERS UNDER A TAX SHELTERED ANNUITY CONTRACT
Except as provided below, the Contract 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 qualified cash or deferred arrangement (within the
meaning of Code Section 402(g)(3)(A)), a salary reduction agreement
(within the meaning of Code Section 402(g)(3)(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.
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B. The surrender limitations described in Section 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 Qualified Contract or 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.
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 Contract Owner of a Qualified Contract or
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, unless a lower
minimum amount is mandated by state law. 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 in this provision. For salary
reduction Tax Sheltered Annuities, loans may only be secured by the Contract
Value.
All loans are made from a collateral fixed account. An amount equal to the
principal amount of the loan will be transferred to the collateral fixed
account. The Company will transfer to the collateral fixed account the
Sub-Account's Accumulation Units in proportion to the assets in each option
until the required balance is reached or all such Accumulation Units are
exhausted. Any additional requested collateral will be transferred from the
GTO(s) which may be subject to a MVA. No withdrawal charges are deducted at the
time of the loan, or on the transfer from the Variable Account 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 will 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 GTO(s). Loan repayments will
be allocated among the Sub-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 GTO
is less than $1,000, that portion of the loan repayment will be allocated to the
NSAT-Money Market Fund, unless the Contract Owner directs such loan repayments
to be directed to another investment option available in the Variable Account.
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Any amounts distributed will be reduced by the amount of the loan outstanding,
plus accrued interest if:
(1) the Contract is surrendered;
(2) the Contract Owner/Annuitant dies; or
(3) the Contract Owner who is not the Annuitant dies prior to
Annuitization.
In addition, the Contract Value will be reduced by the amount of any outstanding
loans plus accrued interest if annuity payments begin while the loan is
outstanding. 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, will be taxable to the
borrower, and may be subject to the early withdrawal tax penalty. Interest will
continue to accrue on the loan after default. 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. 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 a Tax Sheltered Annuity 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 loan's term or
procedures if there is a change in applicable law. The Company also reserves the
right to assess a loan processing fee.
IRAs, Roth IRAs, SEP IRAs and Non-Qualified Contracts are not eligible for
loans.
ASSIGNMENT
The Contract Owner of a Non-Qualified Contract may assign some or all rights
under the Contract at any time during the lifetime of the Annuitant prior to the
Annuitization Date. Once proper notice of assignment is recorded by the Home
Office, the assignment will become effective as of the date the written request
was signed. The Company is not responsible for the validity or tax consequences
of any assignment. The Company will not be liable for 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.
Any portion of the Contract Value, which is pledged or assigned, will be treated
as a Distribution and will 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 Value assigned may be
subject to a tax penalty equal to 10% of the amount which is included in gross
income. All rights in the 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 exceeding 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.
IRAs, Roth IRAs, SEP IRAs, 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 Sub-Accounts on a predetermined percentage basis. Asset
Rebalancing will occur every three months or on another frequency authorized by
the Company. If the last day of the three month period falls on a Saturday,
Sunday, recognized holiday or any other day when the New York Stock Exchange is
closed, the Asset Rebalancing reallocation will occur on the first business day
after that day. Asset Rebalancing requests must be in writing on a form provided
by the Company. The Contract Owner may want to contact a financial adviser to
discuss the use of Asset Rebalancing.
Asset Rebalancing may be subject to employer imposed limitations or restrictions
for Contracts issued to a Tax Sheltered Annuity Plan.
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Asset Rebalancing is not available for assets held in the GTOs. Amounts
transferred from the GTO prior to the expiration of the specified term are
subject to the Market Value Adjustment.
The Company reserves the right to discontinue establishing new Asset Rebalancing
programs. 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 Fidelity VIP High Income
Portfolio, NSAT-Government Bond Fund, NSAT- Nationwide High Income Bond Fund or
the NSAT- Money Market Fund to any other Sub-Account. Dollar Cost Averaging will
occur on a monthly basis or on another frequency permitted by the Company.
Dollar Cost Averaging is a long-term investment program which provides for
regular, level investments over time. There is no guarantee that Dollar Cost
Averaging will result in a profit or protect against loss. The minimum monthly
transfer is $100. Transfers will be processed until either the value in the
originating funds is exhausted or the Contract Owner instructs the Home Office
to cancel the transfers.
Dollar Cost Averaging transfers may not be directed to GTOs.
The Company reserves the right to discontinue establishing new Dollar Cost
Averaging programs. The Company also reserves the right to assess a processing
fee for this service.
SYSTEMATIC WITHDRAWALS- A Contract Owner may elect in writing to begin receiving
withdrawals of a specified dollar amount (of at least $100) on a monthly,
quarterly, semi-annual, or annual basis. Unless otherwise instructed, the
withdrawals will be taken from the Sub-Accounts on a prorated basis. Systematic
withdrawals are not available from the GTO(s). Unless otherwise directed by the
Contract Owner, the Company will withhold any applicable federal income taxes.
The IRS may assess a 10% penalty tax 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. Withdrawals may be discontinued at any time by
notifying the Home Office.
The Company reserves the right to discontinue establishing new systematic
withdrawal programs. 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 (see "Right to
Revoke").
ANNUITY PAYMENT PERIOD, DEATH BENEFIT AND OTHER DISTRIBUTIONS
ANNUITY COMMENCEMENT DATE
An Annuity Commencement Date will be selected. Such date will be the first day
of a calendar month unless otherwise agreed upon. The date must be at least 2
years after the Date of Issue. In the event the Contract is issued subject to
the terms of a Qualified Plan or Tax Sheltered Annuity Plan, Annuitization may
occur during the first 2 years subject to approval by the Company.
The Annuity Commencement Date may be changed by the Contract Owner in writing
subject to approval by the Company.
ANNUITIZATION
Annuitization is irrevocable once payments have begun. When making an
Annuitization election, the Annuitant must choose:
(1) an Annuity Payout Option; and
(2) either a Fixed Payment Annuity, Variable Payment Annuity or an
available combination.
Payments under a Fixed Payment Annuity are guaranteed by the Company as to the
dollar amount during the annuity payment period. The dollar amount of each
payment under a Variable Payment Annuity will vary depending on the performance
of the selected Underlying Mutual Fund options. The dollar amount of each
variable payment could be higher or lower than a previous payment.
FIXED PAYMENT ANNUITY - FIRST AND SUBSEQUENT PAYMENTS
The first payment under a Fixed Payment Annuity will be determined by applying
the portion of the total Contract Value specified by the Contract Owner to the
Fixed Payment Annuity table then in effect for the Annuity Payment Option
elected, after deducting any applicable premium taxes from the total Contract
Value. This will be done at the Annuitization Date on an age last birthday
basis. Subsequent payments will remain level unless the Annuity Payment Option
elected provides otherwise. The Company does not credit discretionary interest
paid by the Company to payments during the annuity payment period.
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VARIABLE PAYMENT ANNUITY - FIRST AND SUBSEQUENT PAYMENTS
The first payment under a Variable Payment Annuity will be determined by
applying the portion of the total Contract Value specified by the Contract Owner
to the Variable Payment Annuity table then effect for the Annuity Payment Option
elected, after deducting any applicable premium taxes from the total Contract
Value. This will be done at the Annuitization Date on an age last birthday
basis. The dollar amount of the first payment 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.
VARIABLE PAYMENT ANNUITY - ASSUMED INVESTMENT RATE
A 3.5% assumed investment rate is built into the Variable Payment Annuity
purchase rate basis 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 net
investment rate is at the annual rate of 3.5%, the annuity payments will be
level.
VARIABLE PAYMENT ANNUITY - VALUE OF AN ANNUITY UNIT
The value of an Annuity Unit for a Sub-Account for any subsequent Valuation
Period is determined by multiplying the Annuity Unit value from 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 built into the Variable Payment Annuity purchase rate basis in the
Contracts (see "Net Investment Factor").
VARIABLE PAYMENT ANNUITY - EXCHANGES AMONG UNDERLYING MUTUAL FUND OPTIONS
During the annuity payment period, exchanges among the Underlying Mutual Fund
options must be made in writing and the exchange will take place on the
anniversary of the Annuitization Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments will be made based on the Annuity Payment Option selected. However, if
the net amount available under any Annuity Payment Option is less than $500, the
Company will have the right to pay such amount in one lump sum in lieu of
periodic annuity payments. In addition, if the payments to be provided would be
or become less than $20, the Company will have the right to change the frequency
of payments to such intervals as will result in payments of at least $20. In no
event will the Company make payments under an annuity option less frequently
than annually.
ANNUITY PAYMENT OPTIONS
The Contract Owner may, upon prior written notice to the Company, at any time
prior to the Annuitization Date, elect one of the following Annuity Payment
Options:
(1) Life Annuity-An annuity payable periodically, but at least annually,
during the lifetime of the Annuitant, ending with the last payment due
prior to the death of the Annuitant. FOR EXAMPLE, IF THE ANNUITANT DIES
BEFORE THE SECOND ANNUITY PAYMENT DATE, THE ANNUITANT WILL RECEIVE ONLY
ONE ANNUITY PAYMENT. THE ANNUITANT WILL ONLY RECEIVE TWO ANNUITY PAYMENTS
IF HE OR SHE DIES BEFORE THE THIRD ANNUITY PAYMENT DATE AND SO ON.
(2) Joint and Last Survivor Annuity-An annuity payable periodically, but
at least annually, during the joint lifetimes of the Annuitant and
designated second individual 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.
(3) Life Annuity With 120 or 240 Monthly Payments Guaranteed-An annuity
payable monthly during the lifetime of the Annuitant. If the Annuitant
dies before all of the guaranteed payments have been made, payments will
continue to be made for the remainder of the selected guaranteed period
to a designee chosen by the Annuitant at the time the Annuity Payment
Option was elected.
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Alternatively, the designee may elect to receive the present value of any
remaining guaranteed payments in a lump sum. The present value will be
computed as of the date on which the company receives the notice of the
Annuitant's death
Some of the stated Annuity Options may not be available in all states. The
Contract Owner may request an alternative option prior to the Annuitization Date
subject to approval by the Company.
For Non-Qualified Contracts, no Distribution will be made until an Annuity
Payment Option has been elected. IRAs, SEP IRAs and Tax Sheltered Annuities are
subject to the "minimum distribution" requirements set forth in the plan,
Contract, or Code.
DEATH OF CONTRACT OWNER- NON-QUALIFIED CONTRACTS
For Non-Qualified Contracts, if a Contract Owner and the Annuitant are not the
same and a 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 Contract Owner's estate becomes the Contract
Owner. The entire interest in the Contract Value, less any applicable deductions
must be distributed in accordance with the "Required Distributions for
Non-Qualified Contracts" provision.
DEATH OF ANNUITANT- NON-QUALIFIED CONTRACTS
If the Contract Owner and Annuitant are not the same, 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 Contract
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, and no Death Benefit is payable.
The Beneficiary may elect to receive the Death Benefit:
(1) in a lump sum Distribution;
(2) as an annuity payout; or
(3) any Distribution permitted by law and approved by the Company.
An 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 will be paid according to the selected Annuity Payment Option.
DEATH OF CONTRACT OWNER/ANNUITANT
If any Contract Owner and Annuitant are the same, and the Annuitant dies before
the Annuitization Date, a Death Benefit will be payable to the Beneficiary, the
Contingent Beneficiary, the Contract Owner, or the Contract Owner's estate, as
specified in the "Beneficiary" provision and in accordance with the appropriate
"Required Distributions" provisions.
If the Annuitant dies after the Annuitization Date, any benefit that may be
payable will be paid according to the selected Annuity Payment Option.
DEATH BENEFIT PAYMENT
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 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(s) of the partial surrender(s).
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 (OPTION 1)
If the Annuitant dies at any time prior to the Annuitization Date, the
dollar amount of the death benefit will be the greatest of:
(1) the Contract Value;
(2) the total of all Purchase Payments, less an adjustment for amounts
surrendered; or
(3) the highest Contract Value on any Anniversary Date before the
Annuitant's 86th birthday, less an adjustment for amounts
surrendered, plus Purchase Payments received after that Contract
Anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3)
above in the same proportion that the Contract Value was reduced on the
date(s) of the partial surrender(s).
For this Death Benefit Option, the Company deducts a charge at an annual
rate of 0.05% of the daily net assets 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 (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 86th birthday, less an adjustment for
amounts surrendered, plus Purchase Payments received since that
anniversary.
Such total accumulated amount will 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(s) of the partial surrender(s).
For this Death Benefit Option, the Company deducts a charge at an annual
rate of 0.10% of the daily net assets 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.
The Death Benefit value is determined as of the Valuation Date at or next
following the date the Home Office receives:
(1) proper proof of the Annuitant's death;
(2) an election specifying the Distribution method; and
(3) any state required form(s).
If the Annuitant dies after the Annuitization Date, payment will be determined
according to the selected annuity payment option.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
Upon the death of any Contract Owner or Joint Owner (including an Annuitant who
becomes the Contract Owner on the Annuitization Date), certain distributions for
Non-Qualified Contracts are required by Section 72(s) of the Code.
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Notwithstanding any provision of the Contract to the contrary, the following
distributions will be made in accordance with such requirements:
1. If any Contract Owner dies on or after the Annuitization Date and
before the entire interest under the Contract has been distributed,
then the remaining interest will be distributed at least as rapidly
as under the method of distribution in effect as of the date of the
Contract Owner's death.
2. If any Contract Owner dies 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) will be distributed within 5 years of the
death of the Contract Owner, provided however:
(a) any interest payable to or for the benefit of a natural person
(referred to herein as a "designated beneficiary"), may be
distributed over the life of the designated beneficiary or
over a period not extending beyond the life expectancy of the
designated beneficiary. Payments must begin within one year of
the date of the Contract Owner's death unless otherwise
permitted by federal income tax regulations; and
(b) if the designated beneficiary is the surviving spouse of the
deceased Contract Owner, the spouse may elect to become the
Contract Owner in lieu of receiving a Death Benefit, and any
distributions required under these distribution rules will be
made upon the death of the spouse.
In the event that this Contract is owned by a person that is not a natural
person (e.g., a trust or corporation), then, for purposes of these distribution
provisions:
(a) the death of the Annuitant will be treated as the death of any
Contract Owner;
(b) any change of the Annuitant will be treated as the death of
any Contract Owner; and
(c) in either case the appropriate distribution required under
these distribution rules will be made upon the 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 will 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.
Upon the death of a Contract Owner, the designated beneficiary must elect a
method of distribution which complies with the above distribution provisions and
which is acceptable to the Company. Such election must be received by the
Company within 60 days of the Contract Owner's death.
REQUIRED DISTRIBUTIONS FOR TAX SHELTERED ANNUITIES
Amounts in 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. Amounts
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 joint 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 joint life expectancies 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 on the required beginning date,
which is the later of:
(a) the first day of April following the calendar year in which
the Annuitant attains age 70 1/2; or
(b) when the Annuitant retires.
However, provision (b) 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.
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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 the spouse elects to receive Distribution of
the Contract 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 the Beneficiary elects to receive a
Distribution of the Contract 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, the 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 life expectancies 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 life expectancies are computed by the use
of return multiples contained in Section 1.72-9 of the Treasury Regulations.
If amounts distributed to the Annuitant are less than those mentioned above, a
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 IRAS OR SEP IRAS
Distribution from an IRA or SEP IRA must begin no later than April 1 of the
calendar year following the calendar year in which the Contract Owner attains
age 70-1/2. Distribution may be payable in a lump sum or in substantially equal
payments over:
(a) the Contract Owner's life or the lives of the Contract Owner
and his or her spouse or designated beneficiary; or
(b) a period not extending beyond the life expectancy of the
Contract Owner or the joint life expectancy of the Contract
Owner and the Contract Owner's designated beneficiary.
If the Contract Owner dies prior to the commencement of his or her Distribution,
the interest in the IRA or SEP IRA must be distributed by December 31 of the
calendar year in which the fifth anniversary of his or her death occurs, unless:
(a) The Contract Owner names his or her surviving spouse as the
Beneficiary and such spouse elects to:
(i) treat the annuity as an IRA or SEP IRA established for
his or her benefit; or
(ii) receive Distribution of the Contract 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 Contract
Owner would have attained age 70 1/2; or
(b) The Contract Owner names a Beneficiary other than his or her
surviving spouse and the Beneficiary elects to receive a
Distribution of the Contract 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 Contract Owner dies.
No Distribution will be required from this Contract if Distributions otherwise
required from this Contract are being withdrawn from another IRA or SEP IRA of
the Contract Owner.
If the Contract 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.
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If the amounts distributed to the Contract Owner are less than those mentioned
above, a 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 IRA or SEP IRA 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 IRAs.
IRA and SEP IRA Distributions will not receive the benefit of the tax treatment
of a lump sum Distribution from a Qualified Plan. If the Contract 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.
Simplified Employee Pensions (SEPs) and Salary Reduction Simplified Employee
Pensions (SAR SEPs), described in Section 408(k) of the Code are taxed in a
manner similar to IRAs, and are subject to similar distribution requirements as
IRAs. SAR SEPs cannot be established after 1996.
REQUIRED DISTRIBUTIONS FOR ROTH IRAS
Distributions from a Roth IRA, unlike other IRAs, are not required to commence
during the lifetime of the Contract Owner.
Upon the death of the Contract Owner, the Contract Owner's interest in the Roth
IRA must be distributed by December 31 of the calendar year in which the fifth
anniversary of his or her death occurs, unless:
(a) The Contract Owner names his or her surviving spouse as the
Beneficiary and such spouse elects to:
(i) treat the annuity as a Roth IRA established for his or
her benefit; or
(ii) 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 following the year in
which the Contract Owner would have attained age 70-1/2;
or
(b) The Contract Owner names a Beneficiary other than his or her
surviving spouse and such Beneficiary elects to receive a
Distribution of the Contract 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
following year in which the Contract Owner dies.
Distributions from Roth IRAs may be either taxable or nontaxable, depending upon
whether they are "qualified distributions" or "nonqualified distributions" (see
"Federal Income Taxes").
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) Qualified Contracts; (2) IRAs,
including SEP IRAs; (3) Roth IRAs; (4) Tax Sheltered Annuities; and (5)
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 formula required by the Code. The formula
required by the Code excludes from income an amount equal to the investment in
the Contract divided by the number of anticipated payments, as determined
pursuant to Section 72(d) of the Code, until the full investment in the Contract
is recovered; thereafter all Distributions are fully taxable.
Distributions from IRAs and SEP IRAs and Contracts owned by Individual
Retirement Accounts are generally taxed when received. The portion of each
payment which is excludable is based on the ratio between the amount by which
nondeductible Purchase Payments to all Contracts exceeds prior non-taxable
Distributions from the Contracts, and the
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total account balances in the Contracts at the time of the Distribution. The
owner of such IRAs or SEP IRAs or the Annuitant under Contracts held by
Individual Retirement Accounts must annually report to the IRS 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 IRAs, SEP IRAs and
Individual Retirement Accounts.
Distributions of earnings from Roth IRAs are taxable or nontaxable, depending
upon whether they are "qualified distributions" or "nonqualified distributions."
A "qualified distribution" is one that satisfies the five year rule and meets
one of the following four requirements: (i) it is made on or after the date on
which the Contract Owner attains the age of 59-1/2; (ii) it is made to a
Beneficiary (or the Contract Owner's estate) on or after the death of the
Contract Owner; (iii) it is attributable to the Contract Owner's disability; or
(iv) it is a qualified first-time home buyer distribution (as defined in Section
72(t)(2)(F) of the Code). If the Roth IRA does not have any qualified rollover
contributions from a retirement plan other than a Roth IRA (or income allocable
thereto), the five year rule is satisfied if the Distribution is not made within
the five year period beginning with the first contribution to the Roth IRA. If
the Roth IRA has any qualified rollover contributions from a retirement plan
other than a Roth IRA (or income allocable thereto), the five year rule is
satisfied if the Distribution is not made within the five taxable year period
commencing with the taxable year in which the qualified rollover contribution
was made.
A nonqualified distribution is any Distribution that is not a qualified
distribution.
A qualified distribution is not included in gross income for federal income tax
purposes. A nonqualified distribution is not includible in gross income to the
extent that such Distribution, when added to all previous Distributions, does
not exceed that aggregate amount of contributions made to the Roth IRA. Any
nonqualified distribution in excess of the aggregate amount of contributions
will be included in the Contract Owner's gross income in the year that is
distributed to the Contract Owner.
Taxable Distributions will not receive the benefit of the tax treatment of a
lump sum Distribution from a qualified plan. If the Contract Owner dies prior to
the complete Distribution of the Contract, the balance will also be included in
the Contract Owner's gross estate for federal estate tax purposes.
A change of the Annuitant or Contingent Annuitant may be treated by the IRS as a
taxable transaction.
PUERTO RICO
Under the Puerto Rico tax code, Distributions from a Non-Qualified Contract
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 adviser should be consulted.
NON-QUALIFIED CONTRACTS- NATURAL PERSONS AS CONTRACT 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 includible 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
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that portion of the Contract invested prior to August 14, 1982, are treated
first as a recovery of the investment in the Contract as of that date. A
Distribution in excess of the amount of the investment in the Contract as of
August 14, 1982, will be treated as taxable income.
The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on the earnings on the Contract which are attributable to
contributions made to the Contract after February 28, 1986. There are exceptions
for immediate annuities and certain Contracts owned for the benefit of an
individual. An immediate annuity, for purposes of this discussion, is a single
premium Contract on which payments begin within one year of purchase. If this
Contract is issued as the result of an exchange described in Section 1035 of the
Code, for purposes of determining whether the Contract is an immediate annuity,
it will generally be considered to have been purchased on the purchase date of
the contract given up in the exchange.
Code Section 72 also provides for a penalty tax, equal to 10% of the portion of
any Distribution that is includible 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 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 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 or her
life or life expectancy provided that such payments begin within one year from
the death of the Contract Owner. If the Joint Owner, Contingent Owner or other
named recipient is the surviving spouse, the 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 on the date of the Contract Owner's death (see "Required
Distribution For Qualified Plans and Tax Sheltered Annuities"). If the Contract
Owner is not a natural person, 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 in lieu of 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 will be ignored for tax purposes, and the
entire amount of the lump sum will be subject to immediate tax. If the election
is made within the 60 day period, each Distribution will be taxable when it is
paid.
NON-QUALIFIED CONTRACTS- NON-NATURAL PERSONS AS CONTRACT 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.
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
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 Contract Owner.
The foregoing non-natural person rule does not apply to all entity-owned
contracts. A Contract that is owned by a non-natural person as an agent for an
individual is treated as owned by the individual. This exception does not apply,
however, to a non-natural person who is an employer that holds the Contract
under a non-qualified deferred compensation arrangement for one or more
employees.
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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.
IRAS, SEP IRAS AND TAX SHELTERED ANNUITIES
Contract Owners seeking information regarding eligibility, limitations on
permissible amounts of Purchase Payments, and the tax consequences of
distributions from Tax Sheltered Annuities, IRAs, SEP IRAs and other plans that
receive favorable tax treatment 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, 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 Contract Owner.
The Code permits the rollover of most Distributions from Qualified Plans to
other Qualified Plans, IRAs or SEP IRAs. Most Distributions from Tax-Sheltered
Annuities may be rolled into another Tax-Sheltered Annuity, IRA or SEP IRA.
Distributions that may not be rolled over are those which are:
(a) one of a series of substantially equal annual (or more frequent)
payments made:
(i) over the life (or life expectancy) of the Contract Owner;
(ii) over the joint lives (or joint life expectancies) of the
Contract Owner and the Contract Owner's designated Beneficiary;
or
(iii) for a specified period of ten years or more; or
(b) 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.
IRAs and SEP IRAs 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 IRS could determine that the
IRA or SEP IRA did not qualify for the desired tax treatment.
ROTH IRAS
The Contract may be purchased as a Roth IRA. The Contract Owner should seek
competent advice as to the tax consequences associated with the use of a
Contract as a Roth IRA, for information regarding eligibility to invest in a
Roth IRA, for limitations on permissible amounts of Purchase Payments that may
be made to a Roth IRA, and as to the tax consequences of Distributions from Roth
IRAs.
The Code permits the rollover of most Distributions from Individual Retirement
Accounts or IRAs to Roth IRAs. The rollovers are subject to federal income tax
as Distributions from the Individual Retirement Account or IRA. For rollovers
that take place in 1998, the income from rollover is included in income ratably
over the four year period commencing in 1998. For rollovers in subsequent years,
the entire amount of income from the rollover will be required to be included in
income in the year of the rollover Distribution from the Individual Retirement
Account or IRA.
A Distribution from a Roth IRA that received the proceeds of a rollover from an
Individual Retirement Account or IRA within the previous five years could be
subject to a 10% penalty even if the Distribution is not taxable. In addition,
if the rollover from the Individual Retirement Account or IRA was made in 1998
and the income from that rollover was included in income ratably over a four
year period, a Distribution from the Roth IRA within four years of the rollover
may be subject to an additional 10% penalty.
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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 certain types of Distributions, but may be
subject to penalties in the event insufficient federal income tax is withheld
during a calendar year. However, if the IRS 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 IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances,
zero tax and withholding rates if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to the Company sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. For
Distributions, the NRA must obtain an Individual Taxpayer Identification Number
from the IRS 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 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 includible 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 for
federal tax purposes, 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
Contract 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 Contract Owner).
If the Contract Owner is not an individual, then for this purpose only,
"Contract Owner" refers to any person who would be required to include the
Contract, Death Benefit, Distribution, or other payment in his or her federal
gross estate at his or her 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 a direct skip, the Company is required by Section 2603 of
the Code to reduce the amount of the Death Benefit, Distribution, or other
payment by the tax liability, and pay the tax liability directly to the IRS.
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 person
receiving a Distribution, Death Benefit or other payment.
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CHARGE FOR TAX
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
Sub-Accounts 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 IRS 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 Contract Owner or the Company pays an amount to
the IRS. The amount will be based on the tax that would have been paid by the
Contract Owner if the income, for the period the contract was not diversified,
had been received by the Contract Owner. If the failure to diversify is not
corrected in this manner, the Contract Owner 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 IRS have suggested, from time to time, that the number of
Underlying Mutual Funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of Underlying Mutual Funds, transfers between
Underlying Mutual Funds, exchanges of Underlying Mutual Funds or changes in
investment objectives of Underlying Mutual Funds such that the Contract would no
longer qualify as an annuity under Section 72 of the Code, the Company will take
whatever steps are available to remain in compliance.
TAX CHANGES
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 considered numerous legislative proposals that, if enacted, could
change the tax treatment of the Contracts. It is reasonable to believe that such
proposals 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, state law (which is not discussed herein), 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 IRS, 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 the 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, any
statements and reports required by law. Contract Owners should promptly notify
the Company of any address change. Statements are mailed detailing the
Contract's quarterly activity. The Company will also send a confirmation
statement to Contract Owners each time a transaction is made affecting the
Contract Value. However, instead of receiving an immediate confirmation of
transactions
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made pursuant to some types of recurring payment plans (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 Contract. The Company will assume all transactions are
accurately reported on quarterly statements or confirmation statements unless
the Contract Owner notifies the Home Office within 30 days after receipt of the
statement. The Company will also send to Contract Owners a semi-annual report as
of June 30 and an annual report as of December 31, containing financial
statements for the Variable Account.
ADVERTISING
A "yield" and "effective yield" may be advertised for the NSAT-Money Market
Fund. "Yield" is a measure of the net dividend and interest income earned over a
specific seven-day period (which period will be stated in the advertisement)
expressed as a percentage of the offering price of the NSAT-Money Market Fund's
units. Yield is an annualized figure, which means that it is assumed that the
NSAT-Money Market Fund 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 SEC. The effective
yield will be slightly higher than yield due to this compounding effect.
The Company may also advertise the performance of a Sub-Account relative to the
performance of other variable annuity sub-accounts or underlying mutual fund
options 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 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 or
Corporate Bond Index; Donoghue Money Fund Average; U.S. Treasury Note Index;
Bank Rate Monitor National Index of 2 1/2 Year CD Rates; and the 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 Fund
options against all underlying mutual funds over specified periods and against
underlying mutual funds in specified categories. The rankings may or may not
include the effects of sales charges or other fees.
The Company is 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 of the Sub-Accounts. The Company may advertise for the Sub-Accounts
standardized "average annual total return," calculated in a manner prescribed by
the SEC, and nonstandardized "total return." "Average annual total return" will
show the percentage rate of return of a hypothetical initial investment of
$1,000 for the most recent one, five and ten year periods, or for a period
covering the time the Underlying Mutual Fund option has been available in the
Variable Account if the Underlying Mutual Fund option has not been available for
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," calculated similar to standardized "average
annual total return," illustrates the percentage rate of return of a
hypothetical initial investment of $25,000 for the most recent one, five and ten
year periods, or for a
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period covering the time the Underlying Mutual Fund option has been in
existence. For those Underlying Mutual Fund options which have not been held as
Sub-Accounts for one of the prescribed periods, the nonstandardized total return
illustrations will show the investment performance such Underlying Mutual Fund
options would have achieved (reduced by the same charges) had such Underlying
Mutual Fund options been available in the Variable Account for the periods
quoted. AN INITIAL INVESTMENT OF $25,000 IS ASSUMED BECAUSE THAT AMOUNT MORE
CLOSELY APPROXIMATES THE SIZE OF A TYPICAL CONTRACT THAN DOES THE $1,000
ASSUMPTION USED IN CALCULATING THE STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
QUOTATIONS.
YEAR 2000 COMPLIANCE ISSUES
The Company has developed a plan to address issues related to the Year 2000. The
problem relates to many existing computer programs using only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Company has been evaluating its exposure to the Year
2000 issue through a review of all of its operating systems as well as
dependencies on the systems of others since 1996. The Company expects all system
changes and replacements needed to achieve Year 2000 compliance to be completed
by the end of 1998. Compliance testing will be completed in the first quarter of
1999. The Company charges all costs associated with these system changes as the
costs are incurred.
Operating expenses in 1997 include approximately $45 million on technology
projects, which includes costs related to Year 2000 and the development of a new
policy administration system for traditional life insurance products and other
system enhancements. The Company anticipates spending a comparable amount in
1998 on technology projects, including Year 2000 initiatives. These expenses do
not have an effect on the assets of the Variable Account and are not charged
through to the Contract Owner.
LEGAL PROCEEDINGS
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.
The General Distributor, Nationwide Advisory Services, Inc. is not engaged in
any litigation of any material nature.
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 Insurance Company
was named as a defendant in a lawsuit filed in New York Supreme Court related to
the sale of whole life policies on a "vanishing premium" basis (John H. Snyder
v. 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 has not been
certified as a class action. In April 1997, a motion to dismiss the Snyder
complaint in its entirety was filed by the defendants, and the plaintiff has
opposed such motion.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced an action against Nationwide Life Insurance Company and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this action, plaintiffs seek to
represent a class of variable life insurance contract owners and variable
annuity contract owners whom they claim were allegedly misled when purchasing
these variable contracts into believing that some portion of their premiums were
invested in a publicly traded mutual fund when, in fact, the premium monies were
invested in a mutual fund whose shares may only be purchased by insurance
companies. The complaint seeks unspecified compensatory, treble and punitive
damages. In January 1998, both Nationwide Life Insurance Company and American
Century filed motions to dismiss the entire complaint. Plaintiffs' counsel have
opposed these motions and the federal court in Texas heard arguments on the
motions to dismiss in April 1998. This lawsuit is in an early stage and has not
been certified as a class action. Nationwide Life Insurance Company intends to
defend this case vigorously.
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.
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History.....................................................................................1
Services............................................................................................................1
Purchase of Securities Being Offered................................................................................1
Underwriters........................................................................................................2
Calculations of Performance.........................................................................................2
Underlying Mutual Fund Performance Summary..........................................................................3
Annuity Payments....................................................................................................6
Financial Statements................................................................................................7
</TABLE>
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APPENDIX B
OBJECTIVES FOR PARTICIPATING UNDERLYING MUTUAL FUNDS
THE UNDERLYING MUTUAL FUNDS LISTED BELOW ARE DESIGNED PRIMARILY AS INVESTMENT
VEHICLES FOR VARIABLE ANNUITY CONTRACTS AND VARIABLE LIFE INSURANCE POLICIES
ISSUED BY INSURANCE COMPANIES. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES WILL BE ACHIEVED.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS.
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end investment management company
which offers its shares only as investment vehicles for variable annuity and
variable life insurance products of insurance companies. American Century
Variable Portfolios, Inc. is managed by American Century Investment Management,
Inc.
-AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing in common stocks. The investment manager constructs the
portfolio to match the risk characteristics of the S&P 500 Stock Index
and then optimizes each portfolio to achieve the desired balance of risk
and return potential. This includes targeting a dividend yield that
exceeds that of the S&P 500. Such a management technique known as
"portfolio optimization" may cause the Fund to be more heavily invested
in some industries than in others. However, the Fund may not invest more
than 25% of its total assets in companies whose principal business
activities are in the same industry.
-AMERICAN CENTURY VP INTERNATIONAL
Investment Objective: To seek capital growth. The Fund will seek to
achieve its investment objective by investing primarily in securities of
foreign companies that meet certain fundamental and technical standards
of selection and, in the opinion of the investment manager, have
potential for appreciation. Under normal conditions, the Fund will invest
at least 65% of its assets in common stocks or other equity securities of
issuers from at least three countries outside the United States. While
securities of United States issuers may be included in the portfolio from
time to time, it is the primary intent of the manager to diversify
investments across a broad range of foreign issuers. Although the primary
investment of the Fund will be common stocks (defined to include
depository receipts for common stock and other equity equivalents), the
Fund may also invest in other types of securities consistent with the
Fund's objective. When the manager believes that the total capital growth
potential of other securities equals or exceeds the potential return of
common stocks, the Fund may invest up to 35% of its assets in such other
securities. There can be no assurance that the Fund will achieve its
objectives.
-AMERICAN CENTURY VP VALUE
Investment Objective: The investment objective of the Fund is long-term
capital growth; income is a secondary objective. The equity securities in
which the Fund will invest will be primarily securities of
well-established companies with intermediate-to-large market
capitalizations that are believed by management to be undervalued at the
time of purchase. Under normal market conditions, the Fund expects to
invest at least 80% of the value of its total asset in equity securities,
including common and preferred stock, convertible preferred stock and
convertible debt obligations.
DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified,
management investment company incorporated under Maryland law on January 24,
1989 and commenced operations on September 29, 1989. The Fund offers its shares
only as investment vehicles for variable annuity and variable life insurance
products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as
the Fund's manager, while Mellon Equity Associates, an affiliate of Dreyfus,
serves as the Fund's index manager. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation.
Investment Objective: To provide investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
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DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund ("Fund") is an open-end, management investment
company. It was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts on October 29, 1986 and commenced operations
on August 31, 1990. The Fund offers its shares only as investment vehicles for
variable annuity and variable life insurance products of insurance companies.
Dreyfus serves as the Fund's manager. Fayez Sarofim & Company serves as the
sub-adviser and provides day-to-day management of the Portfolio.
-CAPITAL APPRECIATION PORTFOLIO
Investment Objective: The Portfolio's primary investment objective is to
provide long-term capital growth consistent with the preservation of
capital; current income is a secondary investment objective. This
Portfolio invests primarily in the common stocks of domestic and foreign
issuers.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company incorporated under Maryland law on July 20, 1992
and commenced operations on October 7, 1993. The Fund offers its share only as
investment vehicles for variable annuity and variable life insurance products of
insurance companies. Dreyfus serves as the Fund's investment adviser. NCM
Capital Management Group, Inc. serves as the Fund's sub-investment adviser and
provides day-to-day management of the Fund's portfolio.
Investment Objective: Capital growth through equity investment in
companies that, in the opinion of the Fund's advisers, not only meet
traditional investment standards, but which also show evidence that they
conduct their business in a manner that contributes to the enhancement of
the quality of life in America. Current income is secondary to the
primary goal.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and its
portfolios.
-VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's
goal is to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's 500 Composite Stock Price
Index.
-VIP GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation. This Portfolio will invest in
the securities of both well-known and established companies, and smaller,
less well-known companies which may have a narrow product line or whose
securities are thinly traded. These latter securities will often involve
greater risk than may be found in the ordinary investment security. FMR's
analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the Portfolio. Many
securities which FMR believes would have the greatest potential may be
regarded as speculative, and investment in the Portfolio may involve
greater risk than is inherent in other underlying mutual funds. It is
also important to point out that this Portfolio makes sense for you if
you can afford to ride out changes in the stock market because it invests
primarily in common stocks. FMR can also make temporary investments in
securities such as investment-grade bonds, high-quality preferred stocks
and short-term notes, for defensive purposes when it believes market
conditions warrant.
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-VIP HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: High level of current income by investing primarily
in high-risk, lower-rated, high-yielding, fixed-income securities, while
also considering growth of capital. FMR will seek high current income
normally by investing the Portfolio's assets as follows:
o at least 65% in income-producing debt securities and preferred
stocks, including convertible securities
o up to 20% in common stocks and other equity securities when
consistent with the Portfolio's primary objective or acquired as part
of a unit combining fixed-income and equity securities
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or
lower by Moody's Investor Service, Inc. ("Moody's"); BB or lower by
Standard & Poor's and may be deemed to be of a speculative nature. The
Portfolio may also purchase lower-quality bonds such as those rated Ca3
by Moody's or C- by Standard & Poor's which provide poor protection for
payment of principal and interest (commonly referred to as "junk bonds").
For a further discussion of lower-rated securities, please see the "Risks
of Lower-Rated Debt Securities" section of the Portfolio's prospectus.
-VIP OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II (VIP II) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP II and its portfolios.
-VIP II CONTRAFUND PORTFOLIO: SERVICE CLASS
Investment Objective: To seek capital appreciation by investing primarily
in companies that FMR believes to be undervalued due to an overly
pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign companies, small and large, many of
which may not be well known. The Portfolio primarily invests in common
stock and securities convertible into common stock, but it has the
flexibility to invest in any type of security that may produce capital
appreciation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III (VIP III) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on July 14, 1994. VIP III's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP III and it's portfolios.
-VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
Investment Objective: Capital growth by investing primarily in common
stocks and securities convertible into common stocks. The Portfolio,
under normal conditions, will invest at least 65% of its total assets in
securities of companies that FMR believes have long-term growth
potential. Although the Portfolio invests primarily in common stock and
securities convertible into common stock, it has the ability to purchase
other securities, such as preferred stock and bonds, that may produce
capital growth. The Portfolio may invest in foreign securities without
limitation.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley Universal Funds, Inc. is a mutual fund designed to provide
investment vehicles for variable annuity contracts and variable life insurance
policies and for certain tax-qualified investors. Its Emerging Markets Debt
Portfolio is managed by Morgan Stanley Asset Management, Inc.
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-EMERGING MARKETS DEBT PORTFOLIO
Investment Objective: High total return by investing primarily in dollar
and non-dollar denominated fixed income securities of government and
government-related issuers located in emerging market countries, which
securities provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived
creditworthiness of the issuer improves due to improving economic,
financial, political, social or other conditions in the country in which
the issuer is located.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the mutual funds listed below, each with its own investment objectives.
Shares of NSAT will be sold primarily to separate accounts to fund the benefits
under variable life insurance policies and variable annuity contracts issued by
life insurance companies. The assets of NSAT are managed by Nationwide Advisory
Services, Inc. ("NAS"), a wholly-owned subsidiary of Nationwide Life Insurance
Company.
-CAPITAL APPRECIATION FUND
Investment Objective: Long-term growth by primarily investing in a
diversified portfolio of the common stock of companies which NAS
determines have a better-than-average potential for sustained capital
growth over the long term.
-GOVERNMENT BOND FUND
Investment Objective: As high a level of income as is consistent with the
preservation of capital 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: As high a level of current income as is considered
consistent with the preservation of capital and liquidity by investing
primarily in money market instruments.
-TOTAL RETURN FUND
Investment Objective: Capital growth by investing in common stocks of
companies that NAS believes will have above-average earnings or otherwise
provide investors with above-average potential for capital appreciation.
To maximize this potential, NAS may also utilize from time to time,
securities convertible into common stock, warrants and options to
purchase such stocks.
SUBADVISED NATIONWIDE FUNDS
-NATIONWIDE BALANCED FUND
Subadviser: Salomon Brothers Asset Management, Inc.
Investment Objective: Primarily seeks above-average income compared to a
portfolio entirely invested in equity securities. The Fund's secondary
objective is to take advantage of opportunities for growth of capital and
income. The Fund seeks its objective primarily through investments in a
broad variety of securities, including equity securities, fixed-income
securities and short term obligations. Under normal market conditions, it
is anticipated that the Fund will invest at least 40% of the Fund's total
assets in equity securities and at least 25% in fixed-income senior
securities. The Fund's subadviser, Salomon Brothers Asset Management,
Inc., will have discretion to invest in the full range of maturities of
fixed-income securities. Generally, most of the Fund's long-term debt
investments will consist of "investment grade" securities, but the Fund
may invest up to 20% of its net assets in non-convertible fixed-income
securities rated below investment grade or determined by the subadviser
to be of comparable quality. These securities are commonly known as junk
bonds. In addition, the Fund may invest an unlimited amount in
convertible securities rated below investment grade.
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-NATIONWIDE EQUITY INCOME FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks above average income and capital appreciation
by investing at least 65% of its assets in income-producing equity
securities. Such equity securities include common stocks, preferred
stocks, and securities (including debt securities) that are convertible
into common stocks. The portion of the Fund's total assets invested in
each type of equity security will vary according to the Fund's
subadviser's assessment of market, economic conditions and outlook.
-NATIONWIDE GLOBAL EQUITY FUND
Subadviser: J. P. Morgan Investment Management Inc.
Investment Objective: To provide high total return from a globally
diversified portfolio of equity securities. Total return will consist of
income plus realized and unrealized capital gains and losses. The Fund
seeks its investment objective through country allocation, stock
selection and management of currency exposure. Under normal market
conditions, J.P. Morgan Investment Management Inc., intends to keep the
Fund essentially fully invested with at least 65% of the value of its
total assets in equity securities consisting of common stocks and other
securities with equity characteristics such as preferred stocks,
warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Fund's primary
equity instruments are the common stock of companies based in the
developed countries around the world. The assets of the Fund will
ordinarily be invested in the securities of at least five different
countries.
-NATIONWIDE HIGH INCOME BOND FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks to provide high current income by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities. To meet its objective, the Fund intends to invest at
least 65% of its assets in lower-rated fixed income securities such as
preferred stocks, bonds, debentures, notes, equipment lease certificates
and equipment trust certificates which are rated BBB or lower by Standard
& Poor's or Fitch Investors Service or Baa or lower by Moody's (or if not
rated, are determined by the Fund's subadviser to be of a comparable
quality). Such investments are commonly referred to as "junk bonds." For
a further discussion of lower-rated securities, please see the "High
Yield Securities" section of the Fund's prospectus.
-NATIONWIDE MULTI SECTOR BOND FUND
Subadviser: Salomon Brothers Asset Management, Inc. with Salomon
Brothers Asset Management Limited
Investment Objective: Primarily seeks a high level of current income.
Capital appreciation is a secondary objective. The Fund seeks to achieve
its objectives by investing in a globally diverse portfolio of
fixed-income investments and by giving the subadviser, Salomon Brothers
Asset Management, Inc. broad discretion to deploy the Fund's assets among
certain segments of the fixed-income market that the subadviser believes
will best contribute to achievement of the Fund's investment objectives.
The Fund reserves the right to invest predominantly in securities rated
in medium or lower categories, or as determined by the subadviser to be
of comparable quality, commonly referred to as "junk bonds." Although the
subadviser has the ability to invest up to 100% of the Fund's assets in
lower-rated securities, the subadviser does not anticipate investing in
excess of 75% of the Fund's assets in such securities. The Subadviser has
entered into a subadvisory agreement with its London based affiliate,
Salomon Brothers Asset Management Limited, pursuant to which the
subadviser has delegated to Salomon Brothers Asset Management Limited
responsibility for management of the Fund's investments in non-dollar
denominated debt securities and currency transactions.
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<PAGE> 44
-NATIONWIDE SELECT ADVISERS MID CAP FUND
Subadvisers: First Pacific Advisors, Inc., Pilgrim Baxter & Associates,
Ltd., and Rice, Hall, James & Associates
Investment Objective: Capital appreciation by investing primarily in
equity securities of medium-sized companies (market capitalization
between $500 million and $7 billion). Under normal market conditions, the
Fund will invest in equity securities consisting of common stock,
preferred stock and securities convertible into common stocks, including
convertible preferred stock and convertible bonds. NAS has chosen the
Fund's subadvisers because they utilize a number of different investment
styles. In utilizing these different styles, NAS hopes to increase
prospects for investment return and to reduce market risk and volatility.
-NATIONWIDE SMALL CAP VALUE FUND
Subadviser: The Dreyfus Corporation
Investment Objective: Capital appreciation through investment in a
diversified portfolio of equity securities of companies with a median
market capitalization of approximately $1 billion. Under normal market
conditions, at least 75% of the Fund's total assets will be invested in
equity securities of companies with market capitalizations at the time of
purchase of between $200 million and $2.5 billion. The Fund will invest
in equity securities of domestic and foreign issuers characterized as
"value" companies according to criteria established by The Dreyfus
Corporation, the Fund's subadviser.
-NATIONWIDE SMALL COMPANY FUND
Subadvisers: The Dreyfus Corporation, Neuberger & Berman, L.P., Pictet
International Management Limited with Van Eck Associates Corporation,
Strong Capital Management, Inc. and Warburg Pincus Asset Management, Inc.
Investment Objective: Long-term growth of capital by investing primarily
in equity securities of domestic and foreign companies with market
capitalizations of less than $1 billion at the time of purchase. The
subadvisers were chosen because they utilize a number of different
investment styles when investing in small company stocks. By utilizing
different investment styles, NAS hopes to increase prospects for
investment return and to reduce market risk and volatility.
-NATIONWIDE STRATEGIC GROWTH FUND
Subadviser: Strong Capital Management Inc.
Investment Objective: Capital growth by investing primarily in equity
securities that the Fund's subadviser believes have above-average growth
prospects. The Fund will generally invest in companies whose earnings are
believed to be in a relatively strong growth trend, and to a lesser
extent, in companies in which significant further growth is not
anticipated but whose market value is thought to be undervalued. Under
normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities, including common stocks, preferred stocks,
and securities convertible into common or preferred stocks, such as
warrants and convertible bonds. The Fund may invest up to 35% of its
total assets in debt obligations, including intermediate- to long-term
corporate or U.S. Government debt securities.
-NATIONWIDE STRATEGIC VALUE FUND
Subadviser: Strong Capital Management Inc./Schafer Capital Management
Inc.
Investment Objective: Primarily long-term capital appreciation; current
income is a secondary objective. The Fund seeks to meet its objectives by
investing in securities which are believed to offer the possibility of
increase in value, primarily common stocks of established companies
having a strong financial position and a low stock market valuation at
the time of purchase in relation to investment value. Other than
considered appropriate for cash reserves, the Fund will generally
maintain a fully invested position in common stocks of publicly held
companies, primarily in stocks of companies listed on a national
securities exchange or other equity securities (common stock or
securities convertible into common stock). Investments may also be made
in debt securities which are convertible into common stocks and in
warrants or other rights to purchase common stock, which in such case are
considered equity securities by the Fund. Strong Capital Management, Inc.
has subcontracted with Schafer Capital Management, Inc. to subadvise the
Fund.
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<PAGE> 45
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust ("N&B AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of N&B AMT are offered in connection with certain variable annuity
contracts and variable life insurance policies issued through life insurance
company separate accounts and are also offered directly to qualified pension and
retirement plans outside of the separate account context.
The Guardian, Partners and Mid-Cap Growth Portfolios of N&B AMT invest all of
their investable assets in a corresponding series of Advisers Managers Trust
managed by Neuberger & Berman Management Incorporated ("N&B Management"). Each
series then invests in securities in accordance with an investment objective,
policies and limitations identical to those of the Portfolio. This
"master/feeder fund" structure is different from that of many other investment
companies which directly acquire and manage their own portfolios of securities.
(For more information regarding "master/feeder fund" structure, see "Special
Information Regarding Organization, Capitalization, and Other Matters" in the
underlying mutual fund prospectus.) The investment advisor is N&B Management.
-AMT GUARDIAN PORTFOLIO
Investment Objective: Capital appreciation and secondarily, current
income. The Portfolio and its corresponding series seek to achieve these
objectives by investing in common stocks of long-established,
high-quality companies. N&B Management uses a value-oriented investment
approach in selecting securities, looking for low price-to-earnings
ratios, strong balance sheets, solid management, and consistent earnings.
-AMT MID-CAP GROWTH PORTFOLIO
Investment Objective: Capital appreciation by investing in equity
securities of medium-sized companies that N&B Management believes have
the potential for long-term, above-average capital appreciation.
Medium-sized companies have market capitalizations form $300 million to
$10 billion at the time of investment. The Portfolio and its
corresponding series may invest up to 10% of its net assets, measured at
the time of investment, in corporate debt securities that are below
investment grade or, if unrated, deemed by N&B Management to be of
comparable quality. Securities that are below investment grade, as well
as unrated securities, are often considered to be speculative and usually
entail greater risk. As a part of the Portfolio's investment strategy,
the Portfolio may invest up to 20% of its net assets in securities of
issuers organized and doing business principally outside the United
States. This limitation does not apply with respect to foreign securities
that are denominated in U.S. dollars.
-AMT PARTNERS PORTFOLIO
Investment Objective: Capital growth by investing primarily in the common
stock of established companies. Its investment program seeks securities
believed to be undervalued based on fundamentals such as low
price-to-earnings ratios, consistent cash flows, and the company's track
record through all parts of the market cycle.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds are an open-end, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold to provide benefits under variable life insurance policies
and variable annuity contracts. OppenheimerFunds, Inc. is the investment
adviser.
-OPPENHEIMER AGGRESSIVE GROWTH FUND (FORMERLY "OPPENHEIMER CAPITAL
APPRECIATION FUND")
Investment Objective: Capital appreciation by investing in "growth type"
companies. Such companies are believed to have relatively favorable
long-term prospects for increasing demand for their goods or services, or
to be developing new products, services or markets and normally retain a
relatively larger portion of their earnings for research, development and
investment in capital assets. The Fund may also invest in cyclical
industries in "special situations" that OppenheimerFunds, Inc. believes
present opportunities for capital growth.
-OPPENHEIMER GROWTH FUND
Investment Objective: Capital appreciation by investing in securities of
well-known established companies. Such securities generally have a
history of earnings and dividends and are issued by seasoned companies
(companies which have an operating history of at least five years
including predecessors). Current income is a secondary consideration in
the selection of the Fund's portfolio securities.
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<PAGE> 46
-OPPENHEIMER GROWTH & INCOME FUND
Investment Objective: High total return, which stocks, preferred stocks,
convertible securities and warrants. Debt investments will include bonds,
participation includes growth in the value of its shares as well as
current income from quality and debt securities. In seeking its
investment objectives, the Fund may invest in equity and debt securities.
Equity investments will include common interests, asset-backed
securities, private-label mortgage-backed securities and CMOs, zero
coupon securities and U.S. debt obligations, and cash and cash
equivalents. From time to time, the Fund may focus on small to medium
capitalization issuers, the securities of which may be subject to greater
price volatility than those of larger capitalized issuers.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management
investment company organized as a business trust under the laws of the
Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are
offered only to separate accounts of insurance companies to fund the benefits of
variable life insurance policies and variable annuity contracts. The investment
advisor and manager is Van Eck Associates Corporation.
-WORLDWIDE EMERGING MARKETS FUND
Investment Objective: Seeks long-term capital appreciation by investing
primarily in equity securities in emerging markets around the world. The
Fund emphasizes investment in countries that, compared to the world's
major economies, exhibit relatively low gross national product per
capita, as well as the potential for rapid economic growth.
-WORLDWIDE HARD ASSETS FUND
Investment Objective: Long-term capital appreciation by investing
primarily in "Hard Asset Securities." For the Fund's purpose, "Hard
Assets" are real estate, energy, timber, and industrial and precious
metals. Income is a secondary consideration.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
Van Kampen American Capital Life Investment Trust is an open-end diversified
management investment company organized as a Delaware business trust. Shares are
offered in separate portfolios which are sold only to insurance companies to
provide funding for variable life insurance policies and variable annuity
contracts. Van Kampen American Capital Asset Management, Inc. serves as the
Fund's investment adviser.
- MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
Investment Objective: Long-term capital growth by investing principally
in a diversified portfolio of securities of companies operating in the
real estate industry ("Real Estate Securities"). Current income is a
secondary consideration. Real Estate Securities include equity
securities, including common stocks and convertible securities, as well
as non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that
derives at least 50% of its assets (marked to market), gross income or
net profits from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
Real Estate Securities, primarily equity securities of real estate
investment trusts. The Portfolio may invest up to 25% of its total assets
in securities issued by foreign issuers, some or all of which may also be
Real Estate Securities.
WARBURG PINCUS TRUST
The Warburg Pincus Trust is an open-end management investment company organized
in March 1995 as a business trust under the laws of The Commonwealth of
Massachusetts. The Trust offers its shares to insurance companies for allocation
to separate accounts for the purpose of funding variable annuity and variable
life contracts. Portfolios are managed by Warburg Pincus Asset Management, Inc.
("Warburg").
-GROWTH & INCOME PORTFOLIO
Investment Objective: Long-term growth of capital and income by investing
primarily in dividend-paying equity securities. Under normal market
conditions, the Portfolio will invest substantially all of its asset in
equity securities that Warburg considers to be relatively undervalued
based upon research and analysis, taking into account factors such as
price/book ratio, price/cash flow ratio, earnings growth, debt/capital
ratio and multiples of earnings of
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<PAGE> 47
comparable securities. Although the Portfolio may hold securities of any
size, it currently expects to focus on companies with market
capitalizations of $1 billion or greater at the time of initial purchase.
-INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: Long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of Warburg have their
principal business activities and interests outside the United States.
The Portfolio will ordinarily invest substantially all of its assets, but
no less than 65% of its total assets, in common stocks, warrants and
securities convertible into or exchangeable for common stocks. The
Portfolio intends to invest principally in the securities of financially
strong companies with opportunities for growth within growing
international economies and markets through increased earning power and
improved utilization or recognition of assets.
-POST-VENTURE CAPITAL PORTFOLIO
Investment Objective: Long-term growth of capital by investing primarily
in equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy. Under normal
market conditions, the Portfolio will invest at least 65% of its total
assets in equity securities of "post-venture capital companies." A
post-venture capital company is one that has received venture capital
financing either: (a) during the early stages of the company's existence
or the early stages of the development of a new product or service; or
(b) as part of a restructuring or recapitalization of the company. The
Portfolio may invest up to 10% of its assets in venture capital and other
investment funds.
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<PAGE> 48
STATEMENT OF ADDITIONAL INFORMATION
___________, 1998
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
additional information than set forth in the prospectus and should be read in
conjunction with the prospectus dated ______, 1998. 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
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History..........................................................................1
Services.................................................................................................1
Purchase of Securities Being Offered.....................................................................1
Underwriters.............................................................................................2
Calculations of Performance..............................................................................2
Underlying Mutual Fund Performance Summary...............................................................3
Annuity Payments.........................................................................................6
Financial Statements.....................................................................................7
</TABLE>
GENERAL INFORMATION AND HISTORY
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. 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 the
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 $83.2 billion as of December 31, 1997.
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 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 redemption 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 statements have 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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<PAGE> 49
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by Nationwide
Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio 43215, an
affiliate of the Company. No underwriting commissions have been paid by the
Company to NAS.
CALCULATIONS OF PERFORMANCE
Any current yield quotations of the NSAT-Money Market Fund, subject to Rule 482
of the Securities Act of 1933, will consist of a seven calendar day historical
yield, carried at least to the nearest hundredth of a percent. The yield will 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 NSAT-Money Market Fund's 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 NSAT-Money
Market Fund.
The NSAT-Money Market Fund's yield and effective yield will fluctuate daily.
Actual yields will depend on factors such as the type of instruments in the
Fund's portfolio, portfolio quality and average maturity, changes in interest
rates, and the Fund's expenses. Although the NSAT-Money Market Fund determines
its yield on the basis of a seven 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 NSAT-Money Market 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 NSAT-Money Market Fund 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 will include quotations of standardized average
annual total return, calculated in accordance with a standard method prescribed
by rules of the SEC. Standardized average annual total return is found by 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 1.30% Variable Account Charge and 0.10%
deduction for Death Benefit Option 2. 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. 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 average annual
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. The
standardized average annual 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 has been available in the Variable Account if
the Underlying Mutual Fund has not been available for one of the prescribed
periods. Nonstandardized average annual total return will 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 has been in existence.
Quotations of average annual total return and total return are based upon
historical earnings and will fluctuate. Any quotation of performance, is not 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
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<PAGE> 50
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide VLI Separate Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account as of December 31,
1997, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value 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 and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the transfer agents of the
underlying mutual funds. 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 financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VLI Separate Account as of December 31, 1997, and the
results of its operations and its changes in contract owners' equity and
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1998
<PAGE> 2
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in Van Kampen American Capital Life
Investment Trust, at market value:
Asset Allocation Fund
2,228,577 shares (cost $25,502,538) ........ $ 26,542,347
Domestic Income Fund
238,818 shares (cost $1,983,580) ........... 1,970,248
Emerging Growth Fund
124,404 shares (cost $1,926,652) ........... 2,046,452
Enterprise Fund
1,854,728 shares (cost $28,119,444) ........ 33,589,123
Global Equity Fund
110,739 shares (cost $1,364,424) ........... 1,217,018
Government Fund
5,195,955 shares (cost $45,750,900) ........ 46,347,922
Money Market Fund
6,952,567 shares (cost $6,952,567) ......... 6,952,567
Morgan Stanley Real Estate Securities Portfolio
41,789 shares (cost $636,325) .............. 662,354
------------
Total investments ....................... 119,328,031
Accounts receivable .............................. --
------------
Total assets ............................ 119,328,031
ACCOUNTS PAYABLE .................................... 73,300
------------
CONTRACT OWNERS' EQUITY ............................. $119,254,731
============
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
--------- ---------------- ----------------
<S> <C> <C> <C> <C>
Single Premium contracts issued prior
to April 16, 1990 (policy years 1
through 10):
Asset Allocation Fund ............. 122,920 $ 29.287817 $ 3,600,058 21%
Domestic Income Fund .............. 15,656 20.186939 316,047 11%
Emerging Growth Fund .............. 8,741 16.064598 140,421 19%
Enterprise Fund ................... 49,821 35.993026 1,793,209 29%
Global Equity Fund ................ 4,685 13.614803 63,785 15%
Government Fund ................... 380,541 20.830122 7,926,715 9%
Money Market Fund ................. 27,312 16.972125 463,543 4%
Morgan Stanley Real Estate
Securities Portfolio ........... 2,854 18.062622 51,551 20%
Single Premium contracts issued prior
to April 16, 1990 (policy years 11 and
thereafter):
Asset Allocation Fund ............. 769,061 29.508511 22,693,845 21%
Domestic Income Fund .............. 72,875 20.339100 1,482,212 11%
Emerging Growth Fund .............. 113,239 16.185767 1,832,860 20%
Enterprise Fund ................... 867,374 36.264286 31,454,699 30%
Global Equity Fund ................ 83,414 13.717407 1,144,224 15%
Government Fund ................... 1,827,060 20.988344 38,346,964 9%
Money Market Fund ................. 375,312 17.100077 6,417,864 5%
Morgan Stanley Real Estate
Securities Portfolio ........... 33,445 18.198663 608,654 21%
Single Premium contracts issued on or
after April 16, 1990:
Asset Allocation Fund ............. 5,402 25.080225 135,483 20%
Domestic Income Fund .............. 8,589 19.887916 170,817 10%
Emerging Growth Fund .............. 4,455 15.924922 70,946 19%
Enterprise Fund ................... 5,773 33.768883 194,948 29%
Global Equity Fund ................ 601 13.496423 8,111 14%
Government Fund ................... 2,998 15.737995 47,183 8%
Money Market Fund ................. 5,402 12.508709 67,572 4%
Morgan Stanley Real Estate
Securities Portfolio ........... 97 17.905659 1,737 20%
Multiple Payment and
Flexible Premium contracts:
Asset Allocation Fund ............. 4,430 22.707666 100,595 21%
Enterprise Fund ................... 4,147 29.102562 120,688 30%
========= ================ ----------------
$ 119,254,731
================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C>
Reinvested dividends ................................ $ 4,695,756 5,220,160 6,137,134
Mortality and expense charges (note 3)
Single Premium contracts issued prior to
April 16, 1990 (years 1 through 10) ........ (245,990) (905,516) (1,117,265)
Single Premium contracts issued prior to
April 16, 1990 (years 11 and after) ........ (467,486) (116,717) --
Single Premium contracts issued on or after
April 16, 1990 ............................. (4,007) (5,466) (5,489)
Multiple Payment and Flexible Premium contracts (1,712) (2,386) (2,024)
------------- ------------- -------------
Net investment activity .......................... 3,976,561 4,190,075 5,012,356
------------- ------------- -------------
Proceeds from mutual fund shares sold ............... 31,042,460 24,568,211 23,835,749
Cost of mutual funds sold ........................... (28,311,120) (22,544,406) (21,777,460)
------------- ------------- -------------
Realized gain on investments ..................... 2,731,340 2,023,805 2,058,289
Change in unrealized gain (loss) on investments ..... 3,917,689 (1,839,618) 11,069,519
------------- ------------- -------------
Net gain on investments .......................... 6,649,029 184,187 13,127,808
------------- ------------- -------------
Reinvested capital gains ............................ 7,592,712 5,806,648 4,959,015
------------- ------------- -------------
Net increase in contract owners'
equity resulting from operations ........... 18,218,302 10,180,910 23,099,179
------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners ..... 20,253 23,475 25,652
Surrenders .......................................... (15,789,351) (13,731,809) (11,745,567)
Death benefits (note 4) ............................. (2,575,326) (1,201,226) (1,552,445)
Policy loans (net of repayments) (note 5) ........... 2,317,220 3,043,009 833,405
Deductions for surrender charges (note 2d) .......... (6,591) (16,455) (193,286)
Redemptions to pay cost of insurance charges
and administration charges (notes 2b and 2c) ..... (1,430,627) (1,499,564) (1,756,639)
------------- ------------- -------------
Net decrease in equity transactions ........... (17,464,422) (13,382,570) (14,388,880)
------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .................. 753,880 (3,201,660) 8,710,299
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ............ 118,500,851 121,702,511 112,992,212
------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD .................. $ 119,254,731 118,500,851 121,702,511
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLI Separate Account (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life
Insurance Company (the Company) on August 8, 1984. The Account has been
registered as a unit investment trust under the Investment Company Act
of 1940.
The Company offers modified single premium, multiple payment and
flexible premium variable life insurance contracts through the Account.
The primary distribution for the contracts is through the brokerage
community; however, other distributors may be utilized.
(b) The Contracts
Prior to December 31, 1990, only contracts without a front-end sales
charge, but with a contingent deferred sales charge and certain other
fees, were offered for purchase. Beginning December 31, 1990, contracts
with a front-end sales charge, a contingent deferred sales charge and
certain other fees, are offered for purchase. See note 2 for a
discussion of policy charges and note 3 for asset charges.
Contract owners may invest in the following funds:
Funds of the Van Kampen American Capital Life Investment Trust (Van
Kampen American Capital LIT);
Van Kampen American Capital LIT - Asset Allocation Fund
Van Kampen American Capital LIT - Domestic Income Fund
Van Kampen American Capital LIT - Emerging Growth Fund
Van Kampen American Capital LIT - Enterprise Fund
Van Kampen American Capital LIT - Global Equity Fund
Van Kampen American Capital LIT - Government Fund
Van Kampen American Capital LIT - Money Market Fund
Van Kampen American Capital LIT - Morgan Stanley Real Estate
Securities Portfolio
(formerly Van Kampen American Capital LIT - Real Estate
Securities Fund)
At December 31, 1997, contract owners have invested in all of the above
funds.
The contract owners' equity is affected by the investment results of
each fund, equity transactions by contract owners and certain policy
charges (see notes 2 and 3). The accompanying financial statements
include only contract owners' purchase payments pertaining to the
variable portions of their contracts and exclude any purchase payments
for fixed dollar benefits, the latter being included in the accounts of
the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1997. Fund purchases and
sales are accounted for on the trade date (date the order to buy or
sell is executed). The cost of investments sold is determined on a
specific identification basis, and dividends (which include capital
gain distributions) are accrued as of the ex-dividend date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with,
operations of the Company, which is taxed as a life insurance company
under the provisions of the Internal Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or
withdrawal.
<PAGE> 6
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if
any, at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(f) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform with
the current period presentation.
(2) POLICY CHARGES
(a) Deductions from Premiums
For single premium contracts, no deduction is made from any premium at
the time of payment. On multiple payment contracts and flexible premium
contracts, the Company deducts a charge for state premium taxes equal
to 2.5% of all premiums received to cover the payment of these premium
taxes. The Company also deducts a sales load from each premium payment
received not to exceed 3.5% of each premium payment. The Company may at
its sole discretion reduce this sales loading.
(b) Cost of Insurance
A cost of insurance charge is assessed monthly against each contract by
liquidating units. The amount of the charge is based upon age, sex,
rate class and net amount at risk (death benefit less total contract
value).
(c) Administrative Charges
For single premium contracts, the Company deducts an annual
administrative charge which is determined as follows:
Contracts issued prior to April 16, 1990:
Purchase payments totalling less than $25,000 - $10/month
Purchase payments totalling $25,000 or more - none
Contracts issued on or after April 16, 1990:
Purchase payments totalling less than $25,000 - $90/year ($65/year
in New York)
Purchase payments totalling $25,000 or more - $50/year
For multiple payment contracts the Company currently deducts a monthly
administrative charge of $5 (may deduct up to $7.50, maximum) to
recover policy maintenance, accounting, record keeping and other
administrative expenses.
For flexible premium contracts, the Company currently deducts a monthly
administrative charge of $12.50 during the first policy year and $5 per
month thereafter (may deduct up to $7.50, maximum) to recover policy
maintenance, accounting, record keeping and other administrative
expenses. Additionally, the Company deducts an increase charge of $2.04
per year per $1,000 applied to any increase in the specified amount
during the first 12 months after the increase becomes effective.
The above charges are assessed against each contract by liquidating
units.
(d) Surrender Charges
Policy surrenders result in a redemption of the contract value from the
Account and payment of the surrender proceeds to the contract owner or
designee. The surrender proceeds consist of the contract value, less
any outstanding policy loans, and less a surrender charge, if
applicable. The charge is determined according to contract type.
For single premium contracts, the charge is determined based upon a
specified percentage of the original purchase payment. For single
premium contracts issued prior to April 16, 1990, the charge is 8% in
the first year and declines to 0% after the ninth year. For single
premium contracts issued on or after April 16, 1990, the charge is 8.5%
in the first year and declines to 0% after the ninth year.
For multiple payment contracts and flexible premium contracts, the
amount charged is based upon a specified percentage of the initial
surrender charge, which varies by issue age, sex and rate class. The
charge is 100% of the initial surrender charge in the first year, with
certain exceptions, declining to 0% after the ninth year.
The Company may waive the surrender charge for certain contracts in
which the sales expenses normally associated with the distribution of a
contract are not incurred.
<PAGE> 7
(3) ASSET CHARGES
For single premium contracts, the Company deducts a charge from the
contract to cover mortality and expense risk charges related to operations,
and to recover policy maintenance and premium tax charges. For contracts
issued prior to April 16, 1990, the charge is equal to an annual rate of
.95% during the first ten policy years, and .50% thereafter. A reduction of
charges on these contracts is possible in policy years six through ten for
those contracts achieving certain investment performance criteria; for
contracts issued on or after April 16, 1990, the charge is equal to an
annual rate of 1.30% during the first ten policy years, and 1.00%
thereafter.
For multiple payment contracts and flexible premium contracts, the Company
deducts a charge equal to an annual rate of .80%, with certain exceptions,
to cover mortality and expense risk charges related to operations.
The above charges are assessed through the daily unit value calculation.
(4) DEATH BENEFITS
Death benefits result in a redemption of the contract value from the
Account and payment of the death benefit proceeds, less any outstanding
policy loans and policy charges, to the legal beneficiary. The excess of
the death benefit proceeds over the contract value on the date of death is
paid by the Company's general account.
(5) POLICY LOANS (NET OF REPAYMENTS)
Contract provisions allow contract owners to borrow up to 90% (50% during
first year of single premium contracts) of a policy's cash surrender value.
For single premium contracts issued prior to April 16, 1990, 6.5% interest
is due and payable annually in advance. For single premium contracts issued
on or after April 16, 1990, multiple payment contracts and flexible premium
contracts, 6% interest is due and payable in advance on the policy
anniversary when there is a loan outstanding on the policy.
At the time the loan is granted, the amount of the loan is transferred from
the Account to the Company's general account as collateral for the
outstanding loan. Collateral amounts in the general account are credited
with the stated rate of interest in effect at the time the loan is made,
subject to a guaranteed minimum rate. Loan repayments result in a transfer
of collateral, including interest, back to the Account.
(6) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
(7) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for contract owners' equity. This schedule is presented in
the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gain and dividend distributions from the underlying mutual
funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Asset charges
(This amount reflects the decrease in the unit value due to the
charges discussed in note 3.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
<PAGE> 8
SCHEDULE I
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
(POLICY YEARS 1 THROUGH 10)
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
Asset Domestic Emerging
Allocation Income Growth Enterprise
Fund Fund Fund Fund
------------ ------------ ------------ ------------
1997
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $ 24.272482 18.211426 13.467256 27.810473
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 4.001033 1.610349 .000000 5.118148
------------ ------------ ------------ ------------
Unrealized gain (loss) 1.265248 .546307 2.737897 3.375233
------------ ------------ ------------ ------------
Asset charges (.250946) (.181143) (.140555) (.310828)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 29.287817 20.186939 16.064598 35.993026
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 21% 11% 19% 29%
============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 21.519909 17.235188 11.655608 22.498859
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 3.456144 1.551321 .000000 3.050863
------------ ------------ ------------ ------------
Unrealized gain (loss) (.488445) (.410339) 1.935098 2.501932
------------ ------------ ------------ ------------
Asset charges (.215126) (.164744) (.123450) (.241181)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 24.272482 18.211426 13.467256 27.810473
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 13% 6% 16% 24%
============ ============ ============ ============
1995
Beginning unit value - Jan. 1 $ 16.538427 14.336077 10.000000 16.580891
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 2.418600 1.359225 .000000 3.004553
------------ ------------ ------------ ------------
Unrealized gain (loss) 2.744315 1.690878 1.707069 3.100329
------------ ------------ ------------ ------------
Asset charges (.181433) (.150992) (.051461) (.186914)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 21.519909 17.235188 11.655608 22.498859
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 30% 20% 17%(b) 36%
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Global Money Real Estate
Equity Government Market Securities
Fund Fund Fund Portfolio
------------ ------------ ------------ ------------
1997
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 11.864328 19.185493 16.307639 15.011508
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 2.506526 1.231903 .822488 2.041009
------------ ------------ ------------ ------------
Unrealized gain (loss) (.630887) .602372 .000000 1.163065
------------ ------------ ------------ ------------
Asset charges (.125164) (.189646) (.158002) (.152960)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 13.614803 20.830122 16.972125 18.062622
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 15% 9% 4% 20%
============ ============ ============ ============
1996
Beginning unit value - Jan. 1 10.262083 18.968390 15.695093 10.784280
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends .358540 1.225305 .764922 .288822
------------ ------------ ------------ ------------
Unrealized gain (loss) 1.350014 (.828963) .000000 4.051625
------------ ------------ ------------ ------------
Asset charges (.106309) (.179239) (.152376) (.113219)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 11.864328 19.185493 16.307639 15.011508
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 16% 1% 4% 39%
============ ============ ============ ============
1995
Beginning unit value - Jan. 1 10.000000 16.344365 15.022875 10.000000
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends .000000 1.217414 .817690 .092106
------------ ------------ ------------ ------------
Unrealized gain (loss) .309271 1.576618 .000000 .740132
------------ ------------ ------------ ------------
Asset charges (.047188) (.170007) (.145472) (.047958)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 10.262083 18.968390 15.695093 10.784280
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 3%(b) 16% 4% 8%(b)
============ ============ ============ ============
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in
note 2; and
(b) This investment option was not utilized for the entire year
indicated.
<PAGE> 9
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
(POLICY YEARS 11 AND THEREAFTER)
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997 AND 1996
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
Asset Domestic Emerging Global
Allocation Income Growth Enterprise Equity
Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997
Beginning unit value - Jan. 1 $ 24.345677 18.266338 13.507925 27.894373 11.900110
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 4.028773 1.622049 .000000 5.154574 2.524570
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) 1.266844 .546552 2.752212 3.379811 (.641040)
------------ ------------ ------------ ------------ ------------
Asset charges (.132783) (.095839) (.074370) (.164472) (.066233)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 29.508511 20.339100 16.185767 36.264286 13.717407
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 21% 11% 20% 30% 15%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 21.519909 17.235188 11.655608 22.498859 10.262083
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 3.464578 1.555582 .000000 3.057101 .359541
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) (.492537) (.411984) 1.935344 2.501147 1.350463
------------ ------------ ------------ ------------ ------------
Asset charges (.146273) (.112448) (.083027) (.162734) (.071977)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 24.345677 18.266338 13.507925 27.894373 11.900110
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 13% 6% 16% 24% 16%
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Money Real Estate
Government Market Securities
Fund Fund Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
1997
Beginning unit value - Jan. 1 19.243796 16.356824 15.056707
------------ ------------ ------------
Reinvested capital gains
and dividends 1.238209 .826847 2.055828
------------ ------------ ------------
Unrealized gain (loss) .606462 .000000 1.167058
------------ ------------ ------------
Asset charges (.100123) (.083594) (.080930)
------------ ------------ ------------
Ending unit value - Dec. 31 20.988344 17.100077 18.198663
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 9% 5% 21%
============ ============ ============
1996
Beginning unit value - Jan. 1 18.968390 15.695093 10.784280
------------ ------------ ------------
Reinvested capital gains
and dividends 1.226436 .765692 .289605
------------ ------------ ------------
Unrealized gain (loss) (.828621) .000000 4.058907
------------ ------------ ------------
Asset charges (.122409) (.103961) (.076085)
------------ ------------ ------------
Ending unit value - Dec. 31 19.243796 16.356824 15.056707
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 1% 4% 40%
============ ============ ============
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
<PAGE> 10
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
Asset Domestic Emerging Global
Allocation Income Growth Enterprise Equity
Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------
1997
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $ 20.858239 18.004549 13.396950 26.183349 11.802380
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 3.427827 1.586829 .000000 4.803438 2.485382
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) 1.088735 .541166 2.718959 3.181817 (.621245)
------------ ------------ ------------ ------------ ------------
Asset charges (.294576) (.244628) (.190987) (.399721) (.170094)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 25.080225 19.887916 15.924922 33.768883 13.496423
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 20% 10% 19% 29% 14%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 18.558022 17.099466 11.635640 21.257132 10.244489
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 2.971435 1.534027 .000000 2.874772 .356729
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) (.417798) (.405672) 1.929643 2.362697 1.346140
------------ ------------ ------------ ------------ ------------
Asset charges (.253420) (.223272) (.168333) (.311252) (.144978)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 20.858239 18.004549 13.396950 26.183349 11.802380
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 12% 5% 15% 23% 15%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 $ 14.311997 14.272889 ** 15.720497 **
------------ ------------ ------------
Reinvested capital gains
and dividends 2.086061 1.348751 2.839638
------------ ------------ ------------
Unrealized gain (loss) 2.374431 1.683177 2.939071
------------ ------------ ------------
Asset charges (.214467) (.205351) (.242074)
------------ ------------ ------------
Ending unit value - Dec. 31 $ 18.558022 17.099466 21.257132
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 30% 20% 35%
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Money Real Estate
Government Market Securities
Fund Fund Portfolio
------------ ------------ ------------
1997
<S> <C> <C> <C>
Beginning unit value - Jan. 1 14.546815 12.061110 14.933196
------------ ------------ ------------
Reinvested capital gains
and dividends .932504 .607223 2.023697
------------ ------------ ------------
Unrealized gain (loss) .455416 .000000 1.156620
------------ ------------ ------------
Asset charges (.196740) (.159624) (.207854)
------------ ------------ ------------
Ending unit value - Dec. 31 15.737995 12.508709 17.905659
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 8% 4% 20%
============ ============ ============
1996
Beginning unit value - Jan. 1 14.433482 11.648994 **
------------ ------------
Reinvested capital gains
and dividends .930855 .566598
------------ ------------
Unrealized gain (loss) (.630892) .000000
------------ ------------
Asset charges (.186630) (.154482)
------------ ------------
Ending unit value - Dec. 31 14.546815 12.061110
------------
Percentage increase (decrease)
in unit value* 1% 4%
============ ===========
1995
Beginning unit value - Jan. 1 12.480782 11.189053 **
------------ ------------
Reinvested capital gains
and dividends .928076 .607952
------------ ------------
Unrealized gain (loss) 1.202259 .000000
------------ ------------
Asset charges (.177635) (.148011)
------------ ------------
Ending unit value - Dec. 31 14.433482 11.648994
------------ ------------
Percentage increase (decrease)
in unit value* 16% 4%
============ ============
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
** This investment option was not being utilized or was not available.
<PAGE> 11
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
ASSET
ALLOCATION ENTERPRISE
FUND FUND
------------ ------------
1997**
<S> <C> <C>
Beginning unit value - Jan 1 $ 18.790954 22.452797
------------ ------------
Reinvested capital gains
and dividends 3.101494 4.137761
------------ ------------
Unrealized gain (loss) .978939 2.723484
------------ ------------
Asset charges (.163721) (.211480)
------------ ------------
Ending unit value - Dec. 31 $ 22.707666 29.102562
------------ ------------
Percentage increase (decrease)
in unit value* 21% 30%
============ ============
1996
Beginning unit value - Jan 1 $ 16.634918 18.137100
------------ ------------
Reinvested capital gains
and dividends 2.675077 2.462233
------------ ------------
Unrealized gain (loss) (.378897) 2.017312
------------ ------------
Asset charges (.140144) (.163848)
------------ ------------
Ending unit value - Dec. 31 $ 18.790954 22.452797
------------ ------------
Percentage increase (decrease)
in unit value* 13% 24%
============ ============
1995
Beginning unit value - Jan 1 $ 12.765144 13.346462
------------ ------------
Reinvested capital gains
and dividends 1.869449 2.421740
------------ ------------
Unrealized gain (loss) 2.118344 2.495698
------------ ------------
Asset charges (.118019) (.126800)
------------ ------------
Ending unit value - Dec. 31 $ 16.634918 18.137100
------------ ------------
Percentage increase (decrease)
in unit value* 30% 36%
============ ============
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
** No other investment options were being utilized.
See note 7.
<PAGE> 51
<PAGE> 1
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), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1997 and
1996, 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,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 30, 1998
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
ASSETS 1997 1996
------
----------------- ---------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $13,204.1 $12,304.6
Equity securities 80.4 59.1
Mortgage loans on real estate, net 5,181.6 5,272.1
Real estate, net 311.4 265.8
Policy loans 415.3 371.8
Other long-term investments 25.2 28.7
Short-term investments 358.4 4.8
---------- ---------
19,576.4 18,306.9
---------- ---------
Cash 175.6 43.8
Accrued investment income 210.5 210.2
Deferred policy acquisition costs 1,665.4 1,366.5
Investment in subsidiaries classified as discontinued operations - 485.7
Other assets 438.4 426.5
Assets held in Separate Accounts 37,724.4 26,926.7
---------- ---------
$59,790.7 $47,766.3
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims $18,702.8 $17,600.6
Other liabilities 885.6 1,101.1
Liabilities related to Separate Accounts 37,724.4 26,926.7
---------- ---------
57,312.8 45,628.4
---------- ---------
Commitments and contingencies (notes 7 and 13)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 527.9
Retained earnings 1,312.3 1,432.6
Unrealized gains on securities available-for-sale, net 247.1 173.6
---------- ---------
2,477.9 2,137.9
---------- ---------
$59,790.7 $47,766.3
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Investment product and universal life insurance product policy charges $ 545.2 $ 400.9 $ 286.6
Traditional life insurance premiums 205.4 198.6 199.1
Net investment income 1,409.2 1,357.8 1,294.0
Realized gains (losses) on investments 11.1 (0.3) (1.7)
Other 46.5 35.9 20.7
---------- ---------- ----------
2,217.4 1,992.9 1,798.7
---------- ---------- ----------
Benefits and expenses:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Other benefits and claims 178.2 178.3 165.2
Policyholder dividends on participating policies 40.6 41.0 39.9
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Other operating expenses 384.9 342.4 273.0
---------- ---------- ----------
1,787.5 1,677.4 1,511.1
---------- ---------- ----------
Income from continuing operations before federal income tax expense 429.9 315.5 287.6
Federal income tax expense 150.2 110.9 99.8
---------- ---------- ----------
Income from continuing operations 279.7 204.6 187.8
Income from discontinued operations (less federal income tax expense
of $4.5 and $7.4 in 1996 and 1995, respectively) - 11.3 24.7
---------- ---------- ----------
Net income $ 279.7 $ 215.9 $ 212.5
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(in millions of dollars)
<TABLE>
<CAPTION>
Unrealized
gains
(losses)
Additional on securities Total
Common paid-in Retained available- shareholder's
stock capital earnings for-sale, net equity
----------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $3.8 $ 606.2 $1,378.2 $(119.7) $1,868.5
Capital contribution - 51.0 - (4.1) 46.9
Net income - - 212.5 - 212.5
Dividends to shareholder - - (7.5) - (7.5)
Unrealized gains on securities available-
for-sale, net - - - 508.1 508.1
-------- -------- -------- -------- ---------
December 31, 1995 3.8 657.2 1,583.2 384.3 2628.5
Net income - - 215.9 - 215.9
Dividends to shareholder - (129.3) (366.5) (39.8) (535.6)
Unrealized losses on securities available-
for-sale, net - - - (170.9) (170.9)
-------- -------- -------- -------- ---------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Capital contribution - 836.8 - - 836.8
Net income - - 279.7 - 279.7
Dividends to shareholder - (450.0) (400.0) - (850.0)
Unrealized gains on securities available-
for-sale, net - - - 73.5 73.5
-------- -------- -------- -------- ---------
December 31, 1997 $3.8 $ 914.7 $1,312.3 $ 247.1 $2,477.9
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1997 1996 1995
------------------------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 279.7 $ 215.9 $ 212.5
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Capitalization of deferred policy acquisition costs (487.9) (422.6) (321.3)
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Amortization and depreciation (2.0) 7.0 10.2
Realized (gains) losses on invested assets, net (11.1) (0.3) 3.3
(Increase) decrease in accrued investment income (0.3) 2.8 (16.9)
(Increase) decrease in other assets (12.7) (38.9) 39.9
(Decrease) increase in policy liabilities (23.1) (151.0) 123.9
Increase in other liabilities 230.6 191.4 27.0
Other, net (10.9) (61.7) 1.8
----------- --------- --------
Net cash provided by operating activities 1,146.1 858.3 1,113.4
----------- --------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 993.4 1,162.8 634.6
Proceeds from sale of securities available-for-sale 574.5 299.6 107.3
Proceeds from maturity of fixed maturity securities held-to-maturity - - 564.4
Proceeds from repayments of mortgage loans on real estate 437.3 309.0 207.8
Proceeds from sale of real estate 34.8 18.5 48.3
Proceeds from repayments of policy loans and sale of other invested assets 22.7 22.8 53.6
Cost of securities available-for-sale acquired (2,828.1) (1,573.6) (1,942.4)
Cost of fixed maturity securities held-to-maturity acquired - - (593.6)
Cost of mortgage loans on real estate acquired (752.2) (972.8) (796.0)
Cost of real estate acquired (24.9) (7.9) (10.9)
Policy loans issued and other invested assets acquired (62.5) (57.7) (75.9)
Short-term investments, net (354.8) 28.0 77.8
----------- --------- --------
Net cash used in investing activities (1,959.8) (771.3) (1,725.0)
----------- --------- --------
Cash flows from financing activities:
Proceeds from capital contributions 836.8 - -
Cash dividends paid - (50.0) (7.5)
Increase in investment product and universal life insurance
product account balances 2,488.5 1,781.8 1,883.7
Decrease in investment product and universal life insurance
product account balances (2,379.8) (1,784.5) (1,258.7)
----------- --------- --------
Net cash provided by (used in) financing activities 945.5 (52.7) 617.5
----------- --------- --------
Net increase in cash 131.8 34.3 5.9
Cash, beginning of year 43.8 9.5 3.6
----------- --------- --------
Cash, end of year $ 175.6 $ 43.8 $ 9.5
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or 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 two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 11 and 15. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
(2) 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, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the 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.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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 from
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, 1997 or 1996.
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 is 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.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities. 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.
(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 sales 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. 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 2(b). For traditional life insurance 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.
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $365.5 million of separate
account assets, 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 4.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) PARTICIPATING BUSINESS
Participating business represents approximately 50% in 1997 (52%
in 1996 and 54% in 1995) of the Company's life insurance in force,
77% in 1997 (78% in 1996 and 79% in 1995) of the number of life
insurance policies in force, and 27% in 1997 (40% in 1996 and 47%
in 1995) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) FEDERAL INCOME TAX
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (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.
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.
(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 11 and 15.
(j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - REPORTING
COMPREHENSIVE INCOME was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. The statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income includes all changes in equity during a
period except those resulting from investments by shareholders and
distributions to shareholders and includes net income.
Comprehensive income would be reported in addition to earnings
amounts currently presented. The Company will adopt the statement
and begin reporting comprehensive income in the first quarter of
1998.
(k) RECLASSIFICATION
Certain items in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997
presentation.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) INVESTMENTS
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1997 and
1996 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ - $ 313.7
Obligations of states and political subdivisions 1.6 - - 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
------------ --------- --------- -----------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
------------ --------- --------- -----------
$ 12,800.7 $ 498.3 $ (14.5) $ 13,284.5
============ ========= ========= ===========
December 31, 1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 275.7 $ 4.8 $ (1.3) $ 279.2
Obligations of states and political subdivisions 6.2 0.5 - 6.7
Debt securities issued by foreign governments 100.7 2.1 (0.9) 101.9
Corporate securities 7,999.3 285.9 (33.7) 8,251.5
Mortgage-backed securities 3,589.0 91.4 (15.1) 3,665.3
------------ --------- --------- -----------
Total fixed maturity securities 11,970.9 384.7 (51.0) 12,304.6
Equity securities 43.9 15.6 (0.4) 59.1
------------ --------- --------- -----------
$ 12,014.8 $ 400.3 $ (51.4) $ 12,363.7
============ ========= ========= ===========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1997, 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.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
-------------- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 419.2 $ 422.1
Due after one year through five years 4,573.5 4,708.4
Due after five years through ten years 2,772.6 2,879.7
Due after ten years 1,333.4 1,443.6
----------- -----------
9,098.7 9,453.8
Mortgage-backed securities 3,634.2 3,750.3
----------- -----------
$ 12,732.9 $ 13,204.1
=========== ===========
</TABLE>
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- ----------
<S> <C> <C>
Gross unrealized gains $ 483.8 $349.0
Adjustment to deferred policy acquisition costs (103.7) (81.9)
Deferred federal income tax (133.0) (93.5)
-------- -------
$ 247.1 $173.6
======== =======
</TABLE>
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>
(in millions of dollars) 1997 1996 1995
----------- ------------- -----------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $137.5 $(289.2) $876.3
Equity securities (2.7) 8.9 -
Fixed maturity securities held-to-maturity - - 75.6
------- ------- -------
$134.8 $(280.3) $ 951.9
======= ======= =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1997,
1996 and 1995 were $574.5 million, $299.6 million and $107.3 million,
respectively. During 1997, gross gains of $9.9 million ($6.6 million
and $4.8 million in 1996 and 1995, respectively) and gross losses of
$18.0 million ($6.9 million and $2.1 million in 1996 and 1995,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25.4 million 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 $3.5
million.
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 nearly 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 $3.32 billion,
resulting in a gross unrealized gain of $155.9 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million ($51.8 million as
of December 31, 1996), which includes $3.9 million ($41.7 million as of
December 31, 1996) of impaired mortgage loans on real estate for which
the related valuation allowance was $0.1 million ($8.5 million as of
December 31, 1996) and $16.0 million ($10.1 million as of December 31,
1996) of impaired mortgage loans on real estate for which there was no
valuation allowance. During 1997, the average recorded investment in
impaired mortgage loans on real estate was approximately $31.8 million
($39.7 million in 1996) and interest income recognized on those loans
was $1.0 million ($2.1 million in 1996), which is equal to interest
income recognized using a cash-basis method of income recognition.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
------------- -------------
<S> <C> <C>
Allowance, beginning of year $51.0 $49.1
(Reductions) additions charged to operations (1.2) 4.5
Direct write-downs charged against the allowance (7.3) (2.6)
------ ------
Allowance, end of year $42.5 $51.0
====== ======
</TABLE>
Real estate is presented at cost less accumulated depreciation of $45.1
million as of December 31, 1997 ($30.3 million as of December 31, 1996)
and valuation allowances of $11.1 million as of December 31, 1997
($15.2 million as of December 31, 1996).
Investments that were non-income producing for the twelve month period
preceding December 31, 1997 amounted to $19.4 million ($26.8 million
for 1996) and consisted of $3.0 million ($0.2 million in 1996) in
securities available-for-sale, $16.4 million ($20.6 million in 1996) in
real estate and none ($5.9 million in 1996) in other long-term
investments.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 911.6 $ 917.1 $ 685.8
Equity securities 0.8 1.3 1.3
Fixed maturity securities held-to-maturity - - 201.8
Mortgage loans on real estate 457.7 432.8 395.5
Real estate 42.9 44.3 38.3
Short-term investments 22.7 4.2 10.6
Other 21.0 4.0 7.2
-------- -------- --------
Total investment income 1,456.7 1,403.7 1,340.5
Less investment expenses 47.5 45.9 46.5
-------- -------- --------
Net investment income $1,409.2 $1,357.8 $1,294.0
======== ======== ========
</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>
(in millions of dollars) 1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ 3.6 $(3.5) $ 4.2
Equity securities 2.7 3.2 3.4
Mortgage loans on real estate 1.6 (4.1) (7.1)
Real estate and other 3.2 4.1 (2.2)
------ ------ ------
$11.1 $(0.3) $(1.7)
====== ====== ======
</TABLE>
Fixed maturity securities with an amortized cost of $6.2 million as
of December 31, 1997 and 1996 were on deposit with various
regulatory agencies as required by law.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts
represents approximately 86% and 87% of the total liability for future
policy benefits as of December 31, 1997 and 1996, respectively. The
average interest rate credited on investment product policies was
approximately 6.1%, 6.3% and 6.6% for the years ended December 31,
1997, 1996 and 1995, 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 by issue year and were 6.9%
and 6.6% in 1997 and 1996, respectively. Interest rates have
generally ranged from 6.0% to 10.5% for previous issue years.
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
$220.2 million and $240.5 million as of December 31, 1997 and 1996,
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 11. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(5) FEDERAL INCOME TAX
The Company's current federal income tax liability was $60.1 million
and $30.2 million as of December 31, 1997 and 1996, respectively.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $200.1 $183.0
Liabilities in Separate Accounts 242.0 188.4
Mortgage loans on real estate and real estate 19.0 23.4
Other assets and other liabilities 59.2 53.7
------- ------
Total gross deferred tax assets 520.3 448.5
Less valuation allowance (7.0) (7.0)
------- ------
Net deferred tax assets 513.3 441.5
------- ------
Deferred tax liabilities:
Deferred policy acquisition costs 480.5 399.3
Fixed maturity securities 193.3 133.2
Deferred tax on realized investment gains 40.1 37.6
Equity securities and other long-term investments 7.5 8.2
Other 22.2 25.4
------- ------
Total gross deferred tax liabilities 743.6 603.7
------- ------
Net deferred tax liability $230.3 $162.2
======= ======
</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, 1997, 1996 and 1995.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable $121.7 $116.5 $88.7
Deferred tax expense (benefit) 28.5 (5.6) 11.1
------ ------ ------
$150.2 $110.9 $99.8
====== ====== ======
</TABLE>
Total federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
(in millions of dollars) Amount % Amount % Amount %
---------------------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $150.5 35.0 $110.4 35.0 $100.6 35.0
Tax exempt interest and dividends
received deduction - 0.0 (0.2) (0.1) - 0.0
Other, net (0.3) (0.1) 0.7 0.3 (0.8) (0.3)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $150.2 34.9 $110.9 35.2 $ 99.8 34.7
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $91.8 million, $115.8 million and
$51.8 million during the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The fair value of a financial instrument is defined 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 to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
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.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, 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:
FIXED MATURITY AND EQUITY SECURITIES: The 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.
MORTGAGE LOANS ON REAL ESTATE, NET: 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 mortgage loans in default is the estimated fair
value of the underlying collateral.
POLICY LOANS, SHORT-TERM INVESTMENTS AND CASH: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
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.
INVESTMENT CONTRACTS: The 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 analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 13.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $13,204.1 $13,204.1 $12,304.6 $12,304.6
Equity securities 80.4 80.4 59.1 59.1
Mortgage loans on real estate, net 5,181.6 5,509.7 5,272.1 5,397.9
Policy loans 415.3 415.3 371.8 371.8
Short-term investments 358.4 358.4 4.8 4.8
Cash 175.6 175.6 43.8 43.8
Assets held in Separate Accounts 37,724.4 37,724.4 26,926.7 26,926.7
Liabilities:
Investment contracts 14,708.2 14,322.1 13,914.4 13,484.5
Policy reserves on life insurance contracts 3,345.4 3,182.4 3,392.8 3,197.5
Liabilities related to Separate Accounts 37,724.4 36,747.0 26,926.7 26,164.2
</TABLE>
(7) RISK DISCLOSURES
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduce demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. 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: 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> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK: 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.
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.
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 $341.4 million
extending into 1998 were outstanding as of December 31, 1997. The
Company also had $63.9 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1997.
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 20% (21% in 1996) in any geographic area and no more than 2% (2%
in 1996) with any one borrower as of December 31, 1997. As of December
31, 1997, 46% (44% in 1996) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1997 and 1996. See note 4.
(8) 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 year of service. 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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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 (the 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, 1997, 1996 and 1995 were $7.5 million, $7.4
million and $10.5 million, respectively.
The Company had no net accrued pension expense as of December 31, 1997
($1.1 million as of December 31, 1996).
The net periodic pension cost for the Retirement Plan as a whole for
the years ended December 31, 1997 and 1996 and for the Nationwide
Insurance Companies and Affiliates Retirement Plan as a whole for the
year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 77.3 $ 75.5 $ 64.5
Interest cost on projected benefit obligation 118.6 105.5 95.3
Actual return on plan assets (328.0) (210.6) (249.3)
Net amortization and deferral 196.4 101.8 143.4
-------- -------- --------
$ 64.3 $ 72.2 $ 53.9
======== ======== ========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate 6.50% 6.00% 7.50%
Rate of increase in future compensation levels 4.75% 4.25% 6.25%
Expected long-term rate of return on plan assets 7.25% 6.75% 8.75%
</TABLE>
Information regarding the funded status of the Retirement Plan as a
whole as of December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,547.5 $1,338.6
Nonvested 13.5 11.1
-------- ---------
$1,561.0 $1,349.7
======== =========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $2,033.8 $1,847.8
Plan assets at fair value 2,212.9 1,947.9
--------- ---------
Plan assets in excess of projected benefit obligation 179.1 100.1
Unrecognized prior service cost 34.7 37.9
Unrecognized net gains (330.7) (202.0)
Unrecognized net asset at transition 33.3 37.2
--------- ---------
$ (83.6) $ (26.8)
========= =========
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Weighted average discount rate 6.00% 6.50%
Rate of increase in future compensation levels 4.25% 4.75%
</TABLE>
Assets of the Retirement Plan are invested in group annuity contracts
of NLIC and Employers Life Insurance Company of Wausau (ELICW).
(9) 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 (APBO), 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,
1997 and 1996 was $36.5 million and $34.9 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1997, 1996 and
1995 was $3.0 million, $3.3 million and $3.1 million, respectively.
Information regarding the funded status of the plan as a whole as of
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 93.3 $ 93.0
Fully eligible, active plan participants 31.6 23.7
Other active plan participants 113.0 84.0
-------- --------
Accumulated postretirement benefit obligation 237.9 200.7
Plan assets at fair value 69.2 63.0
-------- --------
Plan assets less than accumulated postretirement benefit obligation (168.7) (137.7)
Unrecognized transition obligation of affiliates 1.5 1.7
Unrecognized net losses (gains) 1.6 (23.2)
-------- --------
$(165.6) $(159.2)
======== ========
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year) $ 7.0 $ 6.5 $ 6.2
Interest cost on accumulated postretirement
benefit obligation 14.0 13.7 14.2
Actual return on plan assets (3.6) (4.3) (2.7)
Amortization of unrecognized transition
obligation of affiliates 0.2 0.2 3.0
Net amortization and deferral (0.5) 1.8 (1.6)
------- ------ ------
$17.1 $17.9 $19.1
======= ====== ======
</TABLE>
Actuarial assumptions used for the measurement of the APBO and the
NPPBC for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
APBO:
Discount rate 6.70% 7.25% 6.75%
Assumed health care cost trend rate:
Initial rate 12.13% 11.00% 11.00%
Ultimate rate 6.12% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
NPPBC:
Discount rate 7.25% 6.65% 8.00%
Long term rate of return on plan
assets, net of tax 5.89% 4.80% 8.00%
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 10.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
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,
1997 by $0.4 million and have no impact on the NPPBC for the year ended
December 31, 1997.
(10) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
Ohio, NLIC's and NLAIC'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 NLAIC each exceed
the minimum risk-based capital requirements.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The statutory capital and surplus of NLIC as of December 31, 1997, 1996
and 1995 was $1.13 billion, $1.00 billion and $1.36 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1997, 1996 and 1995 was $111.7 million, $73.2 million and
$86.5 million, respectively.
As a result of the $850.0 million dividend paid on February 24, 1997,
any dividend paid by NLIC during the twelve-month period immediately
following the $850.0 million dividend would be an extraordinary
dividend under Ohio insurance laws. Accordingly, no such dividend could
be paid without prior regulatory approval. The Company has no reason to
believe that any reasonably foreseeable dividend to be paid by NLIC
would not receive the required 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 shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(11) TRANSACTIONS WITH AFFILIATES
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1997, 1996 and 1995, the
Company made lease payments to NMIC and its subsidiaries of $8.4
million, $9.1 million and $9.0 million, 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 $85.8 million, $101.6 million and $107.1
million in 1997, 1996 and 1995, 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 $20.5 million and $15.1 million as of
December 31, 1997 and 1996, 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 1997 and
1996 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> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements 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 the Company'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 the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company'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. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW
-------------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Premiums $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other revenue $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and other expenses $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $211.0 million and $4.8 million as of
December 31, 1997 and 1996, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
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 $46.9 million. As discussed in note 15, WCLIC
is accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1997 were $66.1
million, $76.9 million and $57.3 million, respectively.
(12) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million 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. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(13) 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.
(14) SEGMENT INFORMATION
The Company has three product 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 Fixed Annuities segment also includes the
fixed option under the Company's variable annuity contracts. 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 and
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.
The following table summarizes revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1997, 1996 and 1995 and assets as of December 31, 1997,
1996 and 1995, by segment.
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 404.0 $ 284.6 $ 189.1
Fixed Annuities 1,141.4 1,092.6 1,052.0
Life Insurance 473.1 435.6 409.1
Corporate and Other 198.9 180.1 148.5
----------- ---------- ----------
$ 2,217.4 $ 1,992.9 $ 1,798.7
=========== ========== ==========
Income from continuing operations before federal income tax
expense:
Variable Annuities $ 150.9 $ 90.3 $ 50.8
Fixed Annuities 169.5 135.4 137.0
Life Insurance 70.9 67.2 67.6
Corporate and Other 38.6 22.6 32.2
----------- ---------- ----------
$ 429.9 $ 315.5 $ 287.6
=========== ========== ==========
Assets:
Variable Annuities $ 35,278.7 $ 25,069.7 $ 17,333.0
Fixed Annuities 14,436.3 13,994.7 13,250.4
Life Insurance 3,901.4 3,353.3 3,027.4
Corporate and Other 6,174.3 5,348.6 4,896.8
----------- ---------- ----------
$ 59,790.7 $ 47,766.3 $ 38,507.6
=========== ========== ==========
</TABLE>
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(15) DISCONTINUED OPERATIONS
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, 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
payable to Nationwide Corp. on January 1, 1997 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 with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. 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 in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
Also, 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 11 for a
complete discussion of the reinsurance agreements. The Company 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. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company 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 the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Revenues $ - $ 668.9 $ 776.9
Net income $ - $ 11.3 $ 24.7
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Assets, consisting primarily of investments $247.3 $3,288.5 $3,206.7
Liabilities, consisting primarily of policy benefits and claims $247.3 $2,802.8 $2,700.0
</TABLE>
<PAGE> 52
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: PAGE
(1) Financial statements included N/A
in Prospectus
(Part A):
(2) Financial statements included 50
in Part B as required:
Nationwide Variable Account-9:
Independent Auditors' Report. 50
Statement of Assets, Liabilities and Contract 51
Owners' Equity as of December 31, 1997
Statement of Operations and Changes in 53
Contract Owners' Equity for the period November 3, 1997
(commencement of operations) through December 31, 1997.
Notes to Financial Statements. 58
Nationwide Life Insurance Company:
Independent Auditors' Report. 71
Balance Sheets as of December 72 31, 1997 and 1996.
Statements of Income for the 73
years ended December 31, 1997, 1996 and
1995.
Statements of Shareholder's 74
Equity for the years ended December 31,
1997, 1996 and 1995.
Statements of Cash Flows for 75
the years ended December 31, 1997, 1996
and 1995.
Notes to Financial Statements. 76
Schedule I-Summary of Investments -Other 114
Than Investments in Related Parties
Schedule III-Supplementary Insurance Information 115
Schedule IV-Reinsurance 116
Schedule V-Valuation and Qualifying Accounts 117
</TABLE>
95 of 118
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C>
Item 24. (b) Exhibits
(1) Resolution of the Depositor's Board of Directors
authorizing the establishment of the Registrant-
Attached hereto.
(2) Not Applicable
(3) Underwriting or Distribution of contracts between
the Registrant and Principal Underwriter-Attached
hereto.
(4) The form of the variable annuity contract-Attached
hereto.
(5) Variable annuity application-Attached hereto.
(6) Articles of Incorporation of Depositor-Attached
hereto.
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel-Attached hereto.
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Performance Advertising Calculation Schedule.-
Attached hereto.
</TABLE>
96 of 118
<PAGE> 54
<TABLE>
<CAPTION>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Lewis J. Alphin Director
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director
4121 North River Road West
Zanesville, OH 43701
Keith W. Eckel Director
1647 Falls Road
Clarks Summit, PA 18411
Willard J. Engel Director
300 East Marshall 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
Dimon R. McFerson Chairman and Chief Executive Officer-
One Nationwide Plaza Nationwide Insurance Enterprise
Columbus, OH 43215 and Director
David O. Miller Chairman of the Board and Director
115 Sprague Drive
Hebron, OH 43025
Yvonne L. Montgomery Director
2859 Paces Ferry Road
Atlanta, GA 30339
C. Ray Noecker Director
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director
8765 Mulberry Road
Chesterland, OH 44026
</TABLE>
97 of 118
<PAGE> 55
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
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
Dennis W. Click Vice President and Secretary
One Nationwide Plaza
Columbus, OH 43215
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
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
Susan A. Wolken Senior Vice President-Life
One Nationwide Plaza Company Operations
Columbus, OH 43215
Michael D. Bleiweiss Vice President-
One Nationwide Plaza Individual Annuity Operations
Columbus, OH 43215
</TABLE>
98 of 118
<PAGE> 56
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S> <C>
Matthew S. Easley Vice President-
One Nationwide Plaza Life Marketing and Administrative Services
Columbus, OH 43215
Timothy E. Murphy Vice President-
One Nationwide Plaza Strategic Marketing
Columbus, Ohio 43215
R. Dennis Noice Vice President-
One Nationwide Plaza Retail Operations
Columbus, OH 43215
Joseph P. Rath
One Nationwide Plaza Vice President - Office of
Columbus, OH 43215 Product and Market Compliance
</TABLE>
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
99 of 118
<PAGE> 57
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
Affiliate Agency, Inc. Delaware Life Insurance Agency
Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency
Allnations, Inc. Ohio Promotes cooperative insurance corporations
worldwide
American Marine Underwriters, Inc. Florida Underwriting Manager
Auto Direkt Insurance Company Germany Insurance Company
The Beak and Wire Corporation Ohio Radio Tower Joint Venture
California Cash Management Company California Inactive
Colonial County Mutual Insurance Texas Insurance Company
Company
Colonial Insurance Company of Wisconsin Insurance Company
Wisconsin
Columbus Insurance Brokerage and Germany Insurance Broker
Service GMBH
Companies Agency, Inc. Wisconsin Insurance Broker
Companies Agency Insurance Services California Insurance Broker
of California
Companies Agency of Alabama, Inc. Alabama Insurance Broker
Companies Agency of Georgia, Inc. Georgia Insurance Broker
Companies Agency of Idaho, Inc. Idaho Insurance Broker
Companies Agency of Kentucky, Inc. Kentucky Insurance Broker
Companies Agency of Massachusetts, Massachusetts Insurance Broker
Inc.
Companies Agency of New York, Inc. New York Insurance Broker
Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker
Companies Agency of Phoenix, Inc. Arizona Insurance Broker
Companies Agency of Texas, Inc. Texas Local Recording Agent (P&C)
Companies Annuity Agency of Texas, Texas Group and Variable Contract Agent
Inc.
Cooperative Service Company Nebraska Insurance Agency
Countrywide Services Corporation Delaware Products Liability, Investigative and Claims
Management Services
EMPLOYERS INSURANCE OF WAUSAU A Wisconsin Mutual Insurance Company
Mutual Company
</TABLE>
100 of 118
<PAGE> 58
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C> <C>
** Employers Life Insurance Company of Wisconsin Life Insurance Company
Wausau
F & B, Inc. Iowa Insurance Agency
Farmland Mutual Insurance Company Iowa Mutual Insurance Company
Financial Horizons Distributors Alabama Life Insurance Agency
Agency of Alabama, Inc.
Financial Horizons Distributors Ohio Life Insurance Agency
Agency of Ohio, Inc.
Financial Horizons Distributors Oklahoma Life Insurance Agency
Agency of Oklahoma, Inc.
Financial Horizons Distributors Texas Life Insurance Agency
Agency of Texas, Inc.
* Financial Horizons Investment Trust Massachusetts Investment Company
Financial Horizons Securities Oklahoma Broker Dealer
Corporation
Gates, McDonald & Company Ohio Cost Control Business
Gates, McDonald & Company of Nevada Nevada Self-Insurance Administration Claims
Examinations and Data Processing Services
Gates, McDonald & Company of New New York Workers Compensation Claims Administration
York, Inc.
Gates McDonald Health Plus, Inc. Ohio Managed Care Organization
Greater La Crosse Health Plans, Inc. Wisconsin Commercial Health and Medicare Supplement
Insurance
Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency
Irvin L. Schwartz and Associates, Inc. Ohio Insurance Agency
Key Health Plan, Inc. California Pre-paid Health Plans
Landmark Financial Services of New New York Life Insurance Agency
York, Inc.
Leben Direkt Insurance Company Germany Life Insurance Company
Lone Star General Agency, Inc. Texas Insurance Agency
** MRM Investments, Inc. Ohio Owns and Operates a Recreational Ski Facility
** National Casualty Company Wisconsin Insurance Company
National Casualty Company of America, Great Britain Insurance Company
Ltd.
** National Premium and Benefit Delaware Insurance Administrative Services
Administration Company
** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer, Investment Manager
and Administrator
</TABLE>
101 of 118
<PAGE> 59
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C> <C>
Nationwide Agency, Inc. Ohio Insurance Agency
Nationwide Agribusiness Insurance Iowa Insurance Company
Company
Nationwide Asset Allocation Trust Massachusetts Investment Company
Nationwide Cash Management Company Ohio Investment Securities Agent
Nationwide Community Urban Ohio Redevelopment of blighted areas within the
Redevelopment Corporation City of 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/Dispatch LLC Ohio Engaged in related Arena development Activity
Nationwide Financial Institution Delaware Insurance Agency
Distributors Agency, Inc.
Nationwide Financial Services Capital Delaware Statutory Business Trust
Trust
Nationwide Financial Services, Inc. Delaware 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 General Insurance Company Ohio Insurance Company
Nationwide Global Holdings, Inc. Ohio Holding Company for Enterprise International
Operations
Nationwide Health Plans, Inc. Ohio Health Maintenance Organization
* Nationwide Indemnity Company Ohio Reinsurance Company
Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation
Foundation
Nationwide Insurance Enterprise Ohio Performs shares services functions for the
Services, Ltd. Enterprise
Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation
Inc.
Nationwide Investing Foundation Michigan Investment Company
* Nationwide Investing Foundation II Massachusetts Investment Company
Nationwide Investing Foundation III Ohio Investment Company
</TABLE>
102 of 118
<PAGE> 60
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C> <C>
Nationwide Investment Services Oklahoma Registered Broker-Dealer in Deferred
Corporation Compensation Market
Nationwide Investors Services, Inc. Ohio Stock Transfer Agent
** Nationwide Life and Annuity Insurance Ohio Life Insurance Company
Company
** Nationwide Life Insurance Company Ohio Life Insurance Company
Nationwide Lloyds Texas Texas Lloyds Company
Nationwide Management Systems, Inc. Ohio Offers Preferred Provider Organization and
Other Related Products and Services
Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company
Company
Nationwide Mutual Insurance Company Ohio Mutual Insurance Company
Nationwide Properties, Ltd. Ohio Develops, owns and operates real estate and
real estate investments
Nationwide Property and Casualty Ohio Insurance Company
Insurance Company
Nationwide Realty Investors, Ltd. Ohio Develops, owns and operates real estate and
real estate investments
* Nationwide Separate Account Trust Massachusetts Investment Company
NEA Valuebuilder Investor Services, Delaware Life Insurance Agency
Inc.
NEA Valuebuilder Investor Services of Alabama Life Insurance Agency
Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona Life Insurance Agency
Arizona, Inc.
NEA Valuebuilder Investor Services of Montana Life Insurance Agency
Montana, Inc.
NEA Valuebuilder Investor Services of Nevada Life Insurance Agency
Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio Life Insurance Agency
Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma Life Insurance Agency
Oklahoma, Inc.
NEA Valuebuilder Investor Services of Texas Life Insurance Agency
Texas, Inc.
NEA Valuebuilder Investor Services of Wyoming Life Insurance Agency
Wyoming, Inc.
NEA Valuebuilder Services Insurance Massachusetts Life Insurance Agency
Agency, Inc.
Neckura General Insurance Company Germany Insurance Company
Neckura Holding Company Germany Administrative Service for Neckura Insurance
Group
Neckura Insurance Company Germany Insurance Company
Neckura Life Insurance Company Germany Life Insurance Company
</TABLE>
103 of 118
<PAGE> 61
<TABLE>
<CAPTION>
NO. VOTING
SECURITIES
(SEE ATTACHED
CHART) UNLESS
STATE OTHERWISE
COMPANY OF ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C> <C>
NWE, Inc. Ohio Special Investments
PEBSCO of Massachusetts Insurance Massachusetts Markets and Administers Deferred Compensation
Agency, Inc. Plans for Public Employees
PEBSCO of Texas, Inc. Texas Markets and Administers Deferred Compensation
Plans for Public Employees
Pension Associates of Wausau, Inc. Wisconsin Pension plan administration, record keeping
and consulting and compensation consulting
Physicians Plus Insurance Corporation Wisconsin Health Maintenance Organization
Prevea Health Insurance Plan, Inc. Wisconsin Health Maintenance Organization
Public Employees Benefit Services Delaware Markets and Administers Deferred Compensation
Corporation Plans for Public Employees
Public Employees Benefit Services Alabama Markets and Administers Deferred Compensation
Corporation of Alabama Plans for Public Employees
Public Employees Benefit Services Arkansas Markets and Administers Deferred Compensation
Corporation of Arkansas Plans for Public Employees
Public Employees Benefit Services Montana Markets and Administers Deferred Compensation
Corporation of Montana Plans for Public Employees
Public Employees Benefit Services New Mexico Markets and Administers Deferred Compensation
Corporation of New Mexico Plans for Public Employees
Scottsdale Indemnity Company Ohio Insurance Company
Scottsdale Insurance Company Ohio Insurance Company
Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines Insurance Company
Company
SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance Group
Group
TIG Countrywide Insurance Group California Independent Agency Personal Lines Underwriter
Wausau (Bermuda) Ltd. Bermuda Rent-a-captive Reinsurer
Wausau Business Insurance Company Wisconsin Insurance Company
Wausau General Insurance Company Illinois Insurance Company
Wausau Insurance Company (U.K.) United Kingdom Insurance and Reinsurance Company
Limited
Wausau International Underwriters California Special Risks, Excess and Surplus Lines
Insurance Underwriting Manager
** Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company
Company
Wausau Service Corporation Wisconsin Holding Company
Wausau Underwriters Insurance Company Wisconsin Insurance Company
</TABLE>
104 of 118
<PAGE> 62
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
STATE (SEE ATTACHED CHART)
OF UNLESS OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S><C> <C> <C> <C>
* MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide DCVA II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts
Separate Account
* Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account Account
* Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts
Account
* Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account-A Separate Account Policies
Nationwide VL Separate Account-B Ohio Nationwide Life and Annuity Issuer of Life Insurance
Separate Account Policies
Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance
Account-C Separate Account Policies
* Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance
Account Policies
</TABLE>
105 of 118
<PAGE> 63
<TABLE>
<CAPTION>
NO. VOTING SECURITIES
STATE (SEE ATTACHED CHART)
OF UNLESS OTHERWISE
COMPANY ORGANIZATION INDICATED PRINCIPAL BUSINESS
<S> <C> <C> <C>
Nationwide VLI Separate Ohio Nationwide Life Separate Issuer of Life Insurance
Account-4 Account Policies
</TABLE>
106 of 118
<PAGE> 64
<TABLE>
<CAPTION>
(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 |
------------------------------------------
|
-----------------------------------------------------------------------
| | |
- --------------------------- --------------------------- ---------------------------- ---------------------------
| KEY HEALTH PLAN, INC. | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | |
| | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS |
|Common Stock: 1,000 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | |
|------------ Shares | |------------ Shares | |------------ | | |
| | | | | |=========| |
| Cost | | Cost | | Cost | || | A TEXAS LLOYDS |
| ---- | | ---- | | ---- | || | |
|Employers- | |Employers- | |Employers- | || | |
| 80% $1,828,478 | |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% $1,461,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- | ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES |
| OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | AGENCY, INC. |
| | | | | | | OF CALIFORNIA | | | |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 100 |
|------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares |
| |---|---| | | | | | |
| Cost | | | Cost | | | Cost | | Cost |
| ---- | | | ---- | | | ---- | | ---- |
|WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | |WSC-100% $10,000 |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| | |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | PENSION ASSOCIATES |
| OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | OF WAUSAU, INC. |
| | | | | | | CORPORATION | |Common Stock: 1,000 |
|Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | |------------ Shares |
|------------ Shares | | |------------ Shares | | |------------ Shares | | |
| |-------| | |---|Preferred Stock: 11,540 | | |
| | | | | | |--------------- Shares | |Companies Cost |
| | | | | | | | |Agency, Inc. ---- |
| Cost | | | Cost | | | Cost | |(Wisconsin)-100% $10,000 |
| ---- | | | ---- | | | ---- | | |
|WSC-100% $1,000 | | |WSC-100% $1,000 | | |WSC-33-1/3% $6,215,459| | |
- --------------------------- | --------------------------- | ---------------------------- ---------------------------
| |
| --------------------------- | ----------------------------
| | WAUSAU | | | PREVEA HEALTH |
| | (BERMUDA) LTD. | | | INSURANCE PLAN, INC. |
| | Common Stock: 120,000 | | |Common Stock: 3,000 Shares|
| | ------------- Shares | | |------------ |
----| | ----| |
| | | |
| Cost | | Cost |
| ---- | | ---- |
| WSC-100% $5,000,000| |WSC-33-1/3% $500,000 |
--------------------------- ----------------------------
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
NATIONWIDE INSURANCE ENTERPRISE(R) (middle)
<S> <C> <C>
-----------------------------------------------------------------------------
| |
| |
| NATIONWIDE MUTUAL |
=======| INSURANCE COMPANY |================================================
| (CASUALTY) |
| |
| |
-----------------------------------------------------------------------------
| || |
| || -------------------------------------------------------------
| || ---------------------------------------------------------------------------------------
| || | |
- -------------------------------- || | -------------------------------- --------------------------------
| ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING |
|Common Stock: 10,330 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) |
|------------ | || | | | | |
| Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 |
| ---- | || | |------------ Shares | |------------ Shares |
|Casualty-18.6% $88,320 | || | | Cost | | Cost |
|Fire-18.6% $88,463 | || | | ---- | | ---- |
|Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 |
|--------------- | || | | | | | |
| Cost | || | | | | | |
| ---- | || | | | | | |
|Casualty-6.8% $100,000 | || | | | | | |
|Fire-6.8% $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 WINCONSIN | | | 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% $41,750,000 | | |Neckura-100% DM 15,825,681 |
- -------------------------------- | | -------------------------------- | --------------------------------
| | |
- -------------------------------- | | -------------------------------- | --------------------------------
| COOPERATIVE SERVICE | | | | SCOTTSDALE | | | NECKURA GENERAL |
| COMPANY | | | | INSURANCE COMPANY | | | INSURANCE COMPANY |
|Common Stock: 600 Shares | | | | (SIC) | | | |
|------------ | | | |Common Stock: 30,136 | | |Common Stock: 1,500 |
| Cost |-------- |----|------------ Shares | ---- |--------|------------ Shares |
| ---- | | | Cost | | | | Cost |
|Farmland $3,506,173 | | | ---- | | | | ---- |
|Mutual-100% | | |Casualty-100% $150,000,000 | | | |Neckura-100% DM 1,656,925 |
| | | | | | | | |
| | | | | | | | |
- -------------------------------- | -------------------------------- | | --------------------------------
| | |
- -------------------------------- | -------------------------------- | | --------------------------------
| NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | | COLUMBUS INSURANCE |
| INSURANCE COMPANY | | | SURPLUS LINES | | | | BROKERAGE AND SERVICE |
|Common Stock: 1,000,000 | | | INSURANCE COMPANY | | | | GmbH |
|------------ Shares |------------ | | Common Stock: 100,000 | | | |Common Stock: 1 Share |
| | | | ------------ Shares | ---| |--------|------------ |
| Cost | | | | | | | Cost |
|Casualty-99.9% ---- | | | Cost | | | | ---- |
|Other Capital: $26,714,335 | | | ---- | | | |Neckura-100% DM 51,639 |
|------------- | | | SIC-100% $6,000,000 | | | | |
|Casualty-Ptd. $ 713,576 | | | | | | | |
- -------------------------------- | -------------------------------- | | --------------------------------
| | |
- -------------------------------- | -------------------------------- | | --------------------------------
| NATIONAL CASUALTY | | | NATIONAL PREMIUM & | | | | LEBEN DIREKT |
| COMPANY | | | BENEFIT ADMINISTRATION | | | | INSURANCE COMPANY |
| (NC) | | | COMPANY | | | | |
|Common Stock: 100 Shares | | |Common Stock: 10,000 | | | |Common Stock: 4,000 Shares |
|------------ |------------- |------------ Shares |----- ---------|------------ |
| Cost | | Cost | | | Cost |
| ---- | | ---- | | | ---- |
|Casualty-100% $67,442,439 | |Scottsdale-100% $10,000 | | |Neckura-100% DM 4,000,000 |
| | | | | | |
| | | | | | |
- -------------------------------- -------------------------------- | --------------------------------
| |
- -------------------------------- -------------------------------- | --------------------------------
| NCC OF AMERICA, LTD. | | SVM SALES | | | AUTO DIREKT |
| (INACTIVE) | | GmbH | | | INSURANCE COMPANY |
| | | | | | |
| | |Common Stock: 50 Shares | | |Common Stock: 1,500 Shares |
| | |------------ |----------------- |------------ |
| | | Cost | | Cost |
|NC-100% | | ---- | | ---- |
| | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 |
| | | | | |
| | | | | |
- -------------------------------- -------------------------------- --------------------------------
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
(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 |
| | | | | (Inactive) |
| |Surplus Debentures | | | |
| |------------------ | |----| |
| | Cost | | | |
| | ---- | | | |
| |Colonial $500,000 | | |Casualty-100% |
| |Lone Star 150,000 | | | |
| -------------------------------- | --------------------------------
| |
| -------------------------------- | --------------------------------
| | TIG COUNTRYWIDE | | | THE BEAK AND |
| | INSURANCE COMPANY | | | WIRE CORPORATION |
| |Common Stock 12,500 | | | |
-----|------------ Shares | | |Common Stock: 750 Shares |
| | | -----|------------ |
| | Cost | | | Cost |
| | ---- | | | ---- |
| |Casualty-100% $215,273,000 | | |Casualty-100% $1,419,000 |
| | | | | |
| -------------------------------- | | |
| | --------------------------------
| |
| -------------------------------- | --------------------------------
| | NATIONWIDE INSURANCE | | | NATIONWIDE/DISPATCH LLC |
| | ENTERPRISE SERVICES, LTD. | | | |
| | | | | |
| |Single Member Limited | | | |
- - - |Liability Company | - - -| |
| | | |
| | | |
|Casualty-100% | |Casualty-90% |
| | | |
-------------------------------- | |
--------------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Lines
Limited Liability Company -- Dotted Line
December 31, 1997
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
(Left Side)
------------------------------------------------
| 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, INC. | | DISTRIBUTORS AGENCY | || | |
| | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | |
| Common Stock: 66,000 | | | 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 | || | NFIDAI -100% $100 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | |
| | | | INVESTORS SERVICES, INC. | || | SERVICES OF | || | |
| | | | | || | NEW YORK, INC. | || | |
| Common Stock: 100 | | | Common Stock: 5 Shares | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS |
| ------------ Shares |--| | ------------ |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY |
| | | | | || | | || | OF OKLAHOMA, INC. |
| Cost | | | Cost | || | Cost | || | |
| ---- | | | ---- | || | ---- | || | |
| NW Life -100% $35,971,375 | | | NW Adv. Serv. -100% $5,000| || | NFIDAI -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 | || | NFIDAI -100% $153,000 | || | |
--------------------------- | --------------------------- || --------------------------- || --------------------------
| || ||
--------------------------- | --------------------------- || --------------------------- || --------------------------
| NATIONWIDE REALTY | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | |
| PROPERTIES, LTD. | | | INVESTING | || | | || | |
| | | | FOUNDATION | || | | || | |
| Units: | | | | || | Common Stock: 100 | || | AFFILIATE |
| ------ - -| | |==|| | ------------ Shares |--||==| AGENCY OF |
| | | | | || | | | OHIO, INC. |
| | | | | || | Cost | | |
| NW Life -90% | | | | || | ---- | | |
| NW Mutual-10% | | | COMMON LAW TRUST | || | NFIDAI -100% $100 | | |
--------------------------- | --------------------------- || --------------------------- --------------------------
| ||
--------------------------- | --------------------------- ||
| NATIONWIDE | | | NATIONWIDE | ||
| PROPERTIES, LTD. | | | INVESTING | ||
| | | | FOUNDATION II | ||
| Units: - -| | | ||
| ------ | | |==||
| | | | ||
| | | | ||
| NW Life -97.6% | | | ||
| NW Mutual -2.4% | | COMMON LAW TRUST | ||
--------------------------- --------------------------- ||
||
--------------------------- ||
| NATIONWIDE | ||
| SEPARATE ACCOUNT | ||
| TRUST | ||
| | ||
| |__||
| |
| |
| |
| COMMON LAW TRUST |
---------------------------
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
(Center)
NATIONWIDE INSURANCE ENTERPRISE (R)
<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 | |
| SERVICES, INC. (NFS) | |
| | |
| Common Stock: Control | |
| ------------ ------- | |
| | |
| | |
| Class A Public--100% | |
| Class B NW Corp--100% | |
--------------------------- |
| |
---------------------------------------------------------------------- |
| | | |
--------------------------- --------------------------- --------------------------- | -------------------------
| IRVIN L. SCHWARTZ | | PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | | NATIONWIDE GLOBAL |
| & ASSOCIATES | | SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | | HOLDINGS, INC. |
| | | (PEBSCO) | | (NEA) | | | |
| Common Stock: Control | | Common Stock: 236,494 |==|| | Common Stock: 500 |= || | | Common Stock: 1 Share |
| ------------ ------- | | ------------ Shares | || | ------------ Shares | || |--| ------------ |
| | | | || | | || | | |
| | | | || | | || | | Cost |
| Class A Other -100% | | | || | | || | | ---- |
| Class B NFS -100% | | NFS -100% | || | NFS -100% | || | | NW Corp-100% $7,000,00 |
- ---------------------------- ---------------------------- || ---------------------------- || | --------------------------
--------------------------- || --------------------------- || |
| PEBSCO OF | || | NEA VALUEBUILDER | || | --------------------------
| ALABAMA | || | INVESTOR SERVICES | || | | MRM INVESTMENT, INC. |
| | || | OF ALABAMA, INC. | || | | |
| Common Stock: 100,000 | || | Common Stock: 500 | || | | |
| ------------ Shares |--|| | ------------ Shares |--|| __ | Common Stock: 1 Share |
| | || | | || | ----------- |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | Cost |
| PEBSCO -100% $1,000 | || | NEA -100% $5,000 | || | ---- |
--------------------------- || --------------------------- || | NW Corp.-100% $7,000,000|
|| || --------------------------
--------------------------- || --------------------------- ||
| 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 | || | NEA VALUEBUILDER |
| MONTANA | || | INVESTOR SERVICES | || | INVESTOR SERVICES |
| | || | OF NEVADA, INC. | || | OF OHIO, INC. |
| Common Stock: 500 | || | Common Stock: 500 | || | |
| ------------ Shares |--|| | ------------ Shares |--||====| |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO -100% $500 | || | NEA -100% $500 | || | |
--------------------------- || --------------------------- || --------------------------
|| ||
--------------------------- || --------------------------- || -------------------------
| PEBSCO OF | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER |
| NEW MEXICO | || | INVESTOR SERVICES | || | INVESTOR SERVICES |
| | || | OF WYOMING, INC. | || | OF OKLAHOMA, INC. |
| Common Stock: 1,000 | || | Common Stock: 500 | || | |
| ------------ Shares |--|| | ------------ Shares |--||====| |
| | || | | || | |
| Cost | || | Cost | || | |
| ---- | || | ---- | || | |
| PEBSCO -100% $1,000 | || | NEA -100% $500 | || | |
--------------------------- || --------------------------- || --------------------------
|| ||
--------------------------- || --------------------------- || --------------------------
| | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER |
| | || | SERVICES INSURANCE | || | INVESTOR SERVICES |
| PEBSCO OF | || | AGENCY, INC. | || | OF TEXAS, INC. |
| TEXAS, INC. | || | Common Stock: 100 | || | |
| |==|| | ------------ Shares |--||=== | |
| | | | | |
| | | Cost | | |
| | | ---- | | |
| | | NEA -100% $1,000 | | |
--------------------------- --------------------------- --------------------------
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
(Right)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------
| NATIONWIDE MUTUAL |
========================================| FIRE INSURANCE COMPANY |
| (FIRE) |
------------------------------------------------
|
- -----------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------
| | |
--------------------------- ------------------------------ ------------------------------
| GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE |
| & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | HEALTH PLANS, INC. (NHP) |
| | | | | |
| 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: 200 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares |
| | | | | | | |
| | Cost | | Cost | | | NHP Cost |
| | ---- | | ---- | | | ---- |
| | GATES -100% $106,947 | | ELIOW -100% $57,413,193 | | | Inc. -100% $25,149 |
| ----------------------------- ------------------------------ | ------------------------------
| |
| ----------------------------- | ------------------------------
| | GATES, MCDONALD & COMPANY | | | NATIONWIDE |
| | OF NEVADA | | | AGENCY, INC. |
| | | | | |
| | Common Stock: 40 | | | Common Stock: 100 |
|-- | ------------ Shares | |--| ------------ Shares |
| | | | |
| | Cost | | Cost |
| | ---- | | NHP ---- |
| | Gates -100% $93,750 | | Inc. -99% $116,077 |
| ----------------------------- ------------------------------
|
| -----------------------------
| | GATESMCDONALD |
| | HEALTH PLUS, INC. |
| | |
| | Common Stock: 200 |
|-- | ------------ Shares |
| |
| Cost |
| ---- |
| Gates -100% $2,000,000 |
-----------------------------
Subsidiary Companies -- Solid Line
Contractual Association -- Double Line
Limited Liability Company -- Dotted Line
December 31, 1997
Page 2
</TABLE>
<PAGE> 70
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-6, 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,
and Nationwide Investing Foundation III which are open-end
management investment companies.
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
Dimon R. McFerson Chairman of the Board of Directors and
One Nationwide Plaza Chairman and
Columbus, OH 43215 Chief Executive Officer--Nationwide
Insurance Enterprise and Director
Robert A. Oakley Executive Vice President-Chief Financial
One Nationwide Plaza Officer and Director
Columbus, OH 43215
109 of 118
<PAGE> 71
(b) NATIONWIDE ADVISORY SERVICES, INC.
DIRECTORS AND OFFICERS
Susan A. Wolken Director
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President-Chief Investment
One Nationwide Plaza Officer and Director
Columbus, OH 43215
Elizabeth A. Davin Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
W. Sidney Druen Senior Vice President and
One Nationwide Plaza General Counsel and
Columbus, OH 43215 Assistant Secretary
Dennis W. Click Secretary
One Nationwide Plaza
Columbus, OH 43215
Peter J. Neckermann Vice President
One Nationwide Plaza
Columbus, OH 43215
James F. Laird, Jr. Vice President and General
One Nationwide Plaza Manager
Columbus, OH 43215
Edwin P. McCausland Senior Vice President-Fixed Income
One Nationwide Plaza Securities
Columbus, OH 43215
William G. Goslee
One Nationwide Plaza Vice President
Columbus, OH 43215
Charles Bath
One Nationwide Plaza Vice President-Investments
Columbus, OH 43215
Joseph P. Rath Vice President-Compliance
One Nationwide Plaza
Columbus, OH 43215
Christopher A. Cray Treasurer
One Nationwide Plaza
Columbus, OH 43215
David E. Simaitis Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
Patricia J. Smith Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
<TABLE>
<CAPTION>
(c) NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
Nationwide N/A N/A N/A N/A
Advisory
Services,
Inc.
</TABLE>
110 of 118
<PAGE> 72
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Robert O. Cline
Nationwide Life and Annuity 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 is 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.
111 of 118
<PAGE> 73
Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide Variable Account-9
Deferred Variable Annuity Contracts
PROSPECTUS
________, 1998
112 of 118
<PAGE> 74
INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of the Nationwide Variable Account-9:
The audits referred to in our report on Nationwide Life Insurance Company (the
Company) dated January 30, 1998 included the related financial statement
schedules as of December 31, 1997, and for each of the years in the three-year
period ended December 31, 1997, included in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Services" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
May 13, 1998
113 of 118
<PAGE> 75
<PAGE> 1
SCHEDULE I
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
(in millions of dollars)
As of December 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Column A Column B Column C Column D
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Amount at
which shown
in the
Market consolidated
Type of Investment Cost value balance sheet
- ----------------------------------------------------------------------------- ------------- -------------- ---------------
Fixed maturity securities available-for-sale:
Bonds:
<S> <C> <C> <C>
U.S. Government and government agencies and authorities $ 3,859.7 $ 3,981.7 $ 3,981.7
States, municipalities and political subdivisions 1.6 1.6 1.6
Foreign governments 93.3 95.8 95.8
Public utilities 1,555.3 1,609.8 1,609.8
All other corporate 7,223.0 7,515.2 7,515.2
---------- ---------- ----------
Total fixed maturity securities available-for-sale 12,732.9 13,204.1 13,204.1
---------- ---------- ----------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 67.8 78.0 78.0
Non-redeemable preferred stock - 2.4 2.4
---------- ---------- ----------
Total equity securities available-for-sale 67.8 80.4 80.4
---------- ---------- ----------
Mortgage loans on real estate, net 5,228.1 5,181.6 (1)
Real estate, net:
Investment properties 254.9 235.7 (1)
Acquired in satisfaction of debt 82.6 75.7 (1)
Policy loans 415.3 415.3
Other long-term investments 27.9 25.2 (2)
Short-term investments 358.4 358.4
---------- ----------
Total investments $19,167.9 $19,576.4
========== ==========
</TABLE>
- ----------
(1) Difference from Column B is primarily due to valuation 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 note 3 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains (losses) of
investments in limited partnerships.
See accompanying independent auditors' report.
<PAGE> 2
SCHEDULE III
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in millions of dollars)
As of December 31, 1997, 1996 and 1995 and for each of the years then ended
<TABLE>
<CAPTION>
- -------------------------------- ----------------- -------------------- ------------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- -------------------------------- ----------------- -------------------- ------------------- ------------------ ---------------
Deferred Future policy Other policy
policy benefits, losses, Unearned claims and
acquisition claims and premiums benefits payable Premium
Segment costs loss expenses (1) (1) revenue
- ------------------------------- ------------------ -------------------- ------------------- ------------------ ---------------
1997: Variable Annuities $1,018.4 $ - $ -
Fixed Annuities 277.9 14,103.1 27.3
Life Insurance 472.9 2,683.4 178.1
Corporate and Other (103.8) 1,916.3 -
-------- ------------- ---------
Total $1,665.4 $18,702.8 $ 205.4
======== ============= =========
1996: Variable Annuities $ 792.1 $ - $ -
Fixed Annuities 242.0 13,388.9 24.0
Life Insurance 414.4 2,391.5 174.6
Corporate and Other (82.0) 1,820.2 -
-------- ------------- ---------
Total $1,366.5 $17,600.6 $ 198.6
======== ============= =========
1995: Variable Annuities $ 569.8 $ - $ -
Fixed Annuities 220.7 12,759.3 32.8
Life Insurance 366.9 2,282.6 166.3
Corporate and Other (136.9) 1,730.0 -
-------- ------------- ---------
Total $1,020.5 $ 16,771.9 $ 199.1
======== ============= =========
- ---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
Column A Column G Column H Column I Column J Column K
- ---------------------------------------------------- -------------------- ------------------- ------------------ ----------------
Net investment Benefits, claims, Amortization Other
income losses and of deferred policy operating Premiums
Segment (2) settlement expenses acquisition costs expenses written
(2)
- ---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
<C> <C> <C> <C> <C>
1997: Variable Annuities $ (26.8) $ 5.9 $ 87.8 $ 159.4
Fixed Annuities 1,098.2 846.7 39.8 85.4
Life Insurance 189.1 227.5 39.6 94.5
Corporate and Other 148.7 114.7 - 45.6
-------- ---------- ------- -------
Total $1,409.2 $ 1,194.8 $ 167.2 $ 384.9
======== ========== ======= =======
1996: Variable Annuities $ (21.4) $ 4.6 $ 57.4 $ 132.3
Fixed Annuities 1,050.6 838.5 38.6 79.7
Life Insurance 174.0 211.4 37.4 79.0
Corporate and Other 154.6 106.1 - 51.4
-------- ---------- ------- -------
Total $1,357.8 $ 1,160.6 $ 133.4 $ 342.4
======== ========== ======= =======
1995: Variable Annuities $ (17.6) $ 2.9 $ 26.3 $ 109.1
Fixed Annuities 1,002.7 805.0 29.5 80.3
Life Insurance 171.2 202.0 31.0 68.8
Corporate and Other 137.7 105.6 (4.1) 14.8
-------- ---------- ------- -------
Total $1,294.0 $ 1,115.5 $ 82.7 $ 273.0
======== ========== ======= =======
</TABLE>
- ----------
(1) Unearned premiums and other policy claims and benefits payable are included
in Column C amounts.
(2) Allocations of net investment income and certain operating 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> 3
SCHEDULE IV
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
REINSURANCE
(in millions of dollars)
As of December 31, 1997, 1996 and 1995 and for each of the years then ended
<TABLE>
<CAPTION>
- ----------------------------------------------- --------------- -------------- ------------- ------------- ------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------- --------------- -------------- ------------- ------------- ------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
amount companies companies amount to net
--------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1997:
Life insurance in force $ 52,648.4 $13,678.7 $ 289.7 $ 39,259.4 0.7%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 235.9 $ 32.7 $ 2.2 $ 205.4 1.1%
Accident and health insurance 261.2 272.6 11.4 - N/A
----------- ---------- --------- ----------- -------
Total $ 497.1 $ 305.3 $ 13.6 $ 205.4 6.6%
=========== ========= ========= =========== =======
1996:
Life insurance in force $47,150.6 $11,164.6 $ 288.6 $ 36,274.6 0.8%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 225.6 $ 29.3 $ 2.3 $ 198.6 1.2%
Accident and health insurance 291.9 305.8 13.9 - N/A
----------- --------- -------- ----------- -------
Total $ 517.5 $ 335.1 $ 16.2 $ 198.6 8.2%
=========== ========= ======== =========== =======
1995:
Life Insurance in force $41,087.9 $ 8,935.7 $ 391.2 $ 32,543.4 1.2%
=========== ========= ======== =========== =======
Premiums:
Life insurance $ 221.3 $ 24.4 $ 2.2 $ 199.1 1.1%
Accident and health insurance 298.0 313.0 15.0 - N/A
----------- --------- -------- ----------- -------
Total $ 519.3 $ 337.4 $ 17.2 $ 199.1 8.6%
=========== ========= ======== =========== =======
</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> 4
SCHEDULE V
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in millions of dollars)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Column A Column B Column C Column D Column E
- --------------------------------------------------- ----------------------------------------------- ------------- -------------
Balance at Charged to Charged to Balance at
beginning costs and other Deductions end of
Description of period expenses accounts (1) period
- --------------------------------------------------- -------------------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1997:
Valuation allowances - fixed maturity securities $ - $ 16.2 $ - $ 16.2 $ -
Valuation allowances - mortgage loans on real estate 51.0 (1.2) - 7.3 42.5
Valuation allowances - real estate 15.2 (4.1) - - 11.1
-------- ------ ------- ------- -------
Total $ 66.2 $ 10.9 $ - $ 23.5 $ 53.6
======== ====== ======= ======= =======
1996:
Valuation allowances - mortgage loans on real estate $ 49.1 $ 4.5 $ - $ 2.6 $ 51.0
Valuation allowances - real estate 25.8 (10.6) - - 15.2
-------- ------ ------- ------- -------
Total $ 74.9 $ (6.1) $ - $ 2.6 $ 66.2
======== ====== ======= ======= =======
1995:
Valuation allowances - fixed maturity securities $ - $ 8.9 $ - $ 8.9 $ -
Valuation allowances - mortgage loans on real estate 46.4 7.4 - 4.7 49.1
Valuation allowances - real estate 27.3 (1.5) - - 25.8
-------- ------ ------- ------- -------
Total $ 73.7 $ 14.8 $ - $ 13.6 $ 74.9
======== ====== ======= ======= =======
</TABLE>
- ----------
(1) Amounts represent direct write-downs charged against the valuation
allowance.
See accompanying independent auditors' report.
<PAGE> 76
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company Act of
1940, has caused this Registration Statement to be signed on its behalf in the
City of Columbus, and State of Ohio, on this 13th day of May, 1998.
NATIONWIDE VARIABLE ACCOUNT-9
--------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
--------------------------------------------
(Depositor)
By /s/JOSEPH P. RATH
--------------------------------------------
Joseph P. Rath
Vice President-Office of 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 13th day of
May, 1998.
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- -------------------------
Lewis J. Alphin
A. I. BELL Director
- -------------------------
A. I. Bell
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 and Chief
- ------------------------- Operating Office and Director
Joseph J. Gasper
DIMON R. McFERSON Chairman and Chief Executive Officer
- ------------------------- Nationwide Insurance Enterprise and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and Director
- -------------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- -------------------------
Yvonne L. Montgomery
C. RAY NOECKER Director
- -------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director
- -------------------------
James F. Patterson
ARDEN L. SHISLER Director
- -------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -------------------------
Harold W. Weihl
By /s/JOSEPH P. RATH
-------------------------
Joseph P. Rath
Attorney-in-Fact
118 of 118
<PAGE> 77
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, and if applicable, of the Investment
Company Act of 1940, as amended, various Registration Statements and amendments
thereto for the registration under said Act of Individual Deferred Variable
Annuity Contracts in connection with MFS Variable Account, Nationwide Variable
Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide Variable
Account-9, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B,
Nationwide VA Separate Account-C and Nationwide VA Separate Account-Q; and the
registration of fixed interest rate options subject to a market value adjustment
offered under some or all of the aforementioned individual Variable Annuity
Contracts in connection with Nationwide Multiple Maturity Separate Account and
Nationwide Multiple Maturity Separate Account-A, and the registration of Group
Flexible Fund Retirement Contracts in connection with Nationwide DC Variable
Account, Nationwide DCVA-II, and NACo Variable Account; and the registration of
Group Common Stock Variable Annuity Contracts in connection with Separate
Account No. 1; and the registration of variable life insurance policies in
connection with Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4,
Nationwide VL Separate Account-A and Nationwide VL Separate Account-B,
Nationwide VL Separate Account-C, hereby constitutes and appoints Dimon R.
McFerson, Joseph J. Gasper, W. Sidney Druen, Mark R. Thresher, and Joseph P.
Rath, and each of them with power to act without the others, his/her attorney,
with full power of substitution and resubstitution, for and in his/her name,
place and stead, in any and all capacities, to approve, and sign such
Registration Statements and any and all amendments thereto, with power to affix
the corporate seal of said corporation thereto and to attest said seal and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the U.S. Securities and Exchange Commission, hereby granting
unto said attorneys, and each of them, full power and authority to do and
perform all and every act and thing requisite to all intents and purposes as
he/she might or could do in person, hereby ratifying and confirming that which
said attorneys, or any of them, may lawfully do or cause to be done by virtue
hereof. This instrument may be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 1st day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ Yvonne L. Montgomery
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director Yvonne L. Montgomery, Director
/s/ A. I. Bell /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
A. I. Bell, Director C. Ray Noecker, Director
/s/ Keith W. Eckel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Keith W. Eckel, Director Robert A. Oakley, Executive Vice President - Chief
Financial Officer
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Charles L. Fuellgraf /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Robert L. Stewart, Director
/s/ Joseph J. Gasper /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Nancy C. Thomas, Director
and Director
/s/ Dimon R. McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon R. McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
/s/ David O. Miller
- -------------------------------------------------
David O. Miller, Chairman of the Board, Director
</TABLE>
<PAGE> 78
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE VARIABLE ACCOUNT - 9
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
EXHIBITS TO FORM N-4
SEC FILE NO. ___________________
<PAGE> 1
EXHIBIT NO. 1
BOARD OF DIRECTORS RESOLUTION OF THE DEPOSITOR
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
I, Dennis W. Click, Assistant Secretary of NATIONWIDE LIFE INSURANCE
COMPANY, hereby certify that the following is a true and correct copy of a
resolution duly adopted by the BOARD OF DIRECTORS of NATIONWIDE LIFE INSURANCE
COMPANY, at a meeting duly convened and held on the 22nd day of May, 1977, at
which a quorum was present and acting throughout:
RESOLVED, that the Company, pursuant to the provisions of Ohio Revised
Code Section 3907.15, hereby establishes a separate account, designated
Nationwide Variable Account-9 (hereinafter the Variable Account) for the
following use and purposes, and subject to such conditions as hereafter set
forth:
RESOLVED FURTHER, that the Variable Account shall be established for
the purpose of providing for the issuance of variable annuity contracts
(hereinafter the Contracts), which Contracts provide that part or all of the
annuity benefits and cash value will reflect the investment experience of one
or more designated underlying securities; and
RESOLVED FURTHER, that the fundamental investment policy of the
Variable Account shall be to invest or reinvest the assets of the Variable
Account in securities issued by investment companies registered under the
Investment Company Act of 1940, as may be specified in the respective
Contracts; and
RESOLVED FURTHER, that the proper officers of the Company be, and they
hereby are, authorized to take all action they deem necessary or appropriate to:
(a) register the Variable Account as a unit investment trust under the
Investment Company Act of 1940, as amended; (b) register the Contracts in such
amounts as the officers of the Company shall from time to time deem appropriate
under the Securities Act of 1933 and to prepare and file amendments to such
registration as they may deem necessary or desirable; and (c) take all other
action necessary to comply with: the Investment Company Act of 1940, including
the filing of applications for such exemptions from the Investment Company Act
of 1940 as the officers of the Company shall deem necessary or desirable; the
Securities Exchange Act of 1934; the Securities Act of 1933; and all other
applicable state and federal laws in connection with offering said Contracts for
sale and the operation of the Variable Accounts; and
RESOLVED FURTHER, that the proper officers of the Company, as appointed
by a duly executed Power of Attorney, each of them with full power to act
without the others, hereby are severally authorized and empowered to execute
and cause to be filed with the Securities and Exchange Commission on behalf of
the Variable
<PAGE> 3
Account and by the Company as sponsor and depositor any required Registration
Statement and Notice thereof registering the Variable Account as an investment
company under the Investment Company Act of 1940; and a Registration Statement
under the Securities Act of 1933, registering the Contracts and any and all
amendments to the foregoing on behalf of and as attorneys for the Variable
Account and the Company and on behalf of and as attorneys for the principal
executive officer and/or the principal financial officer and/or the principal
accounting officer and/or any other officer of the Variable Account and the
Company; and
RESOLVED FURTHER, that the proper officers of the Company by, and they
hereby are, authorized on behalf of the Variable Account and on behalf of the
Company to take any and all action which they may deem necessary or advisable in
order to sell the Contracts and, if necessary, to register or qualify Contracts
for offer and sale under the insurance and securities laws of any of the states
of the United States of America and in connection therewith to execute, deliver
and fill all such applications, reports, covenants, resolutions and other papers
and instruments as may be required under such laws, and to take any and all
further action which said officers or counsel of the Company may deem necessary
or desirable in order to maintain such registration or qualification for as long
as said officers or counsel deem it to be in the best interests of the Variable
Account and the Company; and
RESOLVED FURTHER, that the proper officers of the Company be, and they
hereby are, authorized in the name and on behalf of the Variable Account and
the Company to execute and file irrevocable written consents on the part of the
Variable Account and of the Company to be used in such states wherein such
consents to service of process may be requisite under the insurance or
qualification of Contracts and appoint the appropriate state official, or such
other persons as may be allowed by said insurance or securities laws, agent or
the Variable Account and of the Company for the purpose of receiving and
accepting process; and
RESOLVED FURTHER, that the appropriate officers of the Company be, and
they hereby are, authorized to establish procedures under which the Company
will provide sales and administrative functions with respect to the Contracts
issued in connection therewith, including, but not limited to procedures for
providing any voting rights required by the federal securities laws for owners
of such Contracts with respect to securities owned by the Variable Account,
adding additional underlying investment series to the Variable Account, and
permitting conversion or exchange of the Contract values or benefits among the
various series.
<PAGE> 4
I further certify that the foregoing resolution has not been amended,
altered, or repealed and is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and caused the
corporate seal of NATIONWIDE LIFE INSURANCE COMPANY to be hereunto affixed this
29th day of May, 1997.
/s/ Dennis W. Click
------------------------------
Dennis W. Click
Assistant Secretary
(seal)
<PAGE> 1
EXHIBIT NO. 3
UNDERWRITING OR DISTRIBUTION OF CONTRACTS BETWEEN THE REGISTRANT AND
PRINCIPAL UNDERWRITER
<PAGE> 2
MARKETING COORDINATION AND
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement entered into this ____ day of May, 1997, between Nationwide Life
Insurance Company, Nationwide Life and Annuity Insurance Company (collectively
"Nationwide"), and Nationwide Advisory Services, Inc. ("NAS") and restates and
confirms all earlier agreements between the parties concerning marketing
coordination and administrative services.
Nationwide proposes to develop, issue and administer, and NAS proposes to
provide the exclusive national distribution services for variable annuity
contracts and variable life insurance policies (the "Products").
The parties hereby agree as follows:
A. ADMINISTRATION OF PRODUCTS
--------------------------
1. Appointment of Product Administration
-------------------------------------
Nationwide is hereby appointed Product Administrator for the Products.
2. Duties of Nationwide
--------------------
Nationwide shall perform in a proper and timely manner, those
functions enumerated in the column marked "Nationwide" in the
"Analysis of Administrative Functions," attached hereto as EXHIBIT A,
and incorporated herein by reference.
3. Duties of NAS
-------------
NAS shall perform in a proper and timely manner, those functions
enumerated in the column marked "NAS" in the "Analysis of
Administrative Functions," attached hereto as EXHIBIT A, and
incorporated herein by reference.
B. MARKETING COORDINATION AND SALES ADMINISTRATION
-----------------------------------------------
1. Distribution of Products
------------------------
The Products will be distributed through registered representatives of
NASD broker-dealer firms, appointed by Nationwide, who shall be duly
qualified and licensed as agents (the "Agents"), in accordance with
applicable state insurance authority.
2. NAS shall be the exclusive National Distributor of the Products.
<PAGE> 3
3. Appointment and Termination of Agents
-------------------------------------
Appointment and termination of Agents shall be processed and executed
by Nationwide. NAS reserves the right to require Nationwide to consult
with it regarding licensing decisions.
4. Advertising
-----------
NAS shall not print, publish or distribute any advertisement, circular
or document relating to the Products or relating to Nationwide unless
such advertisement, circular or document has been approved in writing
by Nationwide. Such approval shall not be unreasonably withheld, and
shall be given promptly, normally within three (3) business days.
Neither Nationwide nor any of its affiliates shall print, publish or
distribute any advertisement, circular or document relating to the
Products or relating to NAS unless such advertisement, circular or
document has been approved in writing by NAS. Such approval shall not
be unreasonably withheld, and shall be given promptly, normally within
three (3) business days. However, nothing herein shall prohibit any
person from advertising the Products on a generic basis.
5. Marketing Conduct
-----------------
The parties will jointly develop standards, practices and procedures
respecting the marketing of the Products. Such standards, practices
and procedures are intended to help Nationwide meet its obligations as
an issuer under the securities laws, to assure compliance with state
insurance laws, and to help NAS meet its obligations under the
securities laws as National Distributor. These standards, practices
and procedures are subject to continuing review and neither Nationwide
nor NAS shall object unreasonably to changes to such standards,
practices and procedures recommended by the other to comply with the
intent of this provision.
6. Sales Material and Other Documents
----------------------------------
a. Sales Material
--------------
1) Nationwide shall develop and prepare all promotional
material to be used in the distribution of the Products,
in consultation with NAS.
2) Nationwide is responsible for the printing and the expense
of providing such promotional material.
3) Nationwide is responsible for approval of such promotional
material by state insurance regulators, where required.
4) NAS and Nationwide agree to abide by the Advertising and
Sales Promotion Material Guidelines, attached hereto as
EXHIBIT B, and incorporated herein by reference.
<PAGE> 4
b. Prospectuses
------------
1) Nationwide is responsible for the preparation and regulatory
clearance of any required registration statements and
prospectuses for the Products. NAS is responsible for the
preparation and regulatory clearance of any underlying
mutual fund registration statements and prospectuses.
2) Nationwide is responsible for the printing of Product
prospectuses in such quantities as the parties agree are
necessary to assure sufficient supplies.
3) Nationwide will bear the cost of providing the required
supply of mutual fund prospectuses.
4) Nationwide is responsible for supplying Agents with
sufficient quantities of Product prospectuses.
c. Contracts, Applications and Related Forms
-----------------------------------------
1) Nationwide, in consultation with NAS, is responsible for
the design and printing of adequate supplies of Product
applications, contracts, related forms, and such service
forms as the parties agree are necessary.
2) Nationwide is responsible for supplying adequate quantities
of all such forms to the Agents.
7. Appointment of Agents
---------------------
a. NAS shall assist Nationwide in facilitating the appointment of
Agents by Nationwide.
b. Nationwide shall forward all appointment forms and applications
to the appropriate states and maintain all contacts with the
states.
c. Nationwide shall maintain appointment files on Agents, and NAS
shall have access to such files as needed.
8. Licensing and Appointment Guide
-------------------------------
Nationwide shall provide to NAS a Licensing and Appointment Guide (as
well periodic updates thereto), setting forth the requirements for
licensing and appointment, in such quantities as NAS may reasonably
require.
<PAGE> 5
9. Other
-----
a. Product Training
----------------
Nationwide is responsible for any Product training for the
Agents.
b. Field Sales Material
--------------------
1) Nationwide, in consultation with NAS, is responsible for the
development, printing and distribution of non-public field
sales material to be used by Agents.
2) NAS shall have the right to review all field sales materials
and to require any modification mandated by regulatory
requirements.
c. Production Reports
------------------
Nationwide shall deliver to NAS the items listed in Production
Reports to be Provided, attached hereto as EXHIBIT C, and
incorporated herein by reference.
d. Customer Service
----------------
Each party will notify the other of all material pertinent
inquiries and complaints it receives, from whatever source and
to whomever directed, and will consult with the other in
responding to such inquiries and complaints.
10. Auditing
--------
NAS shall maintain all records relating to the mutual funds or other
investment options in accordance with generally accepted accounting
procedures. Any such records shall be made available to Nationwide or
its accountants or auditors upon reasonable written request.
Nationwide shall provide NAS with any records, reports or other
materials relative to the distribution of the Products as may
reasonably be required by NAS or as may be required by any
governmental agency having jurisdiction.
C. GENERAL PROVISIONS
------------------
1. Waiver
------
The forbearance or neglect or either party to insist upon strict
compliance by the other with any of the provisions of this Agreement,
whether continuing or not, or to declare a forfeiture of termination
against the other, shall not be construed as a waiver of any rights or
privileges of the forbearing party in the event of a further default
or failure of performance.
<PAGE> 6
2. Limitations
-----------
Neither party shall have authority on behalf of the other to: make,
alter or discharge any contractual terms of the Products; waive any
forfeiture; extend the time of making any contributions to the
products; guarantee dividends; alter the forms which either may
prescribe; nor substitute other forms in place of those prescribed by
the other.
3. Binding Effect
--------------
This Agreement shall be binding on and shall inure to the benefit of
the parties to it and their respective successors and assigns,
provided that neither party shall assign or sub-contract this
Agreement or any rights or obligations hereunder without prior written
consent of the other.
4. Indemnification
---------------
Each party ("Indemnifying Party") hereby agrees to release, indemnify
and hold harmless the other party, its offices, directors, employers,
agents, servants, predecessors or successors from any claims or
liability arising out of the acts or omissions of the Indemnifying
Party not authorized by this Agreement, including the violation of any
federal or state law or regulation.
5. Notices
-------
All notices, requests, demands and other communication under this
Agreement shall be in writing and shall be deemed to have been given
on the date of service if served personally on the party to whom
notice is to be given, or on the date of mailing if sent postage
prepaid by First Class Mail, Registered or Certified mail, by
overnight mail, properly addressed as follows:
TO NATIONWIDE:
Nationwide Life Insurance Company
Richard A. Karas, Senior Vice President-Sales-Financial Services
One Nationwide Plaza
Columbus, Ohio 43216
TO NAS:
Nationwide Advisory Services, Inc.
Joseph P. Rath, Vice President-Compliance
One Nationwide Plaza
Columbus, Ohio 43216
<PAGE> 7
6. Governing Law
-------------
This Agreement shall be construed in accordance with and governed by
the laws of the State of Ohio.
7. Arbitration
-----------
The parties agree that misunderstandings or disputes arising from this
Agreement shall be decided by arbitration, conducted upon request of
either party before three arbitrators (unless the parties agree on a
single arbitrator) designated by the American Arbitration Association,
and in accordance with the rules of such Association. The expenses of
the arbitration proceedings conducted hereunder shall be borne equally
by both parties.
8. Confidentiality
---------------
Any information, documents and materials, whether printed or oral,
furnished by either party or its agents or employees to the other
shall be held in confidence. No such information shall be given to any
third party, other than to such sub-contractors of NAS as may be
permitted herein, or under requirements of a lawful authority, without
the express written consent of the other party.
D. TERM OF AGREEMENT
-----------------
This Agreement, including the Exhibits attached hereto, shall remain in
full force and effect until terminated, and may be amended only by mutual
agreement of the parties in writing. Any decision by either party to cease
issuance or distribution of any specific Product shall not effect a
termination of the Agreement unless such termination is mutually agreed
upon, or unless notice is given pursuant to Section E.2. hereof.
E. TERMINATION
-----------
1. Either party may terminate this Agreement for cause at any time,
upon written notice to the other, if the other knowingly and
willfully: (a) fails to comply with the laws or regulations of any
state or governmental agency or body having jurisdiction over the sale
of insurance or securities; (b) misappropriates any money or property
belonging to the other; (c) subjects the other to any actual or
potential liability due to misfeasance, malfeasance, or nonfeasance;
(d) commits any fraud upon the other; (e) has an assignment for the
benefit of creditors; (f) incurs bankruptcy; or (g) commits a material
breach of this Agreement.
2. Either party may terminate this Agreement, without regard to cause,
upon six months prior written notice to the other.
3. In the event of termination of this Agreement, the following
conditions shall apply:
<PAGE> 8
a) The parties irrevocably acknowledge the continuing right
to use any Product trademark that might then be associated
with any Products, but only with respect to all business in
force at the time of termination.
b) NAS shall continue to sell to Nationwide at net asset value,
shares of all mutual funds which serve as underlying
investments for Products actually issued by Nationwide
pursuant to this Agreement, until such time as mutually
agreed upon by the parties. NAS may discontinue the sale at
net asset value of such shares in connection with the
issuance by Nationwide of new products after termination.
c) In the event this Agreement is terminated the parties will
use their best efforts to preserve in force the business
issued pursuant to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first written above.
NATIONWIDE LIFE INSURANCE COMPANY
By /s/ RICHARD A. KARAS
-------------------------
Title Senior Vice President
NATIONWIDE LIFE AND ANNUITY
INSURANCE COMPANY
By /s/ RICHARD A. KARAS
-------------------------
Title Senior Vice President
NATIONWIDE ADVISORY SERVICES, INC.
By /s/ JOSEPH P. RATH
-------------------------
Title Vice President
<PAGE> 9
EXHIBIT A
ANALYSIS OF ADMINISTRATIVE FUNCTIONS
A. PRODUCT UNDERWRITING/ISSUE
<TABLE>
<CAPTION>
NATIONWIDE NAS
<S> <C> <C> <C>
- - Establishes underwriting criteria for - Consults with regard to new business
application processing and rejections. procedures and processing.
- - Reviews the completed application.
Applies underwriting/issue criteria to
application.
- - Notifies Agent and/or customer of any
error or missing data necessary to
underwrite application and establish
records for owner of Product
("Contract Owner").
- - Prepares policy data page for approved
business and mails with policy to
Contract Owner.
- - Establishes and maintains all records
required for each Contract Owner, as
applicable.
- - Prepares and mails confirmation and
other statements to Contract Owners
and Agents, as required.
- - Prints, provides all forms ancillary to
issue of contract/policy forms for
Products.
- - Maintains supply of approved
specimen policy forms and all ancillary
forms, distributes same to Agents.
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
B. BILLING AND COLLECTION
NATIONWIDE
<S> <C>
- - Receives premium/purchase payments
and reconciles amount received with
remittance media.
- - Updates Contract Owner records to
reflect receipt of premium/purchase
payment and performs accounting/
investment allocation of each payment
received.
- - Deposits all cash received under the
Products in accordance with the terms
of the Products.
C. BANKING
NATIONWIDE
- - Balances, edits, endorses and prepares
daily deposit.
- - Places deposits in depository account.
- - Transfers funds form depository
account to NAS within 24 hours
following underwriting approval, in
accordance with investment allocation.
- - Prepares daily cash journal summary
reports and maintains same for review
by NAS.
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
D. PRICING/VALUATION/ACCOUNTING
NATIONWIDE NAS
<S> <C> <C> <C>
- - Determines the "Net Amount Available for - Issues Fund Shares to Nationwide at
Investment" in Fund Shares and places Fund net asset Value.
Share purchase or redemption orders with
the Fund, by facsimile each day by 10:00 - Confirms Nationwide's Fund
a.m. E.T. If for any reason Nationwide is purchases and redemptions.
unable to process such orders, it will
provide NAS with estimates. - Transmit by facsimile Fund Share
prices to Nationwide by 6:00 p.m.
- - Maintains and makes available, as reasonably EST each day.
requested, records used in determining "Net
Amount Available for Investment." - Maintains records of all Fund Shares
owned by Nationwide, including the
- - Collects information needed in determining date purchased and sold, cost, and
Variable Account unit values from the Funds other information maintained by NAS
including daily net asset value, capital in its ordinary course of business.
gains or dividend distributions, and the
number of Fund Shares acquired or sold during - Cooperates in annual audit of
the immediately preceding valuation period. separate account financials conducted
for purposes of financial statement
- - Performs daily unit valuation calculation. certification and publication.
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
E. CONTRACT OWNER SERVICE/
RECORD MAINTENANCE
NATIONWIDE NAS
<S> <C> <C> <C>
- - Receives and processes all Contract - Accommodates customer service function
Owner service requests, including but not by providing any supporting information
limited to informational requests, or documentation which may be in the
beneficiary changes, and transfers of control of NAS.
Contract Value among eligible
investment options.
- - Maintains daily records of all changes
made to Contract Owner accounts.
- - Researches and responds to all Contract - Researches and responds to Nationwide's
Owner/Agent inquiries. inquiries regarding fund performance.
- - Keeps all required Contract Owner
records.
- - Maintains adequate number of toll free
lines to service Contract Owner/Agent
inquiries.
F. DISBURSEMENTS
(SURRENDERS, DEATH
CLAIMS, LOANS)
NATIONWIDE NAS
- - Receives and processes surrenders, loans,
and death claims in accordance with
established guidelines.
- - Prepares checks for surrenders, loans,
and death claims, and forwards to
contract Owner or Beneficiary. Prepares
and mails confirmation statement of
disbursement to Contract Owner/
Beneficiary with copy to Agent.
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
G. COMMISSIONS
NATIONWIDE NAS
<S> <C> <C> <C>
- - Ascertains, on receipt of applications,
whether writing Agent is appropriately
licensed.
- - Pays commissions and other fees in
accordance with agreements relating to
same.
H. PROXY PROCESSING
NATIONWIDE NAS
- - Receives record date information from - Provides proxy, solicitation materials, and
Funds Receives proxy solicitation record date information.
materials from Funds.
- - Prepares Voting Instruction cards and
mails solicitation, if necessary.
- - Tabulates and votes all Fund Shares in
accordance with SEC requirements.
I. PERIODIC REPORTS TO CONTRACT OWNERS
NATIONWIDE NAS
- - Prepares and mails quarterly and annual
Statements of Account to Contract
Owners.
- - Prepares and mails all semi-annual and - Prepares and mails to Nationwide all
annual reports of Variable Account(s) to required semi-annual and annual financial
Contract Owners. reports to shareholder of the Funds.
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
J. REGULATORY/STATEMENT REPORTS
NATIONWIDE NAS
<S> <C> <C> <C>
- - Prepares and files Separate Account
Annual Statements.
- - Prepares and mails the appropriate,
required IRS reports at the Contract
Owner level. Files same with required
regulatory agencies.
- - Prepares and files form N-SAR for the - Prepares and files form N-SAR for the
Separate Account. Funds.
K. PREMIUM TAXES
NATIONWIDE NAS
- - Collects, pays and accounts for premium
taxes as appropriate.
- - Prepares and maintains all premium tax
records by state.
- - Maintains liabilities in General Account
ledger for accrual of premium tax
collected.
- - Integrates all company premium taxes
due and performs related accounting.
L. FINANCIAL AND MANAGEMENT REPORTS
NATIONWIDE NAS
- - Provides periodic reports in accordance - Provides periodic reports in accordance
with the Schedule of Reports to be with the Schedule of Reports to be
prepared jointly by Nationwide and NAS. prepared jointly by Nationwide and NAS.
(See EXHIBIT C) (See EXHIBIT C)
M. AGENT LICENSE RECORDKEEPING
NATIONWIDE NAS
- - Receives, establishes, processes, and - Cooperates with Nationwide in the Agent
maintains Agent appointment records. appointment process with the broker-
dealer firms.
</TABLE>
<PAGE> 15
EXHIBIT B
ADVERTISING AND SALES PROMOTION MATERIAL GUIDELINES
FOR APPROVAL BY THE OFFICE OF SALES-FINANCIAL SERVICES
In order to assure compliance with state and federal regulatory requirements and
to maintain control over the distribution of promotional materials dealing with
the Products, Nationwide and NAS require that all variable contract promotional
materials be reviewed and approved by both Nationwide and NAS prior to their
use. These guidelines are intended to provide appropriate regulatory and
distribution controls.
1. Sufficient lead time must be allowed in the submission of all promotional
material. The Office of Sales-Financial Services ("OS-FS") and NAS shall
approve in writing all promotional material. Such approval shall not be
unreasonably withheld, and shall be given promptly, normally within three
(3) days.
2. All promotional material will be submitted in "draft" form to permit any
changes or corrections to be made prior to the printing.
3. Nationwide and NAS will provide each other with details as to each and every
use of all promotional material submitted. Approval for one use will not
constitute approval for any other use. Different standards of review may
apply when the same advertising material is intended for different uses. The
following information will be provided for each item of promotional
material:
a. In what jurisdiction(s) the material will be used.
b. Whether distribution will be used (e.g., brochure, mailing,
482 ads, etc.).
c. How the material will be used (e.g., brochure, mailing, 482 ads, etc.)
d. The projected date of initial use and, if a special promotion, the
projected date of last use.
4. Each party will advise the other of the date it discontinues the use of any
material.
5. Any changes to previously approved promotional material must be resubmitted,
following these procedures. When approved material is to be put to a
different use, request for approval of the material for the new use must be
submitted.
6. OS-FS and NAS will assign a form number to each item of advertising and
sales promotional material. This number will appear on each piece of
advertising and sales promotional material. It will be used to aid in
necessary filings, and to maintain appropriate controls.
7. OS-FS and NAS will provide written approval for all material to be used.
8. Nationwide and NAS will provide each other with a minimum of 50 copies of
all material in final print form to effect necessary state filings.
9. NAS will coordinate SEC/NASD filings of sales and promotional material.
10. All communication regarding promotional materials should be directed to
Marketing Director, Office of Sales-Financial Services, Nationwide Life
Insurance Company, One Nationwide Plaza, Columbus, Ohio 43216 (phone
(614)249-6258) or to President, Nationwide Advisory Services, Inc. Three
Nationwide Plaza, Columbus, Ohio (phone (614)249-5947).
<PAGE> 16
EXHIBIT C
PRODUCTION REPORTS TO BE PROVIDED
Nationwide agrees to provide the following reports to NAS:
1. Daily Receipt Report: Indicates which Agents are generating sales.
2. Daily Approval Report: Indicates which applications have been approved.
3. Daily Activity Summary: Indicates top firms' sales and liquidation by
month, year-to-date as well as total assets
by firm.
4. Dealer Activity Indicates top firms' sales and liquidation by
Summary by Territory: month, year-to-date.
5. Summary of Sales by Indicates sales by territory/dealer branch,
Territory and Dealer: including non-commissionable amounts and
actual commission payments, as well as
chargebacks. (Internal use only)
6. Summary of Sales by Indicates sales by territory/dealer/branch,
Territory and Dealer: including chargebacks.
7. Commission Report: Indicates commissions paid and chargebacks,
matched to commission checks.
In addition, Nationwide shall provide reports detailing current appointments
and other information, as reasonably requested by NAS.
<PAGE> 1
EXHIBIT NO. 4
THE VARIABLE ANNUITY CONTRACT FORM
<PAGE> 2
[NATIONWIDE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
(Hereinafter called the Company)
One Nationwide Plaza
PO Box 16609
Columbus, Ohio 43216-6609
1-(800)-848-6331 (For any inquiries)
NATIONWIDE LIFE INSURANCE COMPANY will make annuity payments to the Annuitant
starting on the Annuitization Date, as set forth in the Contract.
This Contract is provided in return for the Purchase Payments made as required
in the Contract.
TEN DAY LOOK
To be sure that the Contract Owner is satisfied with this Contract, the Contract
Owner has a TEN DAY "FREE LOOK". Within ten days of the day the Contract is
received by the Contract Owner, it may be returned to the Home Office of the
Company. When the Contract is received at the Home Office, the Contract Value as
of the date of cancellation will be refunded in full.
Executed for the Company on the Date of Issue.
/s/ signature illegible /s/ signature illegible
- ---------------------------- ---------------------------
SECRETARY PRESIDENT
READ YOUR CONTRACT CAREFULLY
Individual Deferred Variable Annuity, Non-Participating
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
Contract may be found on Pages - 8, 10, 11 and 19
<PAGE> 3
CONTENTS
DATA PAGE...........................................................INSERT
CONTENTS...............................................................2
DEFINITIONS............................................................4
GENERAL PROVISIONS.....................................................7
ENTIRE CONTRACT
NON-PARTICIPATING
INCONTESTABILITY
CONTRACT SETTLEMENT
EVIDENCE OF SURVIVAL
ALTERATION OR MODIFICATION
ASSIGNMENT
PROTECTION OF PROCEEDS
MISSTATEMENT OF AGE
REPORTS
NUMBER
DEDUCTIONS AND CHARGES.................................................8
DEDUCTION FOR PREMIUM TAXES
VARIABLE ACCOUNT CHARGE
OWNERSHIP PROVISIONS...................................................8
CONTRACT OWNERSHIP
JOINT OWNERSHIP
CONTINGENT OWNERSHIP
ANNUITANT
CONTINGENT ANNUITANT
BENEFICIARY
CHANGE OF PARTIES NAMED IN THE CONTRACT
ACCUMULATION PROVISIONS...............................................10
PURCHASE PAYMENTS
ALLOCATION OF PURCHASE PAYMENTS
VARIABLE ACCOUNT PROVISIONS
INVESTMENTS OF THE VARIABLE ACCOUNT
VALUATION OF ASSETS
VARIABLE ACCOUNT ACCUMULATION UNIT VALUE
SUBSTITUTION OF FUND SHARES
NET INVESTMENT FACTOR
GUARANTEED TERM OPTIONS (GTOS)
MARKET VALUE ADJUSTMENT
2
<PAGE> 4
CONTENTS (CONT)
SURRENDERS, WITHDRAWALS and TRANSFERS..................................14
SURRENDERS
SURRENDER VALUE
SYSTEMATIC WITHDRAWALS
TRANSFER PROVISIONS
SUSPENSION OR POSTPONEMENT IN PAYMENT OF SURRENDER
DEATH PROVISIONS.......................................................15
DEATH OF CONTRACT OWNER
DEATH OF CONTRACT OWNER/ANNUITANT
DEATH OF ANNUITANT
DEATH BENEFIT PAYMENT
ELECTION OF DEATH BENEFIT OPTION
REQUIRED DISTRIBUTIONS
ANNUITIZATION PROVISIONS...............................................18
ANNUITY COMMENCEMENT DATE
CHANGE OF ANNUITY COMMENCEMENT DATE AND ANNUITY PAYMENT OPTION
ANNUITIZATION
FIXED ANNUITY PAYMENT - FIRST AND SUBSEQUENT PAYMENTS
VARIABLE ANNUITY PAYMENT- FIRST PAYMENT
VARIABLE ANNUITY PAYMENTS AFTER THE FIRST PAYMENT
ANNUITY UNIT VALUE
FREQUENCY AND AMOUNTS OF PAYMENTS
ANNUITY PAYMENT OPTIONS................................................20
SELECTION OF ANNUITY PAYMENT OPTION
LIFE ANNUITY
JOINT AND SURVIVOR ANNUITY
LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
ANY OTHER OPTION
SUPPLEMENTARY AGREEMENT
ANNUITY TABLES.........................................................21
3
<PAGE> 5
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.
ANNIVERSARY VALUE - The Contract Value on a Contract Anniversary.
ANNUITANT - The person upon whose continuation of life any annuity payment
involving life contingencies depends.
ANNUITIZATION - The period during which annuity payments are received.
ANNUITIZATION DATE - The date annuity payments actually commence.
ANNUITY COMMENCEMENT DATE - The date, shown on the Data Page of the Contract, on
which annuity payments are scheduled to commence.
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.
CHARITABLE REMAINDER TRUST (CRT) - A charitable remainder annuity trust or a
charitable remainder unitrust as those terms are defined in Section 664 of the
Code.
CODE - The Internal Revenue Code of 1986, as amended.
COMPANY - Nationwide Life Insurance Company.
CONSTANT MATURITY TREASURY RATES (CMT RATES) OR CMT RATES(S) - Interest rate
quotations for 1, 2, 3, 5, 7 and 10 years 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.
CONTINGENT ANNUITANT - The Contingent Annuitant may be the recipient of certain
rights or benefits under the Contract when the Annuitant dies before the
Annuitization Date.
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 - A Contingent Owner succeeds to the rights of the Contract
Owner upon the Contract Owner's death before Annuitization.
CONTRACT - The Individual Deferred Variable Annuity issued to the Contract
Owner.
CONTRACT ANNIVERSARY - Each 12 month anniversary the Contract remains in force
commencing with the Date of Issue.
CONTRACT OWNER (OWNER)(S) - The person who possesses all rights under the
Contract, including the right to designate and change parties named in the
Contract, Annuity Payment Option, and the Annuity Commencement Date.
CONTRACT VALUE - The sum of the value of all Variable Account Accumulation Units
attributable to the Contract, plus the value of amounts allocated to any GTO
option.
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CONTRACT YEAR - Each calendar year the Contract remains in force commencing with
the Date of Issue.
DATE OF ISSUE - The date the first purchase payment is applied to the Contract.
DEATH BENEFIT - The benefit payable upon the death of the Annuitant or
Contingent Annuitant, if applicable. If the Annuitant dies after the
Annuitization Date, any benefit that may be payable shall be as specified in the
Annuity Payment Option elected.
DISTRIBUTION - Any payment of part or all of the Contract Value.
ERISA - The Employee Retirement Income Security Act of 1974, as amended.
FIXED ANNUITY PAYMENT - 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).
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.
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 main office of the Company located in Columbus, Ohio.
INDIVIDUAL RETIREMENT ANNUITY (IRA) - An annuity which qualifies for favorable
tax treatment under Section 408 of the Internal Revenue Code which is
established for the exclusive benefit of the Owner or the Owner's beneficiaries.
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.
JOINT OWNER - The Joint Owner, if any, possesses an undivided interest in the
entire Contract in conjunction with the Contract Owner.
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..
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 an MVA.
MVA FORMULA - The MVA Formula is utilized when a distribution is made from a GTO
during the Guaranteed Term which is subject to an MVA.
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.
MINIMUM DISTRIBUTION - The amount that is required to be withdrawn from
Qualified Plans, Tax Sheltered Annuities and IRAs to meet distribution
requirements established by the Code.
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.
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NON-QUALIFIED CONTRACT - A Contract which does not qualify for favorable tax
treatment under the provisions of Sections 401 and 403(a) (Qualified Plans), 408
(Individual Retirement Annuities) or 403(b) (Tax Sheltered Annuities) of the
Code.
PURCHASE PAYMENT - A deposit of new value into the contract. The term "Purchase
Payment" does not include transfers among the Sub-Accounts or to or from a GTO.
QUALIFIED PLAN (S) - A retirement plan which receives favorable tax treatment
under the provisions of the Code, including those described in Sections 401 and
403(a) of the Code.
ROTH IRA - An individual retirement annuity meeting the requirements of Code
Section 408A.
SEP IRA - A retirement plan which receives favorable tax treatment under the
provisions of Section 408(k) of the Code.
SPECIFIED INTEREST RATE - The interest rate guaranteed to be credited to amounts
allocated to a selected GTO so long as such allocations are not distributed for
any reason prior to the GTO Maturity Date.
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.
TAX SHELTERED ANNUITY - An annuity which qualifies for treatment under Code
Section 403(b).
UNDERLYING MUTUAL FUND (FUND) - A registered management investment company in
which the assets of the Sub-Accounts of the Variable Account will be invested.
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.
VARIABLE ANNUITY PAYMENT - 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
ENTIRE CONTRACT
This Contract, the data page and endorsement(s) (if any), make up the entire
Contract.
NON-PARTICIPATING
This Contract is non-participating. It will not share in the surplus of the
Company.
INCONTESTABILITY
This Contract, endorsements, riders and attachments will not be contested.
CONTRACT SETTLEMENT
The Company may require that this Contract be returned to the Home Office prior
to making any payments. All sums payable to or by the Company under this
Contract are payable at the Home Office.
EVIDENCE OF SURVIVAL
Where any payments under this Contract 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 to the terms of the Contract must be made in writing and 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.
Provisions of the Contract may be modified as required by a Qualified Plan or
applicable laws. When required, other changes to the Contract will be made only
with the mutual agreement of the Company and the Contract Owner.
A copy of the amendment will be furnished to the Contract Owner.
ASSIGNMENT
All rights in this Contract are personal to the Contract Owner. Contracts issued
to fund a retirement plan pursuant to Code Sections 401, 403, 408 or 408A may
not be assigned, pledged, transferred, discounted or sold for the performance of
any obligation to any person other than the Contract Owner or other person
exercising ownership rights under the plan unless otherwise permitted by law.
Where permitted, with written consent of the company, the Contract Owner may
assign some or all rights under this Contract. The assignment must be made in
writing and executed by the Contract Owner during the lifetime of the Annuitant
and prior to the Annuitization Date. The assignment will take effect on the date
that it is recorded by the Company at its Home Office. The assignment will not
be recorded until the Company has received sufficient direction from the
Contract Owner and the assignee as to the proper allocation of the Contract
rights under the assignment.
The Company is not responsible for the validity or tax consequences of any
assignment or for any payment or other settlement made prior to the Company's
recording of the assignment.
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PROTECTION OF PROCEEDS
Proceeds under this Contract are not assignable by any Beneficiary prior to the
time such proceeds become payable. Proceeds are not subject to the claims of
creditors or to legal process, except as mandated by applicable law.
MISSTATEMENT OF AGE
If the age of the Annuitant has been misstated, all payments and benefits under
this Contract will be adjusted. Payments and benefits will be made based on the
correct age. Proof of age of an Annuitant may be required at any time, in a form
satisfactory to the Company. When the age of an Annuitant has been misstated,
the dollar amount of any overpayment will be deducted from the next payment or
payments due under this Contract. 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 this Contract. Where required by state law, any
adjustment on underpayment will include interest.
REPORTS
Prior to the Annuitization Date, a report showing the Contract Value will be
provided to the Contract Owner at least once each year.
NUMBER
Unless otherwise provided, all references in this Contract which are in the
singular form will include the plural; all references in the plural form will
include the singular.
DEDUCTIONS AND CHARGES
DEDUCTION FOR PREMIUM TAXES
The Company will charge against the Contract 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 state
law. The Company currently deducts such charges from the Contract Value: (1)
when the Contract is surrendered; (2) at the Annuitization Date; or (3) at such
earlier date as the Company may be subject to such taxes.
VARIABLE ACCOUNT CHARGES
The Variable Account charges apply to allocations made to the Sub-Accounts. The
Company deducts charges from the Variable Account equal to an annual rate of
[1.30%] of the daily net assets of the Variable Account. The Variable Account
charges compensate the Company for administrative expenses incurred relating to
the issuance and maintenance of the Contracts and for mortality risks assumed in
connection with the Death Benefit and annuity features of the Contracts.
OWNERSHIP PROVISIONS
CONTRACT OWNERSHIP
Unless otherwise provided, the Contract Owner has all rights under the Contract.
IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF AS CONTRACT OWNER, THE
PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT.
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JOINT OWNERSHIP
Where such restriction is permitted by state law, Joint Owners must be spouses
at the time joint ownership is requested. 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 parties to
the Contract, the Payment Option or the Annuitization Date) shall require a
written request signed by both Contract Owners.
Joint Owners may be selected only for Contracts issued as Non-Qualified and may
not be selected when the Contract Owner is a CRT.
CONTINGENT OWNERSHIP
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, then the Contingent Owner will 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.
A Contingent Owner may be named only for Non-Qualified Contracts and may not be
selected when the Contract Owner is a CRT.
ANNUITANT
The Annuitant is the person who will receive annuity payments upon
Annuitization, unless the Contract is owned by a CRT. If the Contract is owned
by a CRT, the payments made during Annuitization will be paid to the CRT.
For Contracts that are issued as IRA's, the Contract Owner must be the
Annuitant, and the entire interest of the Annuitant in the Contract is
non-forfeitable.
CONTINGENT ANNUITANT
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 be named only for Non-Qualified Contracts and may not
be selected when the Contract Owner is a CRT.
BENEFICIARY
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 Beneficiary survives the Annuitant, all rights and
interests of the Contingent Beneficiary will vest with the Contract Owner or the
estate of the last surviving Contract Owner.
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If the Contract Owner is a CRT, upon the death of the Annuitant, all interest in
the Death Benefit proceeds will accrue to the CRT. Any designation which creates
a conflict with the CRT's right to such interest shall be void and of no effort.
CHANGE OF PARTIES NAMES IN THE CONTRACT
Prior to the Annuitization Date, and subject to any existing assignments, the
Contract Owner may request a change in the Annuitant, Contingent Annuitant,
Contract Owner, Joint Owner, Contingent Owner, Beneficiary, or Contingent
Beneficiary. Such 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 Contract Owner or Annuitant are living at the time of record, but
without further liability as to any payment or settlement made by the Company
before receipt of such change.
Any request for change of Contract Owner must be made in writing, may require a
signature guarantee and must be signed by the Contract Owner and the person
designated as the new Contract Owner.
Any change to the Annuitant or Contingent Annuitant is subject to underwriting
and approval by the Company. Notwithstanding any provisions in this Contract, if
the Contract Owner is not a natural person, the change of the Annuitant will be
treated as the death of the Contract Owner and will result in a distribution,
regardless of whether a Contingent Annuitant is also named. Distributions will
be made as if the Contract Owner died at the date of such change.
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
The Contract is bought 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 consent of the Company.
The initial Purchase Payment is due on the Date of Issue and may not be less
than [$15,000.] Purchase Payments, if any, after the initial Purchase Payment
must be a least [$1,000] and may be made at any time.
When this contract is issued, for investment purposes only, to Qualified
Pension, Profit-sharing, or Stock Bonus Plans as defined by Section 401(a) of
the Code, the initial Purchase Payment must be at least [$100,000], and
subsequent Purchase Payments, if any, at least [$15,000].
If no considerations have been received under this Contract for a period of two
full years and the paid-up annuity benefit at maturity would be less than [$50]
monthly, the Company may, at its option, terminate the Contract by payment of
the accumulated value and will, by such payment, be relieved of any further
obligation under the Contract.
ALLOCATION OF PURCHASE PAYMENTS
The Contract Owner elects to have Purchase Payments allocated among the
Sub-Accounts of the Variable Account, and GTOs under the Multiple Maturity
Account at the time of application. The allocation of future Purchase Payments
may be changed by the Contract Owner by a proper submission that is received and
recorded by the Company.
VARIABLE ACCOUNT PROVISIONS
The Variable Account Contract Value is the sum of the value of all Variable
Account Accumulation Units under this Contract.
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If: (1) part or all of the Variable Account is surrendered; or (2) charges or
deductions are made against the Variable Account, then an appropriate number of
Accumulation Units will be surrendered to equal such amount.
The Company has allocated a part of its assets for this Contract and certain
other contracts to the Variable Account. Such assets of the Variable Account
remain the property of the Company. 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
Underlying Mutual Funds. Purchase Payments are allocated among one or more of
these Sub-Accounts, as designated by the Contact Owner and are subject to the
terms and conditions of the Underlying Mutual Funds.
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 designated Sub-Accounts.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
net asset value.
VARIABLE ACCOUNT ACCUMULATION UNIT VALUE
The number of Accumulation Units for each Sub-Account is found by dividing the
net amount allocated to the Sub-Account by the Accumulation Unit value for the
Sub-Account for the Valuation Period during which the Company received the
Purchase Payment.
The value of an Accumulation Unit for each Sub-Account of the Variable Account
was arbitrarily set at $10 when the first Underlying Mutual Fund shares were
available for purchase. The value for any later valuation period is found as
follows:
The Accumulation Unit Value for any Valuation Period is determined by
multiplying the Accumulation Unit value for each Sub-Account for the last prior
Valuation Period by the net investment factor for the Sub-Account for the next
following Valuation Period. 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.
SUBSTITUTION OF FUND SHARES
If the shares of an Underlying Mutual Fund should no longer be available for
investment by the Separate Account or if in the judgment of the Company's
management further investment in such Underlying Mutual Fund's shares should be
inappropriate in view of the purposes of the Contract, the Company may
substitute shares of another Underlying Mutual Fund for Underlying Mutual Fund
shares already purchased or to be purchased in the future by a purchase payment
under the Contract.
In the event of such a substitution or change, the Company may, by appropriate
endorsement, make such changes to this and other contracts of this class as may
be necessary to reflect such substitutions or changes. Nothing contained herein
shall prevent the separate account from purchasing other securities for other
series or classes of contracts or from effecting a conversion between series and
classes of contracts on the basis of requests made individually by owners of
such contracts.
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.
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The net investment factor for any Sub-Account for any Valuation Period is
determined by: dividing (1) by (2), and then subtracting (3) where:
1. is the net of:
a. 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; and
b. 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.
2. is the net result of:
a. 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
b. the per share credit or charge for any taxes reserved for the
last prior Valuation Period, plus or minus
c. a per share credit or charge 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 daily Variable Account charges deducted
from the Variable Account. Such factor is equal, on an annual basis, to
[1.30%] of the daily net asset value of the Variable Account.
For Underlying Mutual 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.
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 of each allocation is
$1,000 per GTO.
GTOs are not available as funding options if the Contract is annuitized. All
investment amounts allocated to a GTO must be transferred to other investment
options at the time of Annuitization. If a variable annuity Contract is
annuitized while a GTO is in effect, and prior to the Maturity Date of the GTO,
a 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. 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. 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.
A MVA will apply against all amounts which are transferred or surrendered from
allocations under a GTO prior to 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 MVA. At all times
other than during a Maturity Period, a MVA 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
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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 one per calendar year
at all times other than during a Maturity Period.
MARKET VALUE ADJUSTMENT
A MVA 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 MVA 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 MVA will result in an upward adjustment of
amounts allocated to a GTO. The MVA is applied only when the amounts allocated
to a GTO are distributed from the GTO prior to the Maturity Period.
The formula for determining the MVA Factor is:
[ 1 + a ] t
[ -------------]
[ 1 + b + .0025]
Where:
a = the Constant Maturity Treasury (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
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than 1, a gain will be realized by the 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 Contract Owner may surrender part or all of the Contract Value at any time
this Contract 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 must meet the following conditions:
1. The request for surrender must be in writing in a form otherwise
acceptable to the Company.
2. The surrender value will be paid to the Contract Owner within seven (7)
days after proper written application and any proof of interest are
received and recorded 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.
4. When written application and the Contract are received, the Company
will surrender the number of Variable Account Accumulation Units needed
to equal the dollar amount requested minus any applicable taxes.
5. If a partial surrender is requested, unless the Contract Owner has
instructed otherwise, amounts will be surrendered in the following
order: (a) from the Variable Account; (b) from the GTOs under the
Multiple Maturity Account. The amounts surrendered from each account
will be made in the same proportion that the Contract Owner's interest
in such account bears to the total Contract Value.
For tax purposes, a surrender may be treated as withdrawal of earnings first.
SURRENDER VALUE
The surrender value at any time will be the Contract Value, less any applicable
taxes.
SYSTEMATIC WITHDRAWALS
The 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 of the Sub-Accounts in which the Contract Owner has an interest. Unless
otherwise directed by the Contract Owner, the Company will withhold federal
income taxes from each systematic withdrawal. The systematic withdrawals may be
discontinued at any time by notifying the Company in writing.
Systematic withdrawals are not available prior to the expiration of the ten day
free look provision of the Contract. The Company reserves the right to assess a
processing fee for this service.
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TRANSFER PROVISIONS
Transfers among the Variable Account and the Guaranteed Term Option must be made
prior to the Annuitization Date. Transfers may occur among the Sub-Accounts 12
times a year without charges or penalties. 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. Transfers to a
Guaranteed Term Option must be at least [$1,000].
The Company reserves the right to refuse any transfer requests submitted by
individuals or firms performing market timing services on behalf of multiple
Contract Owners. Transfers among the Sub-Accounts are subject to the terms and
conditions of the Underlying Mutual Funds.
SUSPENSION OR POSTPONEMENT OF SURRENDERS/TRANSFERS
The Company has the right to suspend or postpone the date of any surrender
payment or any request transfer for any period:
1. When the New York Stock Exchange is closed;
2. When trading on the New York Stock Exchange is restricted;
3. When an emergency exists as a result of which disposal of securities
held in the Variable Account is not reasonably practicable or it is not
reasonably practicable to fairly determine the value of the net assets
of the Sub-Accounts; or
4. During any other period when the Securities and Exchange Commission, by
order, so permits such a suspension or postponement, for the protection
of security holders.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth above exist.
DEATH PROVISIONS
DEATH OF CONTRACT OWNER
If any 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 sole 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 new
Contract Owner. The entire interest in the Contract Value must be distributed in
accordance with the "Required Distribution " section.
DEATH OF CONTRACT OWNER/ANNUITANT
If any Contract 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 Joint Owner, Contingent Owner, or
the last surviving Contract Owner's estate, as specified in the "Beneficiary"
section, and distributed in accordance with the "Required Distribution "
section.
DEATH OF ANNUITANT
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" section,
unless there is a surviving Contingent Annuitant. In such case, the Contingent
Annuitant becomes the Annuitant and no Death Benefit is payable.
15
<PAGE> 17
If the Annuitant dies after the Annuitization Date, any benefit that may be
payable shall be paid according to the Annuity Payment Option selected.
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 Home Office receives in writing
the following three items: (1) proper proof of the Annuitant's death; (2) an
election specifying the method of distribution; and (3) any applicable state
required form(s).
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.
The Beneficiary may elect to receive such Death Benefits in the form of: (1) a
lump sum distribution; (2) an annuity payout; or (3) any distribution that is
permitted under state and federal regulations and is acceptable by the Company.
Upon the death of a "deceased Contract Owner", the designated beneficiary must
elect a method of distribution which complies with the Distribution Provisions
outlined in this Contract and which are acceptable to the Company. If such
election is not received by the Company within 60 days of the Annuitant's death,
the Beneficiary will be deemed to have elected a cash payment as of the last day
of the 60 day period.
Payment of the Death Benefit will occur within 30 days after receipt of such
proof.
ELECTION OF DEATH BENEFIT OPTION
At the time of application, the Contract Owner shall elect one of the following
death benefit options. The Contract Owner's chosen option and additional charge,
if applicable, are reflected on the Contract Owner's data page.
Standard 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 sum of all Purchase Payments, less an adjustment for amounts
surrendered; or (3) the Contract Value as of the most recent five-year Contract
Anniversary occurring prior to the Annuitant's 86th birthday, less an adjustment
for amounts subsequently surrendered, plus Purchase Payments received after that
five-year 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.
Death Benefit - 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 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 adjustments 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 the additional Death Benefits provided by Option 1, the Company will deduct
a charge at an annual rate of 0.05% of the daily net asset value of the Variable
Account.
16
<PAGE> 18
Death Benefit - Option 2
If the Annuitant dies at any time prior to the Annuitization Date, the dollar
amount of the Death Benefit will be 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 86th 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 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 the additional Death Benefits provided by Option 2, the Company will deduct
a charged at an annual maximum rate of 0.10% of the daily net asset value of the
Variable Account.
REQUIRED DISTRIBUTION
Upon the death of any Owner, Contract Owner, or Joint Owner (including an
Annuitant who becomes the Owner of the Contract on the Annuitization Date) (each
of the foregoing an Owner), certain distributions are required by Section 72(s)
of the Code. Notwithstanding any provision of this Contract to the contrary, the
following distributions shall be made in accordance with such requirements.
1. If any Contract Owner dies on or after the Annuitization Date and
before the entire interest under the Contract has been distributed, then the
remaining portion of such interest will be distributed at least as rapidly as
under the method of distribution in effect as of the date of such Contract
Owner's death.
2. If any Contract Owner dies 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) will be distributed within 5 years of the death of the Contract 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 Contract 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 Contract Owner, such spouse may elect to become the
Contract 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 Contract Owner is not a natural person (e.g., a trust or
corporation), then, for purposes of these Distribution provisions: (i) the death
of the Annuitant will be treated as the death of any Contract Owner; (ii) any
change of the Annuitant will be treated as the death of any Contract 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. Such contracts include, but are not
limited to, any Contract: (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 as described in
17
<PAGE> 19
Section 408 or Section 408A 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 Contract 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 Contract 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 Contract Owner, the designated Beneficiary must elect a
method of distribution which complies with these above Distributions provisions
and which is acceptable to the Company. Such election must be made within 60
days of the Contract Owner's death.
ANNUITIZATION PROVISIONS
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is a date chosen by the Contract Owner and is
generally the first day of a calendar month. The date must be at least two years
after the Date of Issue. For those Contracts issued under Qualified Plans,
TSA's, or IRA's, if the Annuity Commencement Date is not chosen, the Annuity
Commencement Date established on the Date of Issue of the Contract will be the
date on which the Contract Owner reaches age 70-1/2. For Non-Qualified
Contracts, the Annuity Commencement Date established on the Date of Issue of the
Contract will be the date on which the Contract Owner reaches age 90.
The Annuity Commencement Date may not be later than the first day of the first
calendar month after the Annuitant's 90th birthday unless otherwise agreed upon.
CHANGE OF ANNUITY COMMENCEMENT DATE AND ANNUITY PAYMENT OPTION
The Contract Owner may change the Annuity Commencement Date and the Annuity
Payment Option prior to the Annuitization Date. Any such change must be in
writing and approved by the Company. A change will become effective as of the
date requested, and must comply with Annuity Commencement Date Provisions above,
but will not apply to any payment made or action taken by the Company before it
is received.
ANNUITIZATION
Annuitization is irrevocable once payments have begun. To annuitize the
Contract, the Contract Owner shall notify the Company in writing of the election
of:
(1) an Annuity Payment Option; and
(2) either a Fixed Annuity Payment, Variable Annuity Payment, or any other
combination that may be available at the time of Annuitization.
If a variable payment option is elected, all amounts in the Fixed Account must
be moved to a Variable Sub-Account prior to the Annuitization Date.
As of the Annuitization Date, the Contract Account Value is surrendered and
applied to the purchase rate then in effect for the option selected. Annuity
benefits at the time of their commencement will not be less than those provided
by the application of the designated portion of the Contract Account Value based
on then current purchase rates or, if then offered, based on single
consideration immediate annuity rates for this class of annuitants
18
<PAGE> 20
FIXED ANNUITY PAYMENT - FIRST AND SUBSEQUENT PAYMENTS
The first fixed annuity payment will be determined by applying the portion of
the total Contract Value specified by the Contract Owner, less applicable
premium tax, to the fixed annuity table in effect on the Annuitization Date for
the Annuity Payment Option elected. The purchase rates for any options
guaranteed to be available will be determined on a basis not less favorable than
the applicable 1983 "Table a" with ages set back six years, with minimum
interest at 3.0%. The determination of the applicable "Table a" will be based
upon the type of Contract issued; Non-Qualified, TSA's, IRA's, or Qualified
Plan.
The rates shown in the Annuity Tables are calculated on this guarantee basis.
Subsequent fixed annuity payments will remain level unless the Annuity Payment
Option elected dictates otherwise.
VARIABLE ANNUITY PAYMENT - FIRST PAYMENT
A Variable Annuity Payment 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 underlying Variable Sub-Accounts selected by the Contract
Owner.
The first variable annuity payment will be determined by applying the portion of
the total Contract Value specified by the Contract Owner, less applicable
premium taxes, to the variable Annuity Table in effect on the Annuitization Date
for the Annuity Payment Option elected. The purchase rates for any options
guaranteed to be available will be determined on a basis not less favorable than
the applicable 1983 "Table a" with ages set back six years, with minimum
interest at 3.5%. The determination of the applicable "Table a" will be based
upon the type of Contract issued; Non-Qualified, TSA's, IRA's, or Qualified
Plan.
VARIABLE ANNUITY PAYMENT - PAYMENTS AFTER THE FIRST PAYMENT
Variable Annuity payments after the first payment 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
annuity unit value as of the Annuitization Date. This result
establishes the fixed number of Annuity Units for each monthly annuity
payment after the first. The 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 the Company's expenses or mortality
experience.
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 immediately
preceding 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 because the Assumed
Investment Rate of [3.5%] per year is built into the Variable annuity
payment purchase rate basis.
19
<PAGE> 21
FREQUENCY AND AMOUNT OF PAYMENTS
All annuity payments will be mailed within 10 working days of the first of the
month in which they are scheduled. Payments will be made based on the Annuity
Payment Option selected and frequency 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 in lieu
of periodic annuity payments.
If any payment would be or becomes less than [$50], the Company has the right to
change the frequency of payments 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.
ANNUITY PAYMENT OPTIONS
SELECTION OF ANNUITY PAYMENT OPTION
The Contract Owner may select an Annuity Payment Option prior to Annuitization.
If an Annuity Payment Option is not selected, a life annuity with a guarantee
period of 240 months will be the automatic form of payment.
Any Annuity Payment Option NOT set forth in the Contract or a combination of
available options which are satisfactory to both the Company and the Annuitant
may be selected. Options available for Contracts issued to IRA's, TSA's or
Qualified Plans may be limited based on the age of the Annuitant and
Distribution requirements under the Code.
The following are the annuity payment options which are guaranteed to be
available by the Company.
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 SURVIVOR ANNUITY
The amount to be paid under this option will be paid during the joint lifetimes
of the Annuitant and a 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 Owner 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.
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.
20
<PAGE> 22
MONTHLY BENEFITS PER $1000 APPLIED
ANNUITY TABLES
JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENTS
ANNUITANT'S AGE LAST BIRTHDAY
<TABLE>
<CAPTION>
FEMALE AGE
50 55 60 65 70
-- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
LIFE ANNUITY: MONTHLY ANNUITY PAYMENTS
<TABLE>
<CAPTION>
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
------------- ---- ------ ------ ------------- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
21
<PAGE> 23
UNISEX
Monthly Benefits per $1000 Applied
ANNUITY TABLES
JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENTS
<TABLE>
<CAPTION>
Annuitant Age
50 55 60 65 70
<S> <C> <C> <C> <C> <C>
50 3.29 3.37 3.43 3.48 3.52
Survivor 55 3.48 3.57 3.65 3.72
Age 60 3.71 3.84 3.94
65 4.02 4.19
70 4.44
</TABLE>
LIFE ANNUITY: MONTHLY ANNUITY PAYMENTS
<TABLE>
<CAPTION>
Annuitant's
Attained Guaranteed Period
Age Last 0 120 240
Birthday Months Months Months
<S> <C> <C> <C>
40 3.23 3.23 3.22
41 3.26 3.26 3.24
42 3.29 3.29 3.27
43 3.32 3.32 3.30
44 3.35 3.35 3.33
45 3.39 3.38 3.37
46 3.42 3.42 3.40
47 3.46 3.46 3.43
48 3.50 3.50 3.47
49 3.54 3.54 3.51
50 3.59 3.58 3.55
51 3.63 3.63 3.59
52 3.68 3.67 3.63
53 3.73 3.72 3.68
54 3.79 3.77 3.72
55 3.84 3.83 3.77
56 3.90 3.89 3.82
57 3.97 3.95 3.88
58 4.03 4.01 3.93
59 4.10 4.08 3.99
60 4.18 4.15 4.04
61 4.25 4.22 4.11
62 4.34 4.30 4.17
63 4.42 4.38 4.23
64 4.52 4.47 4.30
65 4.61 4.56 4.37
66 4.72 4.66 4.44
67 4.83 4.76 4.51
68 4.95 4.86 4.58
69 5.07 4.98 4.65
70 5.21 5.10 4.72
71 5.35 5.22 4.79
72 5.51 5.36 4.86
73 5.67 5.50 4.93
74 5.85 5.65 5.00
75 6.04 5.80 5.06
</TABLE>
22
<PAGE> 1
EXHIBIT NO. 5
THE VARIABLE ANNUITY APPLICATION FORM
<PAGE> 2
[LOGO]
THE BEST OF AMERICA(R) AMERICA'S EXCLUSIVE ANNUITY(R) II
APPLICATION/ENROLLMENT CARD
$15,000 MINIMUM INITIAL PAYMENT
- -----------------------------------------------------
PLAN TYPE AN OPTION MUST BE SELECTED
This contract is established as a:
/ / NON-QUALIFIED
/ / 403(b) TRANSFER Disclosure form required.
/ / CRT (Charitable Remainder Trust)
Transmittal form Required
/ / 401 (a) (Investment Only)
Disclosure form required & $100,000 minimum
/ / SEP-IRA
/ / IRA
/ / ROTH IRA Custodial Form &
Statement of Understanding Required
DEATH BENEFIT OPTION
IF NO OPTION IS SELECTED, THE DEATH BENEFIT
WILL BE THE STANDARD 5 YEAR ANNIVERSARY
/ / STANDARD 5-YEAR ANNIVERSARY
/ / 1-YEAR ANNIVERSARY *
/ / 5% INTEREST *
* Additional charge, please see prospectus
Available to annuitants aged less than 85
- -----------------------------------------------
CONTRACT OWNER
- -------------------------------------------
Last Name or Plan Name
- -------------------------------------------
First Name or Plan Name (continued) MI
- ------------------------------------------- ---
Address
------------------------------------
------------------------------------
Sex / / M / / F Birthdate / /
-------------------------
MM DD YYYY
Soc. Sec. No. or Tax ID
---------------------------
- -------------------------------------------------------------------------------
/ / CONTINGENT OWNER / / JOINT OWNER
Last Name Spouse only unless prohibited by law
- ---------------------------------------------------------------------------
First Name MI
- -------------------------------------------------------- --------
Address
-----------------------------------------
-----------------------------------------
Sex / / M / / F Birthdate / /
----------------
MM DD YYYY
Soc. Sec. No. or Tax ID
----------------------------
- ---------------------------------------------------------------------------
ANNUITANT Complete only if different from
primary contract owner.
Last Name
- -------------------------------------------------
First Name MI
- ------------------------------------------------- --
Address
-----------------------------------------
-----------------------------------------
Maximum issue age through age 85
Sex / / M / / F Birthdate / /
-----------------
MM DD YYYY
Soc. Sec. No.
----------------------------------
- ------------------------------------------------------------------------------
/ / CONTINGENT ANNUITANT
Last Name
- -------------------------------------------------
First Name MI
- ------------------------------------------------- --
Sex / / M / / F Birthdate / /
-----------------
MM DD YYYY
Soc. Sec. No.
----------------------------------
- -------------------------------------------------------------------------------
BENEFICIARY BENEFICIARY WILL RECEIVE DEATH BENEFIT UPON DEATH OF
ANNUITANT (AND CONTINGENT ANNUITANT, IF NAMED).
<TABLE>
<CAPTION>
Relationship Birthdate
Primary Contingent Print Full Name (Last, First, MI) Allocation to Annuitant Soc. Sec. No. MM/DD/YYYY
<S> <C> <C> <C> <C> <C>
/ / % / /
/ / / / % / /
/ / / / % / /
/ / / / % / /
</TABLE>
- -------------------------------------------------------------------------------
ANNUITY PURCHASE PAYMENTS
/ / TRANSFER
/ / PAYMENT ENCLOSED
/ / ROLLOVER
/ / SALARY REDUCTION
/ / OTHER
/ / 1035 (requires transfer form)
APPLY FOR TAX YEAR
----------------------------
First Purchase Payment $ ($15,000 MINIMUM INITIAL PAYMENT;
$100,000 MINIMUM INITIAL PAYMENT FOR 401(A) CONTRACTS) submitted. A copy of this
application properly signed by the producer will constitute receipt for such
amount. If this application is declined by the Company, there will be no
liability on the part of the Company, and any payments submitted with this
application will be refunded.
- -------------------------------------------------------------------------------
REMARKS
APO-3277-A PRODUCT OF NATIONWIDE LIFE INSURANCE CO. ID-EXCLUSIVE-AO (04/98)
- ------------------------------------------------------- -----------------------
<PAGE> 3
PURCHASE PAYMENT ALLOCATION WHOLE PERCENTAGES ONLY, MUST TOTAL 100%.
A CONTRACT CANNOT BE ISSUED UNLESS THIS SECTION IS COMPLETE.
AMERICAN CENTURY
% VP Income & Growth
- ----------
% VP International
- ----------
% VP Value
- ----------
DREYFUS
% Capital Appreciation Portfolio
- ----------
% Stock Index Fund
- ----------
% Socially Responsible Growth Fund
- ----------
FIDELITY
% Contrafund Portfolio
- ----------
% Equity-Income Portfolio
- ----------
% Growth Portfolio
- ----------
% Growth Opportunities Portfolio
- ----------
% High Income Portfolio
- ----------
% Overseas Portfolio
- ----------
MORGAN STANLEY
% Emerging Markets Debt Port.
- ----------
% Real Estate Securities Port.
- ----------
NATIONWIDE(R)
% Capital Appreciation Fund
- ----------
% Government Bond Fund
- ----------
% Money Market Fund
- ----------
% Total Return Fund
- ----------
NATIONWIDE SUB-ADVISED FUNDS
Fund Name (Subadvisor)
% Balanced Fund (Salomon Brothers)
- ----------
% Equity Income Fund (Federated)
- ----------
% Global Equity Fund (JP Morgan)
- ----------
% High Income Bond Fund (Federated)
- ----------
% Multi Sector Bond Fund (Salomon Brothers)
- ----------
% Small Cap Value (Dreyfus)
- ----------
% Small Company Fund (Multi-Manager)
- ----------
% Strategic Growth Fund (Strong)
- ----------
% Strategic Value Fund (Strong/Schafer)
- ----------
% Select Advisors Mid Cap Fund (Three UAM Managers)
- ----------
NEUBERGER & BERMAN
% AMT Guardian Portfolio
- ----------
% AMT Partners Portfolio
- ----------
% AMT Mid-Cap Growth
- ----------
OPPENHEIMER FUNDS
% Capital Appreciation Fund
- ----------
% Growth Fund
- ----------
% Growth & Income Fund
- ----------
VAN ECK
% Worldwide Hard Assets Fund
- ----------
% Worldwide Emerging Markets Fund
- ----------
WARBURG PINCUS
% International Equity Portfolio
- ----------
% Growth & Income Portfolio
- ----------
% Post-Venture Capital Portfolio
- ----------
MVA/GUAR. TERM OPTION
% 3 Year
- ----------
% 5 Year
- ----------
% 7 Year $1,000 minimum
- ----------
% 10 Year for each MVA/GTO option
- ----------
- -------------------------------------------------------------------------------
CONTRACT OWNER SIGNATURES
I hereby represent my answers to the above questions to be accurate and complete
and acknowledge that I have received a copy of the current prospectus for this
variable annuity contract.
/ / Yes / / No Do you have any reason to believe the Contract applied for is to
replace existing annuities or insurance?
/ / Please send me a copy of the Statement of Additional Information to the
Prospectus.
STATE IN WHICH APPLICATION WAS SIGNED DATE
----------------------- ---------
State
CONTRACT OWNER JOINT OWNER
----------------------------- ----------------------
Signature Signature
- -------------------------------------------------------------------------------
PRODUCER INFORMATION
/ / Yes / / No Do you have any reason to believe the Contract applied for is to
replace existing annuities or insurance?
PRODUCER SIGNATURE
----------------------------------------
Signature
NAME PRODUCER SSN
---------------------------------- --------------------
BROKER/DEALER PHONE ( )
------------------------- ---------------------
ADDRESS
--------------------------------------
--------------------------------------
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REGULAR MAIL
--------------------------------
Nationwide Life Insurance Co.
P.O. Box 16609
Columbus, Ohio 43216-6609
--------------------------------
----------------------------
THE BEST OF AMERICA
Service Center
1-800-848-6331
----------------------------
EXPRESS MAIL
-----------------------------------
Nationwide Life Insurance Co.
Individual Annuity Products, 1-05-P1
One Nationwide Plaza
Columbus, Ohio 43215-2220
-------------------------------------
<PAGE> 1
EXHIBIT NO. 6
ARTICLES OF INCORPORATION
OF DEPOSITOR
<PAGE> 2
AMENDED ARTICLES OF INCORPORATION
NATIONWIDE LIFE INSURANCE COMPANY
First: The name of said Corporation shall be "NATIONWIDE LIFE INSURANCE
COMPANY."
Second: Said Corporation is to be located, and its principal office
maintained in the City of Columbus, Ohio.
Third: Said Corporation is formed for the purpose of (a) making
insurance upon the lives of individuals and every insurance appertaining thereto
or connected therewith on both participating and non-participating plans, (b)
granting, purchasing or disposing of annuities on both participating and
non-participating plans, (c) taking risks connected with or appertaining to
making insurance on life or against accidents to persons, or sickness, temporary
or permanent disability on both participating and non-participating plans, (d)
investing funds, (e) borrowing money on either a secured or unsecured basis in
furtherance of the foregoing, and (f) engaging in all activities permitted life
insurance companies under the laws of the State of Ohio.
Fourth: No holder of shares of this Corporation shall be entitled as
such, as a matter of right, to subscribe for or purchase shares now or hereafter
authorized.
The capital stock of this Corporation shall be Five Million Dollars
($5,000,000.00) divided into Five Million (5,000,000) Common shares of the par
value of One Dollar ($1.00) each, which may be subscribed and purchased, or
otherwise acquired for such consideration at not less than par, and under such
terms and conditions as the Board of Directors may prescribe.
Fifth: Dividends may be declared and paid on the outstanding stock,
subject to the restrictions herein contained. Dividends on the capital stock
shall be paid only from the earned surplus of the Corporation. Unless those
policyholders owning participating insurance policies or contracts shall have
received an equitable dividend arising out of savings in mortality, savings in
expense loadings and excess interest earnings, if any, from such participating
policies, no dividend from such savings and earnings shall be declared or paid
on capital stock in an amount in excess of seven percent (7%) per annum,
computed on the par value of the stock from date of original issue to date of
retirement or date of payment of dividend.
<PAGE> 3
* Sixth: The corporate powers and business of the Corporation
shall be exercised, conducted and controlled, and the corporate
property managed by a Board of Directors consisting of not less than
three (3), nor more than twenty-one (21), as may from time to time be
fixed by the Code of Regulations of the Corporation. At the first
election of directors one-third of the directors shall be elected to
serve until the next annual meeting, one-third shall be elected to
serve until the second annual meeting, and one-third shall be elected
to serve until the third annual meeting; thereafter all directors shall
be elected to serve for terms of three (3) years each, and until their
successors are elected and qualified. Vacancies in the Board of
Directors, arising from any cause, shall be filled by the remaining
directors.
The directors shall be elected at the annual meetings of the
stockholders by a majority vote of the stockholders present in person
or by proxy, provided that vacancies may be filled as herein provided
for.
The stockholders of the Corporation shall have the right,
subject to the statutes of the State of Ohio and these Articles of
Incorporation, to adopt a Code of Regulations governing the transaction
of the business and affairs of the Corporation which may be altered,
amended or repealed in the manner provided by law.
The Board of Directors shall elect from their own number a
Chairman of the Board of Directors, a General Chairman, and a
President. The Board of Directors shall also elect a Vice President and
a Secretary and a Treasurer, or a Secretary-Treasurer. The Board of
Directors may also elect or appoint such additional vice presidents,
assistant secretaries and assistant treasurers as may be deemed
advisable or necessary, and may fix their duties. The Board of
Directors may appoint such other officers as may be provided in the
Code of Regulations. All officers, unless sooner removed by the Board
of Directors, shall hold office for one (1) year, or until their
successors are elected and qualified. Other than the Chairman of the
Board of Directors, the General Chairman and the President, the
officers need not be members of the Board of Directors. Officers shall
be elected at each annual organization meeting of the Board of
Directors, but elections or appointments to fill vacancies may be had
at any meeting of the directors.
A majority of the Board of Directors and officers shall, at
all times, be citizens of the State of Ohio.
* Amended Effective March 14, 1986.
- 2 -
<PAGE> 4
Seventh: The annual meeting of the stockholders of the Corporation
shall be held at such time as may be fixed in the Code of Regulations of the
Corporation. Any meeting of the stockholders, annual or special, may be held in
or outside of the State of Ohio. Reasonable notice of all meetings of
stockholders shall be given, by mail or publication, or as prescribed by the
Code of Regulations or by law.
Eighth: These Amended Articles of Incorporation shall supersede and
take the place of the Articles of Incorporation and all amendments thereto
heretofore filed with the Secretary of State by and on behalf of this
Corporation.
Amended Effective March 14, 1986
- 3 -
<PAGE> 1
EXHIBIT NO. 9
OPINION OF COUNSEL
<PAGE> 2
[DRUEN, DIETRICH, REYNOLDS & KOOGLER LETTERHEAD]
May 13, 1998
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, Ohio 43215-2220
To the Company:
We have prepared the Registration Statement filed with the Securities and
Exchange Commission for the purpose of registering under the Securities Act of
1933, as amended, Modified Single Premium Deferred Variable Annuity contacts to
be sold by Nationwide Life Insurance Company ("Nationwide") and to be issued and
administered through the Nationwide Variable Account-9. In connection therewith,
we have examined the Articles of Incorporation, Code of Regulations and Bylaws
of Nationwide, minutes of meetings of the Board of Directors, pertinent
provisions of federal and Ohio laws, together with such other documents as we
have deemed relevant for the purposes of this opinion. Based on the foregoing,
it is our opinion that:
1. Nationwide is a stock life insurance corporation duly organized and
validly existing under the laws of the State of Ohio and duly
authorized to issue and sell life insurance and annuity contracts.
2. The Nationwide Variable Account-9 has been properly created and is a
validly existing separate account pursuant to the laws of the State
of Ohio.
3. The issuance and sale of the Modified Single Premium Deferred Variable
Annuity contracts have been duly authorized by Nationwide. When issued
and sold in the manner stated in the prospectus constituting a part of
the Registration Statement, the contracts will be legal and binding
obligations of Nationwide in accordance with their terms, except that
clearance must be obtained, or the contract form must be approved,
prior to the issuance thereof in certain jurisdictions.
<PAGE> 3
Nationwide Life Insurance Company
May 13, 1998
Page 2
_________________________________
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name as the firm determining the
legality of the securities being registered. In addition, we hereby attest that
the securities being registered will be legally issued and will represent
binding obligations of the depositor.
Very truly yours,
DRUEN, DIETRICH, REYNOLDS & KOOGLER
<PAGE> 1
EXHIBIT NO. 13
COMPUTATION OF PERFORMANCE CALCULATIONS
<PAGE> 2
PERFORMANCE ADVERTISING CALCULATION SCHEDULE
The Variable Account may from time to time quote historical performance in
advertisements.
A yield and effective yield may be advertised for money market sub-accounts,
computed according to the following formulas:
365
YIELD = [BPR X --- - 1] X 100
7
EFFECTIVE YIELD = [BPR (to the power of 365/7) - 1] X 100
Where:
UVend
BPR = Base Period Return = (-----)
UVbeg
UVbeg = Unit Value at beginning of period
UVend = Unit Value at end of period
Standardized average annual total return may be advertised for non-money market
funds, computed according to the following general formula:
<TABLE>
<S> <C>
ERV 1 ERV
T = [(---)(to the power of -) - 1] X 100; if n > 1 T = [(---) - 1] X 100; if n < 1
P n - P
</TABLE>
EVR = AV - CDSC
1 1
AVn < 1 = P (----- X UVend)(to the power of -) - AC
UVbeg n
P AC
AVn > 1 = [----- - SIGMA -----] X UVend
- UVbeg UVann
<PAGE> 3
Where:
T = average annual total return
P = a hypothetical initial payment of $1,000
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the quoted periods at the end of the quoted periods (or
fractional portion thereof)
AV = accrued value
AC = administrative charge, equal to $30 per year
CDSC = contingent deferred sales charge, equal to (7-n)% of the lesser of
$1,000 or AV (CDSC expires after 7 completed contract years)
UVbeg = Unit Value at beginning of period
UVend = Unit Value at end of period
UVann = Unit Value at contract anniversary
Nonstandardized total return is calculated similarly to the above, except that
CDSC will be equal to $0 and P will be $10,000.
