<PAGE> 1
NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 182437
Columbus, Ohio 43218-2437, 1-800-325-6434
TDD 1-800-238-3035
MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-9
The Contracts described in this prospectus are Modified Single Purchase Payment
Contracts and such Contracts may be issued as either individual or group
Contracts. In those states where Contracts are issued as group contracts,
references throughout this prospectus to "Contract(s)" will also mean
"Certificate(s)."
The Contracts are sold as either: Non-Qualified Contracts; as Investment-Only
Contracts issued to Qualified Pension, Profit-sharing or Stock Bonus Plans as
defined by Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"); as IRAs with contributions rolled-over or transferred from certain
tax-qualified plans such as Qualified Plans, Tax Sheltered Annuity Plans or
IRAs; Roth IRAs; or as Tax Sheltered Annuities with contributions rolled over or
transferred from other Tax-Sheltered Annuity Plans. Annuity payments under the
Contracts are deferred until a selected later date.
Purchase Payments are allocated to the Nationwide Variable Account-9 ("Variable
Account"), a separate account of Nationwide Life Insurance Company (the
"Company"). The 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. The Variable Account uses its assets to
purchase shares at Net Asset Value in one or more of the following Underlying
Mutual Fund options:
<TABLE>
<S> <C>
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 Growth Fund, Inc.
Dreyfus Stock Index Fund, Inc.
Dreyfus Variable Investment Fund - Capital Appreciation Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Equity-Income Portfolio: Service Class VIP Growth Portfolio: Service Class
VIP High Income Portfolio: Service Class* VIP Overseas Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Contrafund Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
VIP 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*
</TABLE>
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<PAGE> 2
<TABLE>
<S> <C>
Nationwide Select Advisers Mid Cap Fund
Nationwide Small Cap Value Fund
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
</TABLE>
*These Underlying Mutual Funds may invest 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
May 1, 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 1-800-325-6434, or
by writing P.O. Box 182437, Columbus, Ohio 43218-2437.
Purchase Payments not allocated to the Variable Account may be allocated to
either the Fixed Account or 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 for each of the Underlying Mutual
Fund options identified above, can be obtained without charge by calling
1-800-325-6434, TDD 1-800-238-3035, or by writing to P.O. Box 182437, Columbus,
Ohio, 43218-2437. 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 RISKS WHICH MAY INCLUDE 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 MAY 1, 1998, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE 44 OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
2
<PAGE> 3
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.
ANNUITANT- The person designated to receive annuity payments at Annuitization
and upon whose continuation of life any annuity payments involving life
contingencies depends. This person must be age 85 or younger at the time of
Contract issuance unless the Company has approved a request for an Annuitant of
greater age. The Annuitant may be changed prior to the Annuitization Date with
the consent of the Company.
ANNUITIZATION- The period during which annuity payments are received.
ANNUITIZATION DATE- The date on which annuity payments commence.
ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to
commence. The Annuity Commencement Date is shown on the Data Page of the
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 this Contract when the Annuitant dies before the Annuitization
Date. If a Contingent Annuitant is designated and the Annuitant dies before the
Annuitization Date, the Contingent Annuitant becomes the Annuitant. A Contingent
Annuitant may not be named for Contracts issued as IRAs, Roth 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 IRAs, Roth IRAs or Tax Sheltered Annuities.
CONTRACT- The Modified Single Premium Deferred Variable Annuity Contract
described in this prospectus.
CONTRACT ANNIVERSARY- An anniversary of the Date of Issue of the Contract.
CONTRACT OWNER- The person or entity 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 or entity named as Owner on the Data
Page, unless changed.
CONTRACT VALUE- The sum of the value of all Accumulation Units attributable to
the Contract, plus any amount held in the Fixed Account, plus any amount held
under 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.
3
<PAGE> 4
DISTRIBUTION- Any payment of part or all of the Contract Value.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
FIXED PAYMENT ANNUITY- An annuity providing for payments which are guaranteed by
the Company as to dollar amount during Annuitization.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
GUARANTEED TERM OPTION ("GTO")- An investment option offered under the Contract
which provide a guaranteed interest rate over certain maturity durations (three,
five, seven and ten years) so long as certain conditions are met. Amounts
allocated to a GTO may be subject to a Market Value Adjustment ("MVA") if
distributed for any reason prior to the end of the selected term, resulting in
an upward or downward adjustment in the Distribution proceeds. GTOs are not part
of the Variable Account (or the Fixed Account) and are not subject to Variable
Account charges but may be subject to CDSC if otherwise applicable. GTOs are not
available during the Annuitization phase of the Contracts 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.
HOSPITAL- A state licensed facility which is operated as a Hospital according to
the laws of the jurisdiction in which it is located.
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.
INTEREST RATE GUARANTEE PERIOD- The interval of time during which an interest
rate credited to the Fixed Account is guaranteed to remain the same. For new
Purchase Payments allocated to the Fixed Account or transfers from the Variable
Account or a GTO, this period begins upon the date of deposit or transfer and
ends at the end of the calendar quarter at least one year (but not more than 15
months) from deposit or transfer. At the end of an Interest Rate Guarantee
Period, a new interest rate is declared with an Interest Rate Guarantee Period
starting at the end of the prior period and ending at the end of the calendar
quarter one year later. The Interest Rate Guarantee Period does not in any way
refer to interest rate crediting practices employed by the Company with respect
to GTOs.
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, if any, 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.
LONG TERM CARE FACILITY- A state licensed skilled nursing facility or
intermediate care facility.
MARKET VALUE ADJUSTMENT ("MVA")- The upward or downward adjustment in value of
amounts allocated to a GTO, which are distributed prior to maturity for any
reason.
NET ASSET VALUE- The value 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 holding plus other assets,
deducting liabilities and then dividing the result by the number of shares
outstanding.
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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
(IRAs), 408A (Roth IRAs) or 403(b) (Tax-Sheltered Annuities) of the Code.
PHYSICIAN- A person who is a state licensed Medical Doctor or Doctor of
Osteopathic Medicine providing medical care or treatment within the scope of
that license.
PURCHASE PAYMENT- A deposit of new value into the Contract. The term "Purchase
Payment" does not include transfers among the Variable Account, Fixed Account,
or GTO, or among 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.
STANDARD CONTRACTUAL DEATH BENEFIT- The Death Benefit provided under the
Contract when neither of the optional Death Benefit Riders is chosen. The
Standard Contractual Death Benefit is the Five-Year Reset Death Benefit. This
Death Benefit does NOT include any Long Term Care Facility benefits.
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.
TERMINAL ILLNESS- A diagnosis of an illness by a Physician which is expected to
result in a death within 12 months of diagnosis. The diagnosis of "Terminal
Illness" must occur after the Contract has been issued.
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 Variable Account's Underlying Mutual Fund shares that the current
Variable Account Contract Value 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- 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.
5
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS.............................................................3
SUMMARY OF CONTRACT EXPENSES..........................................................8
UNDERLYING MUTUAL FUND ANNUAL EXPENSES................................................9
EXAMPLE..............................................................................11
SYNOPSIS.............................................................................13
CONDENSED FINANCIAL INFORMATION......................................................14
NATIONWIDE LIFE INSURANCE COMPANY....................................................18
NATIONWIDE ADVISORY SERVICES, INC....................................................18
THE VARIABLE ACCOUNT.................................................................18
Underlying Mutual Fund Options..............................................18
Voting Rights...............................................................19
Substitution of Securities..................................................19
GTO ALLOCATIONS......................................................................19
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS........................................20
Expenses of Variable Account................................................20
Mortality Risk Charge.......................................................20
Expense Risk Charge.........................................................20
Optional Long Term Care Facility and Death Benefit Rider Charges............20
Contingent Deferred Sales Charge ("CDSC")...................................20
Waiver of CDSC..............................................................21
Premium Taxes...............................................................21
OPERATION OF THE CONTRACT............................................................22
Investments of the Variable Account.........................................22
Allocation of Purchase Payments and Contract Value..........................22
Value of an Accumulation Unit...............................................22
Net Investment Factor.......................................................22
Determining the Contract Value..............................................23
Right to Revoke.............................................................23
Transfers...................................................................23
Contract Ownership..........................................................24
Joint Ownership.............................................................25
Contingent Ownership........................................................25
Beneficiary.................................................................25
Surrender (Redemption)......................................................25
Surrenders Under a Tax Sheltered Annuity Contract...........................26
Loan Privilege..............................................................27
Assignment..................................................................28
CONTRACT OWNER SERVICES..............................................................28
Asset Rebalancing...........................................................28
Dollar Cost Averaging.......................................................28
Systematic Withdrawals......................................................29
ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS.......................29
Annuity Commencement Date...................................................29
Annuitization ..............................................................30
Fixed Payment Annuity- First and Subsequent Payments........................30
Variable Payment Annuity - First and Subsequent Payments....................30
Variable Payment Annuity - Assumed Investment Rate..........................30
Variable Payment Annuity - Value of an Annuity Unit.........................30
Variable Payment Annuity - Exchanges Among Underlying Mutual Fund Options...30
Frequency and Amount of Annuity Payments....................................31
Annuity Payment Options.....................................................31
Death of Contract Owner -Non-Qualified Contracts............................31
Death of Annuitant - Non-Qualified Contracts................................31
Death of Contract Owner/Annuitant...........................................32
</TABLE>
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<TABLE>
<S> <C>
Death Benefit Payment.......................................................32
Five-Year Reset Death Benefit (Standard Contractual Death Benefit)........32
One-Year Step Up Death Benefit (Rider Option 1)...........................32
5% Enhanced Death Benefit (Rider Option 2)................................33
Long Term Care Facility Provisions..........................................33
Required Distributions for Non-Qualified Contracts..........................33
Required Distributions for Tax Sheltered Annuities..........................34
Required Distributions for IRAs.............................................35
Required Distributions for Roth IRAs........................................36
FEDERAL TAX CONSIDERATIONS...........................................................36
Federal Income Taxes........................................................36
Puerto Rico.................................................................37
Non-Qualified Contracts-Natural Persons as Contract Owners..................37
Non-Qualified Contracts-Non-Natural Persons as Contract Owners..............38
IRAs and Tax Sheltered Annuities............................................39
Roth IRAs...................................................................39
Withholding.................................................................40
Non-Resident Aliens.........................................................40
Federal Estate, Gift, and Generation Skipping Transfer Taxes................40
Charge for Tax..............................................................41
Diversification.............................................................41
Tax Changes.................................................................41
GENERAL INFORMATION..................................................................42
Contract Owner Inquiries....................................................42
Statements and Reports......................................................42
Advertising.................................................................42
YEAR 2000 COMPLIANCE ISSUES..........................................................43
LEGAL PROCEEDINGS....................................................................43
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.............................44
APPENDIX A...........................................................................45
APPENDIX B...........................................................................46
</TABLE>
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<TABLE>
<CAPTION>
SUMMARY OF CONTRACT EXPENSES
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge ("CDSC")(1)........................................ 7 %
- ----------------------------------------------------------------------------------------------------------
RANGE OF CDSC OVER TIME
Number of Completed Years from CDSC
Date of Purchase Payment Percentage
0 7%
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
- ----------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT ANNUAL EXPENSES(2)
Mortality and Expense Risk Charges.....................................................0.95%
Administration Charge..................................................................0.00%
Total Variable Account Annual Expenses........................................................0.95%(3)
OPTIONAL LONG TERM CARE FACILITY AND DEATH BENEFIT RIDERS
Optional Long Term Care Facility and One-Year Stepped Up Death
Benefit (Rider Option 1)...............................................................0.05%(4)
Total Variable Account Annual Expenses (Including Rider Option 1).............................1.00%
Optional Long Term Care Facility and 5% Enhanced Death Benefit
(Rider Option 2).......................................................................0.10%(4)
Total Variable Account Annual Expenses (Including Rider Option 2).............................1.05%
</TABLE>
(1) Each Contract Year the Contract Owner may withdraw without a CDSC, the
greater of:
(a) an amount equal to 10% of the total of all Purchase Payments
made to this Contract; or
(b) any amount withdrawn in order for this Contract to meet
minimum distribution requirements under the Code.
Withdrawals may be restricted for Contracts issued pursuant to the
terms of a Tax Sheltered Annuity Plan. This CDSC-free withdrawal
privilege is non-cumulative. Free amounts not taken during any given
Contract Year cannot be taken as free amounts in a subsequent Contract
Year (see "Waiver of CDSC").
(2) The Variable Account charges set forth apply exclusively to allocations
made to the Sub-Account(s). Such charges do not apply to, and will not
be assessed against, allocations made to the Fixed Account or to the
GTOs.
(3) The Total Variable Account Annual Expenses shown include the Five-Year
Reset Death Benefit ("Standard Contractual Death Benefit")(see "Death
Benefit Payment" provision).
(4) At the time of application, the applicant may choose one of two Long
Term Care Facility and Death Benefit Riders in lieu of receiving the
Standard Contractual Death Benefit. Should the applicant choose a Rider
Option, the Company will deduct an additional charge equal to an annual
rate of 0.05% for Rider Option 1, or 0.10% for Rider Option 2, of the
daily net assets of the Variable Account (see "Death Benefit Payment"
provision).
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<TABLE>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Management Other Expenses Total Mutual
Fees Fund Expenses
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc. - 0.70% 0.00% 0.70%
American Century VP Income & Growth
- -------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 1.50% 0.00% 1.50%
American Century VP International
- -------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 1.00% 0.00% 1.00%
American Century VP Value
- -------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth 0.75% 0.01% 0.76%
Fund, Inc.
- -------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 0.25% 0.03% 0.28%
- -------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital 0.75% 0.05% 0.80%
Appreciation Portfolio
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio: 0.50% 0.15% 0.65%
Service Class(1,2)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service 0.60% 0.17% 0.77%
Class(1,2)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio: 0.59% 0.21% 0.80%
Service Class(2)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio: Service 0.75% 0.26% 1.01%
Class(1,2)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: 0.60% 0.18% 0.78%
Service Class(1,2)
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities 0.60% 0.23% 0.83%
Portfolio: Service Class(1,2)
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Inc. - 0.04% 1.26% 1.30%
Emerging Markets Debt Portfolio(1)
- -------------------------------------------------------------------------------------------------------------
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(1) 0.75% 0.15% 0.90%
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Equity Income Fund(1) 0.80% 0.15% 0.95%
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Global Equity Fund(1) 1.00% 0.20% 1.20%
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide High Income Bond Fund(1) 0.80% 0.15% 0.95%
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Multi-Sector Bond Fund(1) 0.75% 0.15% 0.90%
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Select Advisers Mid Cap 1.05% 0.15% 1.20%
Fund(1)
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small Cap Value Fund(1) 0.90% 0.15% 1.05%
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small Company Fund 1.00% 0.11% 1.11%
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic Growth Fund(1) 0.90% 0.10% 1.00%
- -------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic Value Fund(1) 0.90% 0.10% 1.00%
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Guardian Portfolio 0.60% 0.40% 1.00%
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Mid-Cap Growth 0.60% 0.40% 1.00%
Portfolio
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Partners Portfolio 0.80% 0.06% 0.86%
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.71% 0.02% 0.73%
Oppenheimer Aggressive Growth Fund
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.73% 0.02% 0.75%
Oppenheimer Growth Fund
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.75% 0.08% 0.83%
Oppenheimer Growth & Income Fund
- -------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - 0.80% 0.00% 0.80%
Worldwide Emerging Markets Fund(1)
- -------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - 1.00% 0.17% 1.17%
Worldwide Hard Assets Fund(1)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Management Other Expenses Total Mutual
Fees Fund Expenses
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1)
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity 1.00% 0.35% 1.35%
Portfolio(1)
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post-Venture Capital 1.07% 0.33% 1.40%
Portfolio(1)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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.
(1) 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.
(2) The "Other Expenses" reflect the payment of 0.10% pursuant to a Rule
12b-1 Plan adopted by the Underlying Mutual Funds.
10
<PAGE> 11
EXAMPLE
The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1000 investment and 5% annual return. These
dollar figures are illustrative only and should not be considered a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
If you surrender your Contract If you do not surrender your If you annuitize your Contract
at the end of the applicable Contract at the end of the at the end of the applicable
time period applicable time period time period
- --------------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century Variable 81 111 134 212 18 57 98 212 * 57 98 212
Portfolios, Inc. - American
Century VP Income & Growth
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable 90 136 176 298 27 82 140 298 * 82 140 298
Portfolios, Inc. - American
Century VP International
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable 85 120 150 245 22 66 114 245 * 66 114 245
Portfolios, Inc. - American
Century VP Value
- --------------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially 82 113 137 219 19 59 101 219 * 59 101 219
Responsible Growth Fund, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, 77 97 111 165 14 43 75 165 * 43 75 165
Inc.
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 82 114 139 223 19 60 103 223 * 60 103 223
Fund - Capital Appreciation
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income 81 109 131 207 18 55 95 207 * 55 95 207
Portfolio: Service Class
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth 82 113 138 220 19 59 102 220 * 59 102 220
Portfolio: Service Class
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income 82 114 139 223 19 60 103 223 * 60 103 223
Portfolio: Service Class
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas 85 121 150 246 22 67 114 246 * 67 114 246
Portfolio: Service Class
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 82 113 138 221 19 59 102 221 * 59 102 221
Portfolio: Service Class
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth 83 115 141 227 20 61 105 227 * 61 105 227
Opportunities Portfolio:
Service Class
- --------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal 83 130 166 277 25 76 130 277 * 76 130 277
Funds, Inc. - Emerging
Markets Debt Portfolio
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Capital Appreciation 81 111 133 211 18 57 97 211 * 57 97 211
Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Government Bond Fund 80 107 127 199 17 53 91 199 * 53 91 199
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Money Market Fund 79 104 122 188 16 50 86 188 * 50 86 188
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Total Return Fund 81 106 132 209 18 56 96 209 * 56 96 209
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Balanced 83 117 145 234 20 63 109 234 * 63 109 234
Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Equity 84 119 147 240 21 65 111 240 * 65 111 240
Income Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Global 87 127 161 266 24 73 125 266 * 73 125 266
Equity Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide High 84 119 147 240 21 65 111 240 * 65 111 240
Income Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide 83 117 145 234 20 63 109 234 * 63 109 234
Multi-Sector Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Select 87 127 161 266 24 73 125 266 * 73 125 266
Advisers Mid-Cap Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small Cap 85 122 153 250 22 68 117 250 * 68 117 250
Value Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small 86 124 156 257 23 70 120 257 * 70 120 257
Company Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic 85 120 150 245 22 66 114 245 * 66 114 245
Growth Fund
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic 85 120 150 245 22 66 114 245 * 66 114 245
Value Fund
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 85 120 150 245 22 66 114 245 * 66 114 245
Guardian Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 85 120 150 245 22 66 114 245 * 66 114 245
Mid-Cap Growth Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT- 83 116 142 230 20 62 106 230 * 62 106 230
Partners Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 82 112 135 216 19 58 99 216 * 58 99 216
Funds - Oppenheimer
Aggressive Growth Fund
- --------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 82 112 137 218 19 58 101 218 * 58 101 218
Funds - Oppenheimer Growth
Fund
- --------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 83 115 141 227 20 61 105 227 * 61 105 227
Funds - Oppenheimer Growth &
Income Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 82 114 139 223 19 60 103 223 * 60 103 223
Trust - Worldwide Emerging
Markets Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 86 126 159 263 23 72 123 263 * 73 123 263
Trust - Worldwide Hard
Assets Fund
- --------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital 85 123 154 253 22 69 118 253 * 69 118 253
Life Investment Trust -
Morgan Stanley Real Estate
Securities Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 85 120 150 245 22 66 114 245 * 66 114 245
Growth & Income Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 88 131 168 282 25 77 132 282 * 77 132 282
International Equity
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 89 133 171 287 26 79 135 287 * 79 135 287
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 (1.05%), 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 has not been elected (Rider Option 2), the
expenses in the Example will be reduced accordingly.
The purpose of the Summary of Contract Expenses and Example is to assist the
Contract Owner in understanding the various costs and expenses that will be
borne directly or indirectly when investing in the Contract. The expenses of the
Variable Account as well as those of the Underlying Mutual 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
<PAGE> 13
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, with
contributions rolled-over or transferred from certain tax-qualified plans such
as Tax Sheltered Annuity Plans, Qualified Plans or IRAs; (4) Roth IRAs; and (5)
Tax Sheltered Annuities, with contributions rolled-over or transferred from
other Tax Sheltered Annuity Plans.
The initial first year Purchase Payment for Contracts issued as Non-Qualified
Contracts, IRAs, Roth 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 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. However, if any part of the Contract Value is surrendered, the
Company will, with certain exceptions, deduct from the Contract Value a CDSC.
The CDSC will not exceed the lesser of: (1) 7% of the amount surrendered; or (2)
7% of the total of all Purchase Payments made within 84 months prior to the date
of the surrender request. This charge, when applicable, is imposed to permit the
Company to recover sales expenses which have been advanced by the Company (see
"Contingent Deferred Sales Charge").
The Company deducts a Mortality Risk Charge equal to an annual rate of 0.80% of
the daily net assets of the Variable Account for mortality risks assumed by the
Company (see "Mortality Risk Charge"). The Company deducts an Expense Risk
Charge equal to an annual rate of 0.15% of the daily net assets of the Variable
Account as compensation for the Company's risk in undertaking not to increase
administrative charges on the Contracts regardless of the actual administrative
costs (see "Expense Risk Charge"). If the Contract Owner has elected a Rider
Option at the time of application, the Company deducts: (1) an optional Long
Term Care Facility and One-Year Step Up Death Benefit (Rider Option 1) charge
equal to an annual rate of 0.05% of the daily net assets of the Variable
Account; or (2) an optional Long Term Care Facility and 5% Enhanced Death
Benefit (Rider Option 2) charge equal to an annual rate of 0.10% of the daily
net assets of the Variable Account, depending on which Rider Option was chosen
(see "Optional Long Term Care Facility and Death Benefit Charges", "Long Term
Care Facility Provisions" 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 a 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 and Roth IRA refunds will be return of Purchase Payments (see "Right to
Revoke").
13
<PAGE> 14
<TABLE>
CONDENSED FINANCIAL INFORMATION(1)
Accumulation Unit values for an Accumulation Unit outstanding throughout the
period.
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE AT UNIT VALUE CHANGE IN ACCUMULATION
BEGINNING OF AT END ACCUMULATION UNITS AT END OF
FUND PERIOD OF PERIOD UNIT VALUE THE PERIOD YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Century Variable 10.000000 10.408098 4.08% 832 1997
Portfolios, Inc. -
American
Century VP Income &
Growth-Q
- --------------------------------------------------------------------------------------------------------------
American Century Variable 10.000000 10.408098 4.08% 5,236 1997
Portfolios, Inc. -
American
Century VP Income &
Growth-NQ
- --------------------------------------------------------------------------------------------------------------
American Century Variable 10.000000 10.086493 0.86% 698 1997
Portfolios, Inc. - American
Century VP International-Q
- --------------------------------------------------------------------------------------------------------------
American Century Variable 10.000000 10.086493 0.86% 2,265 1997
Portfolios, Inc. - American
Century VP International-NQ
- --------------------------------------------------------------------------------------------------------------
American Century Variable 10.000000 10.295249 2.95% 1,336 1997
Portfolios, Inc. -
American VP
Value-Q
- --------------------------------------------------------------------------------------------------------------
American Century Variable 10.000000 10.295249 2.95% 8,217 1997
Portfolios, Inc. -
American VP
Value-NQ
- --------------------------------------------------------------------------------------------------------------
The Dreyfus Socially 10.000000 10.169503 1.70% 4,821 1997
Responsible Growth Fund,
Inc.-Q
- --------------------------------------------------------------------------------------------------------------
The Dreyfus Socially 10.000000 10.169503 1.70% 2,598 1997
Responsible Growth Fund,
Inc.-NQ
- --------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, 10.000000 10.342079 3.42% 9,203 1997
Inc.-Q
- --------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, 10.000000 10.342079 3.42% 13,090 1997
Inc.-NQ
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 10.000000 10.248351 2.48% 3,777 1997
Fund - Capital Appreciation
Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 10.000000 10.248351 2.48% 706 1997
Fund - Capital Appreciation
Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity- 10.000000 10.336779 3.37% 18,611 1997
Income Portfolio: Service
Class-Q
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity- 10.000000 10.336779 3.37% 36,514 1997
Income Portfolio: Service
Class-NQ
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth 10.000000 10.029235 0.29% 4,718 1997
Portfolio: Service Class-Q
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth 10.000000 10.029235 0.29% 9,713 1997
Portfolio: Service Class-NQ
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP High 10.000000 10.125013 1.25% 2,418 1997
Income Portfolio: Service
Class-Q
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP High 10.000000 10.125013 1.25% 12,697 1997
Income Portfolio: Service
Class-NQ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
CONDENSED FINANCIAL INFORMATION CONTINUED(1)
Accumulation Unit values for an Accumulation Unit outstanding throughout the
period.
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE AT UNIT VALUE CHANGE IN ACCUMULATION
BEGINNING OF AT END ACCUMULATION UNITS AT END OF
FUND PERIOD OF PERIOD UNIT VALUE THE PERIOD YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fidelity VIP Overseas 10.000000 9.900760 -0.99% 887 1997
Portfolio: Service Class-Q
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas 10.000000 9.900760 -0.99% 9,071 1997
Portfolio: Service Class-NQ
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 10.000000 9.953285 -0.47% 12,678 1997
Portfolio: Service
Class-Q
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 10.000000 9.953285 -0.47% 14,306 1997
Portfolio: Service
Class-NQ
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth 10.000000 10.398800 3.99% 8,419 1997
Opportunities Portfolio:
Service Class-Q
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth 10.000000 10.398800 3.99% 13,599 1997
Opportunities Portfolio:
Service Class-NQ
- --------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal 10.000000 10.423780 4.24% 204 1997
Funds, Inc. - Emerging
Markets Debt Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal 10.000000 10.423780 4.24% 1,531 1997
Funds, Inc. - Emerging
Markets Debt Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Capital Appreciation 10.000000 10.383931 3.84% 4,967 1997
Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Capital Appreciation 10.000000 10.383931 3.84% 23,354 1997
Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Government Bond 10.000000 10.141552 1.42% 17,678 1997
Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Government Bond 10.000000 10.141552 1.42% 21,953 1997
Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Money Market 10.000000 10.072429 0.72% 109,198 1997
Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Money Market 10.000000 10.072429 0.72% 61,681 1997
Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Total Return Fund-Q 10.000000 10.241300 2.41% 13,269 1997
- --------------------------------------------------------------------------------------------------------------
NSAT - Total Return 10.000000 10.241300 2.41% 37,377 1997
Fund- NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide 10.000000 10.129053 1.29% 4,261 1997
Balanced Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide 10.000000 10.129053 1.29% 13,393 1997
Balanced Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Equity 10.000000 10.160070 1.60% 2,466 1997
Income Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Equity 10.000000 10.160070 1.60% 2,603 1997
Income Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Global 10.000000 10.100588 1.01% 1,682 1997
Equity Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Global 10.000000 10.100588 1.01% 3,870 1997
Equity Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide High 10.000000 10.210867 2.11% 2,543 1997
Income Bond Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide High 10.000000 10.210867 2.11% 15,172 1997
Income Bond Fund-NQ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
<TABLE>
CONDENSED FINANCIAL INFORMATION CONTINUED(1)
Accumulation Unit values for an Accumulation Unit outstanding throughout the
period.
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE AT UNIT VALUE CHANGE IN ACCUMULATION
BEGINNING OF AT END ACCUMULATION UNITS AT END OF
FUND PERIOD OF PERIOD UNIT VALUE THE PERIOD YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NSAT - Nationwide Multi- 10.000000 10.087176 0.87% 2,097 1997
Sector Bond Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Multi- 10.000000 10.087176 0.87% 11,411 1997
Sector Bond Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Select 10.000000 9.947507 -0.52% 2,671 1997
Advisers Mid Cap Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Select 10.000000 9.947507 -0.52% 1,954 1997
Advisers Mid Cap Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small 10.000000 9.822329 -1.78% 3,373 1997
Cap Value Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small 10.000000 9.822329 -1.78% 5,548 1997
Cap Value Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small 10.000000 9.611642 -3.88% 453 1997
Company Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small 10.000000 9.611642 -3.88% 12,059 1997
Company Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide 10.000000 10.202497 2.02% 201 1997
Strategic
Growth Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide 10.000000 10.202497 2.02% 3,231 1997
Strategic
Growth Fund-NQ
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic 10.000000 10.145838 1.46% 227 1997
Value Fund-Q
- --------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic 10.000000 10.145838 1.46% 5,509 1997
Value Fund-NQ
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT 10.000000 10.502434 5.02% 590 1997
Guardian Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT 10.000000 10.502434 5.02% 5,754 1997
Guardian Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT 10.000000 11.700489 17.00% 3,696 1997
Mid-Cap Growth Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT 10.000000 11.700489 17.00% 6,472 1997
Mid-Cap Growth Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT 10.000000 10.130813 1.31% 9,975 1997
Partners Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT 10.000000 10.130813 1.31% 40,357 1997
Partners Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 9.531780 -4.68% 3,437 1997
Account Funds -
Oppenheimer Aggressive
Growth Fund-Q
- --------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 9.531780 -4.68% 11,150 1997
Account Funds -
Oppenheimer Aggressive
Growth Fund-NQ
- --------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 9.825746 -1.74% 2,404 1997
Account Funds -
Oppenheimer Growth Fund-Q
- --------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 9.825746 -1.74% 7,972 1997
Account Funds -
Oppenheimer Growth Fund-NQ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
<TABLE>
CONDENSED FINANCIAL INFORMATION CONTINUED(1)
Accumulation Unit values for an Accumulation Unit outstanding throughout the
period.
<CAPTION>
ACCUMULATION ACCUMULATION PERCENT NUMBER OF
UNIT VALUE AT UNIT VALUE CHANGE IN ACCUMULATION
BEGINNING OF AT END ACCUMULATION UNITS AT END OF
FUND PERIOD OF PERIOD UNIT VALUE THE PERIOD YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Variable 10.000000 10.257840 2.58% 1,064 1997
Account Funds -
Oppenheimer Growth &
Income Fund-Q
- --------------------------------------------------------------------------------------------------------------
Oppenheimer Variable 10.000000 10.257840 2.58% 15,025 1997
Account Funds -
Oppenheimer Growth &
Income Fund-NQ
- --------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 8.813437 -11.87% 733 1997
Insurance Trust - Worldwide
Emerging Markets Fund-Q
- --------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 8.813437 -11.87% 779 1997
Insurance Trust - Worldwide
Emerging Markets Fund-NQ
- --------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 8.978030 -10.22% 206 1997
Insurance Trust - Worldwide
Hard Assets Fund-Q
- --------------------------------------------------------------------------------------------------------------
Van Eck Worldwide 10.000000 8.978030 -10.22% 1,789 1997
Insurance Trust - Worldwide
Hard Assets Fund-NQ
- --------------------------------------------------------------------------------------------------------------
Van Kampen American 10.000000 10.337004 3.37% 416 1997
Capital Life Investment
Trust-
Morgan Stanley Real Estate
Securities Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Van Kampen American 10.000000 10.337004 3.37% 10,121 1997
Capital Life Investment
Trust-
Morgan Stanley Real Estate
Securities Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 10.000000 10.371958 3.72% 2,908 1997
Growth & Income Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 10.000000 10.371958 3.72% 4,127 1997
Growth & Income Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 10.000000 9.453278 -5.47% 866 1997
International Equity
Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 10.000000 9.453278 -5.47% 5,787 1997
International Equity
Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 10.000000 9.851173 -1.49% 830 1997
Post-Venture Capital
Portfolio-Q
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 10.000000 9.851173 -1.49% 2,366 1997
Post-Venture Capital
Portfolio-NQ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Contracts issued under this prospectus were first available October
27, 1997. Therefore, the Condensed Financial Information reflects the
period from October 27, 1997 to December 31, 1997.
17
<PAGE> 18
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.
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 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 Appendix B 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 1-800-325-6434, TDD 1-800-238-3035, or writing P.O. Box 182437,
Columbus, Ohio 43218-2437. 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
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<PAGE> 19
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.
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 an 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 an 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.
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<PAGE> 20
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 1-800-325-6434, TDD 1-800-238-3035, or writing P.O. Box 182437,
Columbus, Ohio 43218-2437. GTOs MAY NOT BE AVAILABLE IN EVERY STATE
JURISDICTION.
VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS
EXPENSES OF VARIABLE ACCOUNT
The Variable Account is responsible for the following types of expenses: (1)
administrative expenses relating to the issuance and maintenance of the
Contracts; (2) mortality risk charge associated with guaranteeing the annuity
purchase rates at issue for the life of the Contracts; and (3) expense risk
charge associated with guaranteeing that the Mortality Risk and Expense Risk
Charges described in this prospectus will not change regardless of actual
expenses. If these charges are insufficient to cover these expenses, the loss
will be borne by the Company.
All of the charges described in this section apply to Variable Account
allocations. Allocations to the Fixed Account or to the GTOs are subject to CDSC
and premium tax deductions, if applicable, but are not subject to charges
exclusive to the Variable Account; i.e., the Mortality Risk Charge and Expense
Risk Charge and if applicable, the Death Benefit Option Rider Charge.
MORTALITY RISK CHARGE
The Company deducts a Mortality Risk Charge from the Variable Account. This
amount is computed on a daily basis, and is equal to an annual rate of 0.80% of
the daily net assets of the Variable Account. By guaranteeing the Contract's
annuity rate, the Company assumes the Mortality Risk. These guarantees cannot
change regardless of the death rates of persons receiving annuity payments or of
the general population.
EXPENSE RISK CHARGE
The Company deducts an Expense Risk Charge from the Variable Account. This
amount is computed on a daily basis and is equal to an annual rate of 0.15% of
the daily net assets of the Variable Account. The Company will not increase
charges for administration of the Contracts regardless of its actual expenses.
OPTIONAL LONG TERM CARE FACILITY AND DEATH BENEFIT RIDER CHARGES
If a Long Term Care Facility and 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 upon which rider was chosen (see
"Death Benefit Payment"). These charges are designed to reimburse the Company
for increased expenses and mortality risks.
CONTINGENT DEFERRED SALES CHARGE ("CDSC")
No deduction for sales charges is made from the Purchase Payments for these
Contracts. However, if any part of the Contract Value is surrendered, the
Company will, with certain exceptions, deduct a CDSC (see "Waiver of CDSC"). The
CDSC will not exceed the lesser of: (1) 7% of the amount surrendered; or (2) 7%
of the total of all Purchase Payments made within 84 months prior to the date of
the surrender request. The CDSC, when it is applicable, will be used to cover
expenses relating to the sale of the Contracts, including commissions paid to
sales personnel, the costs of preparation of sales literature and other
promotional activity. The Company attempts to recover its distribution costs
relating to the sale of the Contracts from the CDSC. Any shortfall will be made
up from the General Account of the Company, which may indirectly include
portions of the Mortality and Expense Risk Charges, since the Company expects to
generate a profit from these charges. The maximum amount that may be paid to a
selling agent on the sale of these Contracts is 6% of Purchase Payments.
The CDSC is calculated by multiplying the applicable CDSC percentages noted
below by the Purchase Payments that are surrendered. For purposes of calculating
the CDSC, surrenders are considered to come first from the oldest Purchase
Payment made to the Contract, then the next oldest Purchase Payment and so
forth. For tax purposes, a surrender is usually treated as a withdrawal of
earnings first.
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<PAGE> 21
The CDSC applies to Purchase Payments as follows:
<TABLE>
<CAPTION>
NUMBER OF COMPLETED CDSC NUMBER OF COMPLETED CDSC
YEARS FROM DATE OF PERCENTAGE YEARS FROM DATE OF PERCENTAGE
PURCHASE PAYMENT PURCHASE PAYMENT
<S> <C> <C> <C>
0 7% 4 4%
1 7% 5 3%
2 6% 6 2%
3 5% 7 0%
</TABLE>
WAIVER OF CDSC
Each Contract Year, the Contract Owner may withdraw, without a CDSC the greater
of:
(a) an amount equal to 10% of the total of all Purchase Payments;
or
(b) any amount withdrawn to meet minimum Distribution requirements
under the Code.
This CDSC-free withdrawal privilege is non-cumulative. Free amounts not taken
during any given Contract Year cannot be taken as free amounts in a subsequent
Contract Year.
In addition, no CDSC will be deducted:
(1) upon the Annuitization of Contracts which have been in force
for at least two years;
(2) upon payment of a Death Benefit pursuant to the death of the
Annuitant; or
(3) from any values which have been held under a Contract for at
least 84 months.
No CDSC applies upon the transfer of values among the Sub-Accounts or between or
among the GTOs, the Fixed Account and the Variable Account. When a Contract
described in this prospectus is exchanged for another Contract issued by the
Company or any of its affiliated insurance companies, of the type and class
which the Company determines is eligible for such exchange, the Company may
waive the CDSC on the first Contract. A CDSC may apply to the contract received
in the exchange
When a Contract is held by a Charitable Remainder Trust, the amount which may be
withdrawn from this Contract without application of a CDSC, will be the larger
of (a) or (b), where:
(a) is the amount which would otherwise be available for
withdrawal without application of a CDSC; and where
(b) is the difference between the total Purchase Payments made to
the Contract as of the date of the withdrawal (reduced by
previous withdrawals of such Purchase Payments) and the
Contract Value at the close of the day prior to the date of
the withdrawal.
The Contract Owner may be subject to income tax on all or a portion of any such
withdrawals and to a tax penalty if the Contract Owner takes withdrawals prior
to age 59 1/2 (see "Non-Qualified Contracts-Natural Persons as Contract
Owners").
In no event will elimination of CDSC be permitted where such elimination will be
unfairly discriminatory to any person, or where it is prohibited by state law.
PREMIUM TAXES
The Company will charge against the Contract Value 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.
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<PAGE> 22
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 Fixed Account, 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 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 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.
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.
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<PAGE> 23
(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 Mortality Risk Charge and
Expense Risk Charge. Such factor is equal to an annual rate of
0.95% of the daily net assets of the Variable Account (1.00%
or 1.05% if one of the optional Long Term Care Facility and
Death Benefit Riders 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 Mortality Risk Charge and Expenses Risk Charge, and if applicable, the
Long Term Care Facility and Death Benefit Rider Charge.
DETERMINING THE CONTRACT VALUE
The Contract Value is the sum of the value of all Accumulation Units, amounts
allocated and credited to the Fixed 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 Fixed Account and the
GTOs will be deducted in the same proportion that the Contract Owner's interest
in each of the Sub-Accounts, the Fixed Account and the 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 and Roth 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
The Contract Owner may request a transfer of up to 100% of the combined value of
any GTO allocation and the Variable Account value to the Fixed Account, without
penalty or adjustment. Transfers from a GTO prior to maturity are subject to a
Market Value Adjustment. The Company reserves the right to restrict transfers
from the Variable Account to the Fixed Account to 10% of the combined value of
any GTO allocation and the Variable Account Contract Value for any 12 month
period. All amounts transferred to the Fixed Account must remain on deposit in
the Fixed Account until the expiration of the current Interest Rate Guarantee
Period. In addition, transfers from the Fixed Account may not be made prior to
the end of the then current Interest Rate Guarantee Period. The Interest Rate
Guarantee Period for any amount allocated to the Fixed Account expires on the
final day of a calendar quarter during which the one year anniversary of the
allocation to the Fixed Account occurs. For all transfers involving the Variable
Account, the Contract Owner's value in each Sub-Account will be determined as of
the date the transfer request is received in the Home Office in good order. The
Company reserves the right to refuse transfers or Purchase Payments into the
Fixed Account if the Fixed Account is greater than or equal to 30% of the total
Contract Value. Once the Contract has been Annuitized, transfers may only be
made on each anniversary of the Annuitization Date.
The Contract Owner may at the maturity of an Interest Rate Guarantee Period,
transfer a portion of the value of the Fixed Account to the Variable Account or
to a GTO. The amount that may be transferred from the Fixed Account to the
Variable Account or to a GTO will be determined by the Company, at its sole
discretion, but will not be less than 10% of the total value of the portion of
the Fixed Account that is maturing. The amount that may be transferred from the
Fixed Account will be declared upon the expiration date of the then current
Interest Rate
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<PAGE> 24
Guarantee Period. Transfers from the Fixed Account must be made within 45 days
after the expiration date of the guarantee period. Contract Owners who have
entered into a Dollar Cost Averaging agreement with the Company (see "Dollar
Cost Averaging") may transfer from the Fixed Account to the Variable Account
(but not to GTOs) under the terms of that agreement.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. This telephone exchange privilege is made available to Contract
Owners automatically without the Contract Owner's election. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include any or all of the following:
requesting identifying information, such as name, contract number, Social
Security Number, and/or personal identification number; tape recording all
telephone transactions, and providing written confirmation thereof to both the
Contract Owner and any agent of record, at the last address of record; or such
other procedures as the Company may deem reasonable. Although the Company's
failure to follow reasonable procedures may result in the Company's liability
for any losses due to unauthorized or fraudulent telephone transfers, the
Company will not be liable for following instructions communicated by telephone
which it reasonably believes to be genuine. Any losses incurred pursuant to
actions taken by the Company in reliance on telephone instructions reasonably
believed to be genuine 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 of more than one Contract
Owner, or
(2) the transfer or exchange instructions of individual Contract
Owners who have executed preauthorized transfer or exchange
forms which are submitted by market timing firms or other
third parties on behalf of more than one Contract Owner at the
same time.
The Company will not impose any such restrictions or otherwise modify exchange
rights unless such action is reasonably intended to prevent the use of such
rights in a manner that will disadvantage or potentially impair the contract
rights of other Contract Owners.
CONTRACT OWNERSHIP
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
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<PAGE> 25
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 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 Fixed
Account and GTOs to equal the gross dollar amount requested, less any applicable
CDSC (see "Contingent Deferred Sales Charge"). In the event of a partial
surrender, the Company will, unless instructed to the contrary, surrender
Accumulation Units from all Sub-Accounts in which the Contract Owner has an
interest, and an amount from the Fixed Account and GTOs. The number of
Accumulation Units surrendered from each Sub-Account and the amount surrendered
from the Fixed Account and GTOs will be in the same proportion that the Contract
Owner's interest in the Sub-Accounts, Fixed Account and GTOs bears to the total
Contract Value.
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<PAGE> 26
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 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.
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.
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LOAN PRIVILEGE
Prior to the Annuitization Date, the Contract Owner of a Tax Sheltered Annuity
Contract may receive a loan from the Contract Value subject to the terms of the
Contract, the Plan, and the Code, which may impose restrictions on loans.
Loans from Tax Sheltered Annuities are available beginning 30 days after the
Date of Issue. The Contract Owner may borrow a minimum of $1,000, 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 the 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 asset in each option until
the required balance is reached or all such Accumulation Units are exhausted.
Any additional requested collateral will next be transferred from the Fixed
Account. Any remaining required collateral will be transferred from the GTO
which may be subject to Market Value Adjustment. No withdrawal charges are
deducted at the time of the loan, or on any transfers to the collateral fixed
account.
Until the loan has been repaid in full, that portion of the collateral fixed
account equal to the outstanding loan balance 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
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. No loan repayments less than $1,000 are permitted into the
GTOs. If the proportional share of the loan repayment to the GTOs 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 the loan repayments to be
directed to the Fixed Account or another available investment option under the
Variable Account.
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.
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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 terms 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 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, 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.
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 a 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,
NSAT-Money Market Fund or the Fixed Account 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
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transfer is $100. Transfers will be processed until either the value in the
originating Sub-Account(s) or the Fixed Account 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 and the Fixed Account on a
prorated basis. Systematic Withdrawals are not available from the GTOs. A CDSC
may apply (see "Contingent Deferred Sales Charge"). Unless directed otherwise by
the Contract Owner, the Company will withhold federal income taxes. In addition,
a 10% penalty tax may be assessed by the IRS 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 in writing
If the Contract Owner withdraws amounts pursuant to a Systematic Withdrawal
program, then the Contract Owner may withdraw each Contract Year without a CDSC
an amount up to the greatest of: (1) 10% of the total sum of all Purchase
Payments made to the Contract at the time of withdrawal; (2) an amount withdrawn
in order to meet minimum Distribution requirements; or (3) the specified
percentage of the Contract Value based on the Contract Owner's age, as shown in
the following table:
Contract Owner's Percentage of
Age Contract Value
- --------------------------- -------------------
Under Age 59 1/2 5%
Age 59 1/2 through Age 61 7%
Age 62 through Age 64 8%
Age 65 through Age 74 10%
Age 75 and Over 13%
If the total amounts withdrawn in any Contract Year exceed the CDSC-free amount
as calculated under the Systematic Withdrawal method described above, then such
total withdrawn amounts will be eligible only for the 10% of Purchase Payment
CDSC-free withdrawal privilege described in the "Contingent Deferred Sales
Charge" section, and the total amount of CDSC charged during the Contract Year
will be determined in accordance with that provision.
The Contract Value and the Contract Owner's age for purposes of applying the
CDSC-free withdrawal percentage described in this provision are determined as of
the date the request for a Systematic Withdrawal program is received and
recorded by the Home Office. (In the case of Joint Owners, the older Owner's age
will be used.) Furthermore, this CDSC-free withdrawal privilege for Systematic
Withdrawals is non-cumulative. Free amounts not taken during any given Contract
Year cannot be taken as free amounts in a subsequent Contract Year.
The Company reserves the right to discontinue 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.
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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.
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 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. 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.
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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.
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 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 the 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 last surviving Contract Owner's estate becomes
the Contract Owner. The entire interest in the Contract Value, less any
applicable deductions (which may include a CDSC), must be distributed in
accordance with the provisions of "Required Distributions for Non-Qualified
Contracts".
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 last
surviving 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
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(3) in 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 person, 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 last
surviving 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).
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).
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.
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 Death Benefit (Standard Contractual
Death Benefit).
ONE-YEAR STEP UP DEATH BENEFIT (RIDER OPTION 1)
If the Annuitant dies at any time prior to the Annuitization Date, the
dollar amount of the death benefit will be the greatest of:
(1) the Contract Value;
(2) the total of all Purchase Payments, less an
adjustment for amounts surrendered; or
(3) the highest Contract Value on any Anniversary Date
before the Annuitant's 86th birthday, less an
adjustment for amounts surrendered, plus Purchase
Payments received after that Contract Anniversary.
The adjustment for amounts surrendered will reduce items (2) and (3)
above in the same proportion that the Contract Value was reduced on the
date(s) of the partial surrender(s).
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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 from this charge.
5% ENHANCED DEATH BENEFIT (RIDER OPTION 2)
If the Annuitant dies at any time prior to Annuitization Date, the
dollar amount of the death benefit will be the greater of:
(1) the Contract Value; or
(2) the total of all Purchase Payments, less any amounts
surrendered, accumulated at 5% simple interest from
the date of each Purchase Payment or surrender to the
most recent Contract Anniversary Date prior to the
Annuitant's 86th birthday, less an adjustment for
amounts surrendered, plus Purchase Payments received
since that anniversary.
The 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 Rider 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 from this charge.
FOR ANY DEATH BENEFIT OPTION SELECTED, IF THE ANNUITANT DIES AFTER THE
ANNUITIZATION DATE, ANY PAYMENT THAT MAY BE PAYABLE WILL BE DETERMINED ACCORDING
TO THE SELECTED ANNUITY PAYMENT OPTION.
LONG TERM CARE FACILITY PROVISIONS
For those Contracts which have elected a Long Term Care Facility and Death
Benefit Rider at the time of application, the following Long Term Care Facility
provisions also apply. Beginning at the third Contract Anniversary Date,
surrender charges on withdrawals will not apply if a Contract Owner has been
confined to a Long Term Care Facility or Hospital for a continuous 90 day period
which has commenced any time after the Contract Issue Date. In addition, upon
receipt of a Physician's letter at the Home Office, no surrender charges will be
deducted upon withdrawals if any Contract Owner has been diagnosed by that
Physician to have a Terminal Illness.
For those Contracts which have established a non-natural person as Contract
Owner for the benefit of a natural person, the Annuitant may exercise the rights
as Contract Owner for the purposes described in this provision. IF THE
NON-NATURAL CONTRACT OWNER HAS NOT BEEN ESTABLISHED FOR THE BENEFIT OF A PERSON
(E.G., THE CONTRACT OWNER IS A CORPORATION OR A TRUST FOR THE BENEFIT OF AN
ENTITY), THE ANNUITANT MAY NOT EXERCISE THE RIGHTS DESCRIBED IN THIS PROVISION.
The Contract Owner may be subject to income tax on all or a portion of any such
withdrawals and to a tax penalty if the Contract Owner takes withdrawals prior
to age 59 1/2 (see "Non-Qualified Contracts - Natural Persons as Contract
Owners").
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.
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.
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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.
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:
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(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
Distributions from an 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 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 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 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
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 Individual
Retirement Annuity or 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 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 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.
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) IRAs; (2) Roth IRAs; (3) Tax
Sheltered Annuities; and (4) Non-Qualified Contracts. Each type of annuity is
discussed below.
Distributions to participants from Tax Sheltered Annuities are generally taxed
when received. A portion of each Distribution is excludable from income based on
a 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 Contracts owned by Individual Retirement Accounts
are generally taxed when received. The portion of each such payment which is
excludable is based on the ratio between the amount by which nondeductible
Purchase Payments to all the Contracts exceeds prior non-taxable Distributions
from such Contracts, and the total account balances in such Contracts at the
time of the Distribution. The owner of such IRAs or the Annuitant under
Contracts held by Individual Retirement Accounts must annually report to the IRS
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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 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 homebuyer 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 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 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
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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 a
Contract 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
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apply, however, to a non-natural person who is an employer that holds the
Contract under a non-qualified deferred compensation arrangement for one or more
employees.
The non-natural person rules also do not apply to a Contract that is:
(a) acquired by the estate of a decedent by reason of the death of
the decedent;
(b) issued in connection with certain qualified retirement plans
and individual retirement plans;
(c) used in connection with certain structured settlements;
(d) purchased by an employer upon the termination of certain
qualified retirement plans; or
(e) an immediate annuity.
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 IRAs and Tax Sheltered Annuities 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
IRAs. Most Distributions from Tax-Sheltered Annuities may be rolled into another
Tax-Sheltered Annuity, IRAs, or an Individual Retirement Account. 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.
Individual Retirement Accounts and 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 Individual Retirement Account or 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.
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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.
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 includable in the recipient's gross income for United States federal
income tax purposes. Any such Distributions will be subject to the rules set
forth in the section entitled "Withholding."
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
A transfer of the Contract from one Contract Owner to another, or the payment of
a Distribution under the Contract to someone other than a Contract Owner, may
constitute a gift for federal gift tax purposes. Upon the death of the Contract
Owner, the value of the Contract may be included in his or her gross estate for
federal estate 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 such Death Benefit, Distribution, or other
payment by such tax liability, and pay the tax liability directly to the IRS.
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Federal estate, gift and generation-skipping transfer tax consequences, and
state and local estate, inheritance, succession, generation skipping transfer,
and other tax consequences of owning or transferring a Contract, and of
receiving a Distribution, Death Benefit, or other payment, depend on the
circumstances of the person owning or transferring the Contract, or person
receiving a Distribution, Death Benefit, or other payment.
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.
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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
182437, Columbus, Ohio 43218-2437, or calling 1-800-325-6434, 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 Contracts
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 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 from time to time 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/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 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.
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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-Account's
standardized "average annual total return," calculated in a manner prescribed by
the SEC, and nonstandardized "total return." "Average annual total return"
illustrates 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 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 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 except the CDSC) had such Underlying Mutual Fund options been available
in the Variable Account for the periods quoted. THE CDSC IS NOT REFLECTED
BECAUSE THE CONTRACTS ARE DESIGNED FOR LONG TERM INVESTMENT. THE CDSC, IF
REFLECTED, WOULD DECREASE THE LEVEL OF PERFORMANCE SHOWN. 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.
The quotations and other comparative material advertised by the Company are
based upon historical earnings and are not intended to represent or guarantee
future results. Contract Value at redemption may be more or less than the
original cost.
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.
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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.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
General Information and History...............................................1
Services......................................................................1
Purchase of Securities Being Offered..........................................1
Underwriters..................................................................2
Calculations of Performance...................................................2
Annuity Payments..............................................................3
Financial Statements..........................................................4
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APPENDIX A
FIXED ACCOUNT
the general account of the Company, which support insurance and annuity
obligations. Because of exemptive and exclusionary provisions, interests in the
general account have not been registered under the "1933 Act" nor is the general
account registered as an investment company under the "1940 Act." Accordingly,
neither the general account nor any interest therein are subject to the
provisions of the 1933 or 1940 Acts, and we have been advised that the staff of
the SEC has not reviewed the disclosures in this prospectus which relate to the
Fixed Account. Disclosures regarding the Fixed Account and the general account
may be subject to certain provisions of the federal securities law relating to
the accuracy and completeness of statements made in prospectuses.
FIXED ACCOUNT ALLOCATIONS
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company, other
than those in the Variable Account and any other segregated asset account.
Purchase Payments will be allocated to the Fixed Account by election of the
Contract Owner.
The Company will invest the assets of the Fixed Account in those assets chosen
by the Company and allowed by applicable law. Investment income from such assets
will be allocated by the Company between itself and the Contracts participating
in the Fixed Account.
Investment income from the Fixed Account includes compensation for mortality and
expense risks borne by the Company in connection with Fixed Account Contracts.
The amount of such investment income allocated to the contracts will vary from
at the sole discretion of the Company at such rate(s) as the Company
prospectively declares. The guaranteed rate for any Purchase Payment will remain
in effect for a period not less than twelve months. However, the Company
guarantees that it will credit interest at not less than 3.0% per year. ANY
INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3.0%
PER YEAR WILL BE DETERMINED AT THE SOLE DISCRETION OF THE COMPANY. THE CONTRACT
OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY
NOT EXCEED THE MINIMUM GUARANTEE OF 3.0% FOR ANY GIVEN YEAR. New Purchase
Payments deposited to the Contract which are allocated to the Fixed Account may
receive a different rate of interest than money transferred from the
Sub-Accounts to the Fixed Account and amounts maturing in the Fixed Account at
the expiration of an Interest Rate Guarantee Period.
The Company guarantees that the Fixed Account Contract Value will not be less
than the amount of the Purchase Payments allocated to the Fixed Account, plus
interest credited as described above, less any applicable charges including
CDSC.
TRANSFERS
For transfers from the Fixed Account to the Variable Account, refer to the
"Transfers" provision of the prospectus.
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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 CENTURYSM
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.
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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.
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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-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
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by the Fund. Strong Capital Management, Inc. has subcontracted with
Schafer Capital Management, Inc. to subadvise the Fund.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust ("N&B AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of N&B AMT are offered in connection with certain variable annuity
contracts and variable life insurance policies issued through life insurance
company separate accounts and are also offered directly to qualified pension and
retirement plans outside of the separate account context.
The Guardian, Partners and Mid-Cap 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
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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.
-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.
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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 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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