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NATIONWIDE LIFE INSURANCE COMPANY
Modified Single Premium Deferred Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through its Nationwide Variable
Account-9
The date of this prospectus is July 1, 1999.
- --------------------------------------------------------------------------------
This prospectus contains basic information you should know about the contracts
before investing.
Please read it and keep it for future reference.
The following underlying mutual funds are available under the contracts:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
o American Century: VP Income & Growth
o American Century: VP International
o American Century: VP Value
DREYFUS
o Dreyfus Variable Investment Fund - Capital Appreciation
Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
o VIP Growth Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
o VIP II Contrafund Portfolio: Service Class
NATIONWIDE SEPARATE ACCOUNT TRUST
o Money Market Fund
o Nationwide Equity Income Fund
(subadviser: Federated Investment Counseling)
o Nationwide High Income Bond Fund*
(subadviser: Federated Investment Counseling)
o Nationwide Multi Sector Bond Fund
(subadviser: Salomon Brothers Asset Management, Inc. with
Salomon Brothers Asset Management Limited)
o Nationwide Small Company Fund
(subadvisers: The Dreyfus Corporation, Neuberger Berman, LLC,
Lazard Asset Management, Strong Capital Management, Inc. and
Warburg Pincus Asset Management, Inc.)
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
o AMT Mid-Cap Growth Portfolio
o AMT Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
o Oppenheimer Aggressive Growth Fund/VA (formerly "Oppenheimer
Capital Appreciation Fund")
VICTORY VARIABLE INSURANCE FUNDS
o Diversified Stock Fund: Class A
o Investment Quality Bond Fund: Class A
o Small Company Opportunity Fund: Class A
WARBURG PINCUS TRUST
o International Equity Portfolio
*This underlying mutual fund may invest in lower quality debt securities
commonly referred to as junk bonds.
Purchase payments not invested in the underlying mutual funds of the Nationwide
Variable Account-9 ("variable account") can be allocated to the fixed account or
the Guaranteed Term Options (Guaranteed Term Options may not be available in
every jurisdiction - refer to your contract for specific information).
The Statement of Additional Information (dated May 1, 1999) which contains
additional information about the contracts and the variable account, has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated
herein by reference. The table of contents for the Statement of Additional
Information is on page 47.
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For general information or to obtain FREE copies of the:
o Statement of Additional Information
o prospectus for any underlying mutual fund
o prospectus for the Guaranteed Term Options
o required Nationwide forms,
call: 1-800-848-6331
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 16609
COLUMBUS, OHIO 43216-6609
The Statement of Additional Information and other material incorporated by
reference can be found on the SEC website at:
www.sec.gov
Information about this and other Best of America products can be found at:
www.bestofamerica.com
THIS ANNUITY IS NOT:
o A BANK DEPOSIT o FEDERALLY INSURED
o ENDORSED BY A BANK OR o AVAILABLE IN EVERY STATE
GOVERNMENT AGENCY
Investors assume certain risks when investing in the contracts, including the
possibility of losing money.
These contracts are offered to customers of various financial institutions and
brokerage firms. No financial institution or brokerage firm is responsible for
the guarantees under the contracts. Guarantees under the contracts are the sole
responsibility of Nationwide.
In the future, additional underlying mutual funds managed by certain financial
institutions or brokerage firms may be added to the variable account. These
additional underlying mutual funds may be offered exclusively to purchasing
customers of the particular financial institution or brokerage firm.
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.
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the variable
account contract value before the annuitization date.
ANNUITIZATION DATE- The date on which annuity payments begin.
ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to
begin. This date may be changed by the contract owner with Nationwide's consent.
ANNUITY UNIT- An accounting unit of measure used to calculate the variable
payment annuity payments.
CONTRACT VALUE- The total of all accumulation units, any amount held in the
fixed account, and any amount held under Guaranteed Term Options.
CONTRACT YEAR- Each year the contract is in force beginning with the date the
contract is issued.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT- An investment option which is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
INDIVIDUAL RETIREMENT ACCOUNT- An account that qualifies for favorable tax
treatment under Section 408(a) of the Internal Revenue Code, but does not
include Roth IRAs.
INDIVIDUAL RETIREMENT ANNUITY- An annuity contract that qualifies for favorable
tax treatment under Section 408(b) of the Internal Revenue Code, but does not
include Roth IRAs.
INVESTMENT-ONLY CONTRACT- A contract purchased by a Qualified Pension,
Profit-Sharing or Stock Bonus Plan as defined by Section 401(a) of the Internal
Revenue Code.
NATIONWIDE- Nationwide Life Insurance Company.
NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax
treatment as a Qualified Plan, IRA, Roth IRA or Tax Sheltered Annuity.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Internal Revenue Code.
ROTH IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408A of the Internal Revenue Code.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units and annuity units are
separately maintained.
TAX SHELTERED ANNUITY- An annuity that qualifies for favorable tax treatment
under Section 403(b) of the Internal Revenue Code.
VALUATION PERIOD- Each day the New York Stock Exchange is open for business.
VARIABLE ACCOUNT- Nationwide Variable Account-9, a separate account of
Nationwide that contains variable account allocations. The variable account is
divided into sub-accounts, each of which invests in shares of a separate
underlying mutual fund.
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<TABLE>
TABLE OF CONTENTS
<S> <C>
GLOSSARY OF SPECIAL TERMS..................................................3
SUMMARY OF STANDARD CONTRACT EXPENSES......................................6
ADDITIONAL CONTRACT OPTIONS................................................7
UNDERLYING MUTUAL FUND ANNUAL EXPENSES.....................................8
EXAMPLE....................................................................9
SYNOPSIS OF THE CONTRACTS.................................................10
FINANCIAL STATEMENTS......................................................11
CONDENSED FINANCIAL INFORMATION...........................................11
NATIONWIDE LIFE INSURANCE COMPANY.........................................11
NATIONWIDE ADVISORY SERVICES, INC.........................................11
INVESTING IN THE CONTRACT.................................................11
The Variable Account and Underlying Mutual Funds
Guaranteed Term Options
The Fixed Account
STANDARD CHARGES AND DEDUCTIONS...........................................14
Mortality and Expense Risk Charge
Contingent Deferred Sales Charge
Premium Taxes
OPTIONAL CONTRACT BENEFITS, CHARGES AND DEDUCTIONS........................16
Death Benefit Option
Guaranteed Minimum Income Benefit Options
CONTRACT OWNERSHIP........................................................16
Joint Ownership
Contingent Ownership
Annuitant
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT.................................................18
Minimum Initial and Subsequent Purchase Payments
Pricing
Allocation of Purchase Payments
Determining the Contract Value
Transfers
RIGHT TO REVOKE...........................................................21
SURRENDER (REDEMPTION)....................................................21
Partial Surrenders (Partial Redemptions)
Full Surrenders (Full Redemptions)
Surrenders Under a Texas Optional
Retirement Program or a Louisiana Optional Retirement Plan
Surrenders Under a Tax Sheltered Annuity
LOAN PRIVILEGE............................................................23
Minimum & Maximum Loan Amounts
Loan Processing Fee
How Loan Requests are Processed
Loan Interest
Loan Repayment
Distributions & Annuity Payments
Transferring the Contract
Grace Period & Loan Default
ASSIGNMENT................................................................24
CONTRACT OWNER SERVICES...................................................25
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE.................................................27
ANNUITIZING THE CONTRACT..................................................27
Annuitization Date
Annuitization
Fixed Payment Annuity
Variable Payment Annuity
Frequency and Amount of Annuity Payments
Guaranteed Minimum Income Benefit Options ("GMIB")
Annuity Payment Options
DEATH BENEFITS............................................................31
Death of Contract Owner - Non-Qualified Contracts
Death of Annuitant - Non-Qualified Contracts
Death of Contract Owner/Annuitant
Death Benefit Payment
</TABLE>
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<TABLE>
<S> <C>
REQUIRED DISTRIBUTIONS....................................................33
Required Distributions for Non-Qualified Contracts
Required Distributions for Tax Sheltered Annuities
Required Distributions for Individual Retirement Annuities
Required Distributions for Roth IRAs
FEDERAL TAX CONSIDERATIONS................................................36
Federal Income Taxes
Individual Retirement Annuities and Tax Sheltered Annuities
Roth IRAs
Withholding
Non-Resident Aliens
Federal Estate, Gift, and Generation Skipping Transfer Taxes
Puerto Rico
Charge for Tax
Diversification
Tax Changes
STATEMENTS AND REPORTS....................................................41
YEAR 2000 COMPLIANCE ISSUES...............................................42
LEGAL PROCEEDINGS.........................................................43
ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY...........................44
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION..................47
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS........................48
APPENDIX B: CONDENSED FINANCIAL INFORMATION...............................53
</TABLE>
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SUMMARY OF STANDARD CONTRACT EXPENSES
The expenses listed below are charged to all contracts unless:
o the contract owner meets an available exception, or
o a contract owner has replaced a standard benefit with an
available option for an additional charge.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Charge ("CDSC")
(as a percentage of purchase payments surrendered).........................7%(1)
Range of CDSC over time:
<TABLE>
<CAPTION>
- -------------------------------------------------------
Number of Years from Date CDSC
of Purchase Payment Percentage
- ---------------------------- --------------------------
<S> <C>
0 7%
- ---------------------------- --------------------------
1 7%
- ---------------------------- --------------------------
2 6%
- ---------------------------- --------------------------
3 5%
- ---------------------------- --------------------------
4 4%
- ---------------------------- --------------------------
5 3%
- ---------------------------- --------------------------
6 2%
- ---------------------------- --------------------------
7 0%
- -------------------------------------------------------
</TABLE>
(1) Each contract year, the contract owner may withdraw without a CDSC the
greater of:
(a) 10% of all purchase payments made to the contract; or
(b) any amount withdrawn to meet minimum distribution requirements under
the Internal Revenue Code.
This 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 "Contingent Deferred Sales Charge").
Withdrawals may be restricted for contracts issued to fund a Tax Sheltered
Annuity plan or other Qualified Plan.
<TABLE>
VARIABLE ACCOUNT CHARGES(2)
(as a percentage of average account value)
<S> <C>
Mortality and Expense Risk Charges............1.20%
Total Variable Account Charges.............1.20%(3)
LOAN PROCESSING FEE
(per loan transaction).........................$25(4)
</TABLE>
(2) These charges apply only to sub-account allocations. They do not apply to
allocations made to the fixed account or to the Guaranteed Term Options.
They are charged on a daily basis at the annual rate noted above.
(3) Charges shown include the One-Year Step Up Death Benefit which is standard
to every contract (see "Death Benefit Payment").
(4) Nationwide assesses a $25 loan processing fee at the time each new loan is
processed. Loans are only available for contracts issued as Tax Sheltered
Annuities. Loans are not available in all states. In addition, some states
may not allow Nationwide to assess a loan processing fee (see "Loan
Privilege").
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ADDITIONAL CONTRACT OPTIONS
For an additional charge, the following options are available to contract
owners. These options must be elected at the time of application and will
replace the corresponding standard contract benefit.
If the contract owner chooses an optional benefit, a corresponding charge will
be deducted. The charge for an optional benefit is IN ADDITION TO the standard
variable account charges. The optional benefit charges will only apply to
allocations made to the underlying mutual funds and are charged as a percentage
of the average variable account value.
DEATH BENEFIT OPTION
An applicant may choose the optional death benefit instead of the One-Year Step
Up Death Benefit that is standard to every contract.
<TABLE>
<S> <C>
Optional 5% Enhanced Death
Benefit.......................................0.05%
Total Variable Account Charges
(including 5% Enhanced Death
Benefit)..................................1.25%
</TABLE>
GUARANTEED MINIMUM INCOME BENEFIT OPTIONS
An applicant may elect one of two Guaranteed Minimum Income Benefit options (see
"Guaranteed Minimum Income Benefit Options").
<TABLE>
<S> <C>
Guaranteed Minimum Income Benefit
Option 1...................................0.45%
Total Variable Account Charges
(including Guaranteed Minimum
Income Benefit Option 1).................1.65%
Guaranteed Minimum Income Benefit
Option 2...................................0.30%
Total Variable Account Charges
(including Guaranteed Minimum
Income Benefit Option 2).................1.50%
</TABLE>
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<TABLE>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND AVERAGE NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc. - American 0.70% 0.00% 0.00% 0.70%
Century VP Income & Growth
- -----------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - American 1.47% 0.00% 0.00% 1.47%
Century VP International
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American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00%
Century VP Value
- -----------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital Appreciation 0.75% 0.05% 0.00% 0.80%
Portfolio
- -----------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service Class 0.59% 0.06% 0.10% 0.75%
- -----------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: Service Class 0.59% 0.06% 0.10% 0.75%
- -----------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 0.40% 0.06% 0.00% 0.46%
- -----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund 0.80% 0.15% 0.00% 0.95%
- -----------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund 0.80% 0.15% 0.00% 0.95%
- -----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund 0.75% 0.15% 0.00% 0.90%
- -----------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund 1.00% 0.07% 0.00% 1.07%
- -----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Mid-Cap Growth Portfolio 0.85% 0.15% 0.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Partners Portfolio 0.78% 0.06% 0.00% 0.84%
- -----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - Oppenheimer 0.69% 0.02% 0.00% 0.71%
Aggressive Growth Fund/VA
- -----------------------------------------------------------------------------------------------------------------
Victory Variable Insurance Funds - Diversified Stock 0.00% 0.75% 0.00% 0.75%
Fund: Class A
- -----------------------------------------------------------------------------------------------------------------
Victory Variable Insurance Funds - Investment Quality 0.00% 0.60% 0.00% 0.60%
Bond Fund: Class A
- -----------------------------------------------------------------------------------------------------------------
Victory Variable Insurance Funds - Small Company 0.00% 0.75% 0.00% 0.75%
Opportunity Fund: Class A
- -----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity Portfolio 1.00% 0.33% 0.00% 1.33%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity VIP Growth Portfolio: Service Class 0.59% 0.11% 0.10% 0.80%
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: Service Class 0.59% 0.11% 0.10% 0.80%
- -----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund 0.80% 0.35% 0.00% 1.15%
- -----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund 0.80% 0.32% 0.00% 1.12%
- -----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund 0.75% 0.21% 0.00% 0.96%
- -----------------------------------------------------------------------------------------------------------------------
Victory Variable Insurance Funds - Diversified Stock Fund: 0.30% 3.70% 0.00% 4.00%
Class A
- -----------------------------------------------------------------------------------------------------------------------
Victory Variable Insurance Funds - Investment Quality Bond 0.20% 3.80% 0.00% 4.00%
Fund: Class A
- -----------------------------------------------------------------------------------------------------------------------
Victory Variable Insurance Funds - Small Company Opportunity 0.30% 3.70% 0.00% 4.00%
Fund: Class A
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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EXAMPLE
The following chart shows the amount of expenses (in dollars) that would be
incurred under this contract assuming a $1,000 investment, 5% annual return, and
no change in expenses. These dollar figures are illustrative only and should not
be considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown below.
The chart reflects expenses of both the variable account and the underlying
mutual funds. The chart reflects variable account charges of 1.70%, which is the
maximum variable account charges that could be assessed to a contract.
For those contracts that do not elect the maximum number of rider options, the
expenses would be reduced. Deductions for premium taxes are not reflected but
may apply.
The summary of contract expenses and example are to help contract owners
understand the expenses associated with the contract.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
If you surrender your contract If you do not surrender your If you annuitize your contract
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 88 131 168 282 25 77 132 282 * 77 132 282
Portfolios, Inc. - American
Century VP Income & Growth
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable 96 156 208 359 33 102 172 359 * 102 172 359
Portfolios, Inc. - American
Century VP International
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable 91 141 184 313 28 87 148 313 * 87 148 313
Portfolios, Inc. - American
Century VP Value
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment 89 135 174 292 26 81 138 292 * 81 138 292
Fund - Capital Appreciation
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth 89 133 171 287 26 79 135 287 * 79 135 287
Portfolio: Service Class
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 89 133 171 287 26 79 135 287 * 79 135 287
Portfolio: Service Class
- --------------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 86 124 156 257 23 70 120 257 * 70 120 257
- --------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity 91 139 181 308 28 85 145 308 * 85 145 308
Income Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income 91 139 181 308 28 85 145 308 * 85 145 308
Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector 90 138 179 303 27 84 143 303 * 84 143 303
Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small 92 143 188 320 29 89 152 320 * 89 152 320
Company Fund
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT- 91 141 184 313 28 87 148 313 * 87 148 313
Mid-Cap Growth Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT- 90 136 176 297 27 82 140 297 * 82 140 297
Partners Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account 88 132 169 283 25 78 133 283 * 78 133 283
Funds - Oppenheimer
Aggressive Growth Fund/VA
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
If you surrender your contract If you do not surrender your If you annuitize your contract
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>
Victory Variable Insurance 89 133 171 287 26 79 135 287 * 79 135 287
Funds - Diversified Stock
Fund: Class A
- --------------------------------------------------------------------------------------------------------------------------
Victory Variable Insurance 87 128 163 272 24 74 127 272 * 74 127 272
Funds - Investment Quality
Bond Fund: Class A
- --------------------------------------------------------------------------------------------------------------------------
Victory Variable Insurance 89 133 171 287 26 79 135 287 * 79 135 287
Funds - Small Company
Opportunity Fund: Class A
- --------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - 95 151 201 345 32 97 165 345 * 97 165 345
International Equity
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annuitization is not permitted during the first two contract years.
SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are modified single purchase payment
contracts. The 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 can be categorized as follows:
o Non-Qualified;
o Investment-only;
o Individual Retirement Annuities, with contributions
rolled-over or transferred from certain tax-qualified plans;
o Roth IRAs;
o Tax Sheltered Annuities, with contributions rolled-over or
transferred from other Tax Sheltered Annuities; and
o Charitable Remainder Trusts.
<TABLE>
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
<CAPTION>
- -------------------------------------------------------
MINIMUM
CONTRACT MINIMUM INITIAL SUBSEQUENT
TYPE PURCHASE PAYMENT PAYMENTS
- -------------------------------------------------------
<S> <C> <C>
Non-Qualified $10,000 $1,000
- -------------------------------------------------------
Investment-only $100,000 $15,000
- -------------------------------------------------------
IRA $10,000 $1,000
- -------------------------------------------------------
Roth IRA $10,000 $1,000
- -------------------------------------------------------
Tax Sheltered $10,000 $1,000
Annuity
- -------------------------------------------------------
Charitable $10,000 $1,000
Remainder Trust
- -------------------------------------------------------
</TABLE>
Subsequent purchase payments are not permitted in Oregon, and may not be
permitted in other states under certain circumstances.
Guaranteed Term Options
Guaranteed Term Options are separate investment options under the contract. The
minimum amount that may be allocated to a Guaranteed Term Option is $1,000.
CHARGES AND EXPENSES
Nationwide deducts a Mortality and Expense Risk Charge equal to an annual rate
of 1.20% of the daily net assets of the variable account. Nationwide assesses
this charge in return for bearing certain mortality and expense risks, and for
administrative expenses.
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Nationwide does not deduct a sales charge from purchase payments upon deposit
into the contract. However, Nationwide will deduct a CDSC if any amount is
withdrawn from the contract. This CDSC reimburses Nationwide for sales expenses.
The amount of the CDSC will not exceed 7% of purchase payments surrendered.
An optional death benefit is available under the contract. If the contract owner
elects the 5% Enhanced Death Benefit, Nationwide will deduct an additional
charge equal to an annual rate of 0.05% of the daily net assets of the variable
account (see "Death Benefit Payment").
Two Guaranteed Minimum Income Benefit options are available under the contract.
If the contract owner elects one of the Guaranteed Minimum Income Benefit
options, Nationwide will deduct an additional charge of 0.45% or 0.30% of the
daily net assets of the variable account, depending on which option was chosen
(see "Guaranteed Minimum Income Benefits").
ANNUITY PAYMENTS
Annuity payments begin on the annuitization date. The payments will be based on
the annuity payment option chosen at the time of application (see "Annuity
Payment Options").
TAXATION
How the contracts are taxed depends on the type of contract issued. Nationwide
will charge against the contract any premium taxes levied by a state or other
governmental entity (see "Federal Tax Considerations" and "Premium Taxes").
TEN DAY FREE LOOK
Contract owners may return the contract for any reason within ten days of
receipt and Nationwide will refund the contract value or an amount required by
law (see "Right to Revoke").
FINANCIAL STATEMENTS
Financial statements for the variable account and Nationwide are located in the
Statement of Additional Information. A current Statement of Additional
Information may be obtained, without charge, by contacting Nationwide's home
office at the telephone number listed on page 2 of this prospectus.
CONDENSED FINANCIAL INFORMATION
The value of an accumulation unit is determined on the basis of changes in the
per share value of the underlying mutual funds and the assessment of a variable
account charge which may vary from contract to contract (for more information on
the calculation of accumulation unit values, see "Determining Variable Account
Value - Valuing an Accumulation Unit"). Please refer to Appendix B for
information regarding each class of accumulation units.
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under Ohio law in March,
1929 with its home office at One Nationwide Plaza, Columbus, Ohio 43215.
Nationwide 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.
INVESTING IN THE CONTRACT
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide Variable Account-9 is a variable account that contains the underlying
mutual funds listed in Appendix A. The variable account was established on May
22, 1997, pursuant to Ohio law. Although the separate account is registered with
the SEC as a unit
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investment trust pursuant to the Investment Company Act of 1940 ("1940 Act"),
the SEC does not supervise the management of Nationwide or the variable account.
Income, gains, and losses credited to, or charged against, the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to contract owners under the contracts.
The variable account is divided into sub-accounts. Nationwide uses the assets of
each sub-account to buy shares of the underlying mutual funds based on contract
owner instructions. There are two sub-accounts for each underlying mutual fund.
One sub-account contains shares attributable to accumulation units under
Non-Qualified Contracts. The other contains shares attributable to accumulation
units under Investment-only Contracts, Individual Retirement Annuities, Roth
IRAs, and Tax Sheltered Annuities.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded funds.
They are only 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 investment advisers of the underlying mutual funds may manage publicly
traded mutual funds with similar names and investment objectives. However, the
underlying mutual funds are NOT directly related to any publicly traded mutual
fund. Contract owners should not compare the performance of a publicly traded
fund with the performance of underlying mutual funds participating in the
variable account. The performance of the underlying mutual funds could differ
substantially from that of any publicly traded funds.
Voting Rights
Contract owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote contract owner shares at
special shareholder meetings based on contract owner instructions. However, if
the law changes allowing Nationwide to vote in its own right, it may elect to do
so.
Contract owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholders' vote as soon as possible before
the shareholder meeting. Notification will contain proxy materials and a form
with which to give Nationwide voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
The number of shares which a contract owner may vote is determined by dividing
the cash value of the amount they have allocated to an underlying mutual fund by
the net asset value of the underlying mutual fund. Nationwide will designate a
date for this determination not more than 90 days before the shareholder
meeting.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs,
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Nationwide will take whatever steps are necessary to protect contract owners and
variable annuity payees, including withdrawal of the variable account from
participation in the underlying mutual fund(s) involved in the conflict.
Substitution of Securities
Nationwide may substitute, eliminate, or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occurs:
1) shares of a current underlying mutual fund are no longer
available for investment; or
2) further investment in an underlying mutual fund is
inappropriate.
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC and state insurance departments.
GUARANTEED TERM OPTIONS
Guaranteed Term Options are separate investment options under the contract. A
Guaranteed Term Option prospectus must be read in conjunction with this
prospectus. The minimum amount that may be allocated to a Guaranteed Term Option
is $1,000. Allocations to the Guaranteed Term Options are not subject to
variable account charges.
Guaranteed Term Options provide a guaranteed rate of interest over four
different maturity durations: three (3), five (5), seven (7) or ten (10) years.
Note: The guaranteed term may last for up to 3 months beyond the 3, 5, 7, or 10
year period since every guaranteed term will end on the final day of a calendar
quarter.
For the duration selected, Nationwide will declare a guaranteed interest rate.
That rate will be credited to amounts allocated to the Guaranteed Term Option
UNLESS a distribution is taken for any reason before the maturity date. If a
distribution occurs before the maturity date, the amount distributed will be
subject to a market value adjustment. A market value adjustment can increase or
decrease the amount distributed depending on current interest rate fluctuations.
No market value adjustment will be applied if Guaranteed Term Option allocations
are held to maturity.
Because a market value adjustment can affect the value of a distribution, its
effects should be carefully considered before surrendering or transferring from
Guaranteed Term Options. When actual interest rates are higher than the
guaranteed rate, a market value adjustment would reduce the value of the amount
distributed. When actual interest rates are lower than the guaranteed rate, the
value of the amount distributed would increase.
Guaranteed Term Options are available only during the accumulation phase of a
contract. They are not available after the annuitization date. In addition,
Guaranteed Term Options are not available for use with asset rebalancing, Dollar
Cost Averaging, or systematic withdrawals.
Guaranteed Term Options may not be available in every state.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks. The general account is not subject
to the same laws as the variable account and the SEC has not reviewed material
in this prospectus relating to the fixed account. However, information relating
to the fixed account is subject to federal securities laws relating to accuracy
and completeness of prospectus disclosure.
Purchase payments will be allocated to the fixed account by election of the
contract owner.
The investment income earned by the fixed account will be allocated to the
contracts at varying guaranteed interest rate(s) depending on the following
categories of fixed account allocations:
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o New Money Rate - The rate credited on the fixed account
allocation when the contract is purchased or when subsequent
purchase payments are made. Subsequent purchase payments may
receive different New Money Rates than the rate when the
contract was issued, since the New Money Rate is subject to
change based on market conditions.
o Variable Account to Fixed Rate - Allocations transferred from
any of the underlying investment options in the variable
account to the fixed account may receive a different rate. The
rate may be lower than the New Money Rate. There may be limits
on the amount and frequency of movements from the variable
account to the fixed account.
o Renewal Rate - The rate available for maturing fixed account
allocations which are entering a new guarantee period. The
contract owner will be notified of this rate in a letter
issued with the quarterly statements when any of the money in
the contract owner's fixed account matures. At that time, the
contract owner will have an opportunity to leave the money in
the fixed account and receive the Renewal Rate or the contract
owner can move the money to any of the other underlying mutual
fund options.
o Dollar Cost Averaging Rate - From time to time, Nationwide may
offer a more favorable rate for an initial purchase payment
into a new contract when used in conjunction with a Dollar
Cost Averaging program.
All of these rates are subject to change on a daily basis; however, once applied
to the fixed account, the interest rates are guaranteed until the end of the
calendar quarter during the12 month anniversary in which the fixed account
allocation occurs.
Credited interest rates are annualized rates - the effective yield of interest
over a one-year period. Interest is credited to each contract on a daily basis.
As a result, the credited interest rate is compounded daily to achieve the
stated effective yield.
The guaranteed rate for any purchase payment will be effective for not less than
twelve months. Nationwide guarantees that the rate will not be less than 3.0%
per year.
Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. 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.
Nationwide 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.
STANDARD CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE
Nationwide deducts a Mortality and Expense Risk Charge from the variable
account. This amount is computed on a daily basis, and is equal to an annual
rate of 1.20% of the daily net assets of the variable account.
The mortality risk charges compensate Nationwide for guaranteeing the annuity
rate of the contracts. This guarantee ensures that the annuity rates will not
change regardless of the death rates of annuity payees or the general
population.
The expense risk charges compensate Nationwide for guaranteeing that
administration charges will not increase regardless of actual expenses.
If the Mortality and Expense Risk Charge is insufficient to cover actual
expenses, the loss is borne by Nationwide.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is made from the purchase payments when amounts are
deposited into the contracts. However, if any part of the contract is
surrendered, Nationwide will, with certain exceptions, deduct a CDSC, as
described below. The CDSC will not exceed 7% of purchase payments surrendered.
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The CDSC is calculated by multiplying the applicable CDSC percentage (noted
below) by the amount of purchase payments surrendered.
For purposes of calculating the CDSC, surrenders are considered to come first
from the oldest purchase payment made to the contract, then the next oldest
purchase payment, and so forth. For tax purposes, a surrender is usually treated
as a withdrawal of earnings first.
The CDSC applies as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
Number of Years from Date CDSC
of Purchase Payment Percentage
- ---------------------------- --------------------------
<S> <C>
0 7%
- ---------------------------- --------------------------
1 7%
- ---------------------------- --------------------------
2 6%
- ---------------------------- --------------------------
3 5%
- ---------------------------- --------------------------
4 4%
- ---------------------------- --------------------------
5 3%
- ---------------------------- --------------------------
6 2%
- ---------------------------- --------------------------
7 0%
- -------------------------------------------------------
</TABLE>
The CDSC is used to cover sales expenses, including commissions (maximum of
6.25% of purchase payments), production of sales material and other promotional
expenses. If expenses are greater than the CDSC, the shortfall will be made up
from Nationwide's general account, which may indirectly include portions of the
variable account charges, since Nationwide may generate a profit from these
charges.
Contract owners taking withdrawals before age 59 1/2 may be subject to a 10% tax
penalty. In addition, all or a portion of the withdrawal may be subject to
federal income taxes (see "Non-Qualified Contracts - Natural Persons as Contract
Owners").
Waiver of Contingent Deferred Sales Charge
Each contract year, the contract owner may withdraw without a CDSC the greater
of:
(a) 10% of all purchase payments; or
(b) any amount withdrawn to meet minimum distribution requirements
under the Internal Revenue Code.
This CDSC-free 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; or
(3) from any values which have been held under a contract for at
least 7 years.
No CDSC applies to transfers among sub-accounts or between or among the
Guaranteed Term Options, the fixed account or the variable account. Nationwide
may waive the CDSC if a contract described in this prospectus is exchanged for
another Nationwide contract (or a contract of any of its affiliated insurance
companies). A CDSC may apply to the contract received in the exchange.
A contract held by a Charitable Remainder Trust may withdraw CDSC-free the
greater of (a) or (b), where:
(a) is the amount which would otherwise be available for
withdrawal without a CDSC; and
(b) is the difference between the total purchase payments made to
the contract as of the date of the withdrawal (reduced by
previous withdrawals) and the contract value at the close of
the day prior to the date of the withdrawal.
The CDSC will not be eliminated if to do so would be unfairly discriminatory or
prohibited by state law.
Long Term Care Facility Provisions
No CDSC will be charged if:
o The third contract anniversary has passed; and
o The contract owner has been confined to a long-term care facility or
hospital for a continuous 90-day period that began after the contract
issue date.
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Additionally, no CDSC will be charged if:
o The contract owner has been diagnosed by a physician to have a
terminal illness; and
o Nationwide receives and records a letter from that physician
indicating such diagnosis.
Written notice and proof of terminal illness or confinement for 90 days in a
hospital or long term care facility must be received in a form satisfactory to
Nationwide and recorded at Nationwide's home office prior to waiver of the CDSC.
For those contracts that have a non-natural person as contract owner as an agent
for a natural person, the annuitant may exercise the rights of the contract
owner for the purposes described in this provision. If the non-natural contract
owner does NOT own the contract as an agent for a natural 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.
PREMIUM TAXES
Nationwide will charge against the contract value any premium taxes levied by a
state or other government entity. Premium tax rates currently range from 0% to
3.5%. This range is subject to change. The method used to assess premium tax
will be determined by Nationwide at its sole discretion in compliance with state
law.
Nationwide currently deducts premium taxes from the contract either at:
(1) the time the contract is surrendered;
(2) annuitization; or
(3) such earlier date as Nationwide becomes subject to premium taxes.
Premium taxes may be deducted from death benefit proceeds.
OPTIONAL CONTRACT BENEFITS, CHARGES AND DEDUCTIONS
DEATH BENEFIT OPTION
If the contract owner chooses the 5% Enhanced Death Benefit, Nationwide will
deduct a charge equal to an annual rate of 0.05% of the daily net assets of the
variable account. This charge reimburses Nationwide for increased expenses and
mortality risks.
5% Enhanced Death Benefit
If the annuitant dies before the annuitization date, 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 prior to the annuitant's 86th birthday,
less an adjustment for amounts subsequently surrendered, plus
purchase payments received since that contract anniversary.
GUARANTEED MINIMUM INCOME BENEFIT OPTIONS
The contract owner can purchase one of two Guaranteed Minimum Income Benefit
options at the time of application. If elected, Nationwide will deduct an
additional charge of either 0.45% or 0.30% of the daily net assets of the
variable account, depending on which option was chosen. Guaranteed Minimum
Income Benefit options provide for a minimum guaranteed value that may replace
the contract value as the amount to be annuitized under certain circumstances. A
Guaranteed Minimum Income Benefit may afford protection against unfavorable
investment performance.
CONTRACT OWNERSHIP
The contract owner has all rights under the contract. Purchasers who name
someone other than themselves as the contract owner will have no rights under
the contract.
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<PAGE> 17
Contract owners of Non-Qualified Contracts may name a new contract owner at any
time before the annuitization date. Any change of contract owner automatically
revokes any prior contract owner designation. Changes in contract ownership may
result in federal income taxation and may be subject to state and federal gift
taxes.
A change in contract ownership must be submitted in writing and recorded at
Nationwide's home office. Once recorded, the change will be effective as of the
date signed. However, the change will not affect any payments made or actions
taken by Nationwide before it was recorded.
The contract owner may also request a change in the annuitant, contingent
annuitant, contingent owner, beneficiary, or contingent beneficiary before the
annuitization date. These changes must be:
o on a Nationwide form;
o signed by the contract owner; and
o received at Nationwide's home office before the annuitization
date.
Nationwide must review and approve any change requests. 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 the change.
On the annuitization date, the annuitant will become the contract owner, unless
the contract owner is a Charitable Remainder Trust.
JOINT OWNERSHIP
Joint owners each own an undivided interest in the contract.
Contract owners can name a joint owner at any time before annuitization subject
to the following conditions:
o Joint owners can only be named for Non-Qualified Contracts;
o Joint owners must be spouses at the time joint ownership is
requested, unless state law requires Nationwide to allow
non-spousal joint owners;
o The exercise of any ownership right in the contract will
generally require a written request signed by both joint
owners;
o An election in writing signed by both contract owners must be
made to authorize Nationwide to allow the exercise of
ownership rights independently by either joint owner;
o Nationwide 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 entitled to certain benefits under the contract if a
contract owner who is NOT the annuitant dies before the annuitization date and
there is no surviving joint owner.
The contract owner may name or change a contingent owner at any time before the
annuitization date. To change the contingent owner, a written request must be
submitted to Nationwide. Once Nationwide has recorded the change, it will be
effective as of the date it was signed, whether or not the contract owner was
living at the time it was recorded. The change will not effect any action taken
by Nationwide before the change was recorded.
ANNUITANT
The annuitant is the person who will receive annuity payments and upon whose
continuation of life any annuity payment involving life contingencies depends.
This person must be age 85 or younger at the time of contract issuance (age 83
or younger if electing a Guaranteed Minimum Income Benefit), unless Nationwide
approves a request for an annuitant of greater age. The annuitant may be changed
before the annuitization date with Nationwide's consent.
BENEFICIARY AND CONTINGENT BENEFICIARY
The beneficiary is the person(s) who is entitled to the death benefit if the
annuitant dies before the annuitization date and there is no joint owner. The
contract owner can name more than one beneficiary. Multiple beneficiaries will
share the death benefit equally, unless otherwise specified.
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<PAGE> 18
The contract owner may change the beneficiary or contingent beneficiary during
the annuitant's lifetime by submitting a written request to Nationwide. Once
recorded, the change will be effective as of the date it was signed, whether or
not the annuitant was living at the time it was recorded. The change will not
effect any action taken by Nationwide before the change was recorded.
OPERATION OF THE CONTRACT
<TABLE>
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
<CAPTION>
- -----------------------------------------------------------
MINIMUM INITIAL MINIMUM
CONTRACT PURCHASE PAYMENT SUBSEQUENT
TYPE PAYMENTS
- ----------------------- ----------------- -----------------
<S> <C> <C>
Non-Qualified $10,000 $1,000
- ----------------------- ----------------- -----------------
Investment-only $100,000 $15,000
- ----------------------- ----------------- -----------------
IRA $10,000 $1,000
- ----------------------- ----------------- -----------------
Roth IRA $10,000 $1,000
- ----------------------- ----------------- -----------------
Tax Sheltered Annuity $10,000 $1,000
- ----------------------- ----------------- -----------------
Charitable Remainder $10,000 $1,000
Trust
- -----------------------------------------------------------
</TABLE>
Subsequent purchase payments may not be permitted in states under certain
circumstances.
Guaranteed Term Options
Guaranteed Term Options are separate investment options under the contract. The
minimum amount that may be allocated to a Guaranteed Term Option is $1,000.
PRICING
Initial purchase payments allocated to sub-accounts will be priced at the
accumulation unit value determined no later than 2 business days after receipt
of an order to purchase. The application and all necessary information must be
complete. If the application is not complete, Nationwide may retain a purchase
payment for up to 5 business days while attempting to complete it. If the
application is not completed within 5 business days, the prospective purchaser
will be informed of the reason for the delay. The purchase payment will be
returned unless the prospective purchaser specifically consents to allow
Nationwide to hold the purchase payment until the application is completed.
Subsequent purchase payments will be priced based on the next available
accumulation unit value after the payment is received. The cumulative total of
all purchase payments under contracts on the life of any one annuitant cannot
exceed $1,000,000 without Nationwide's prior consent.
Purchase payments will not be priced when the New York Stock Exchange is closed
or on the following nationally recognized holidays:
o New Year's Day o Independence Day
o Martin Luther King, Jr. Day o Labor Day
o Presidents' Day o Thanksgiving
o Good Friday o Christmas
o Memorial Day
Nationwide also will not price purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities
held in the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for
the protection of security holders.
Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist. If Nationwide is closed on days when New York Stock
Exchange is open, contract value may be affected since the contract owner would
not have access to their account.
ALLOCATION OF PURCHASE PAYMENTS
Nationwide allocates purchase payments to sub-accounts, the fixed account,
and/or Guaranteed Term Options as instructed by the contract owner. Shares of
the underlying mutual funds allocated to the sub-accounts are purchased at net
asset value, then converted into accumulation units. Contract owners can change
allocations or make exchanges among the sub-accounts, fixed account or
Guaranteed Term Options. However, no change may be
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<PAGE> 19
made that would result in an amount less than 1% of the purchase payments being
allocated to any sub-account. Certain transactions may be subject to conditions
imposed by the underlying mutual funds, as well as those set forth in the
contract.
DETERMINING THE CONTRACT VALUE
The contract value is the sum of:
1) the value of amounts allocated to the sub-accounts of the variable
account; and
2) amounts allocated to the fixed account; and
3) amounts allocated to a Guaranteed Term Option.
If part or all of the contract value is surrendered, or charges are assessed
against the whole contract value, Nationwide will deduct a proportionate amount
from each of the sub-accounts, and amounts from the fixed account and Guaranteed
Term Options based on current cash values.
Determining Variable Account Value - Valuing an Accumulation Unit
Purchase payments or transfers allocated to sub-accounts are accounted for in
accumulation units. Accumulation unit values (for each sub-account) are
determined by calculating the net investment factor for the underlying mutual
funds for the current valuation period and multiplying that result with the
accumulation unit values determined on the previous valuation period.
Nationwide uses the net investment factor as a way to calculate the investment
performance of a sub-account from valuation period to valuation period. For each
sub-account, the net investment factor shows the investment performance of the
underlying mutual fund in which a particular sub-account invests, including the
charges assessed against that sub-account for a valuation period.
The net investment factor is determined by dividing (a) by (b), and then
subtracting (c) from the result, where:
(a) is:
(1) the net asset value of the underlying mutual fund as of the
end of the current valuation period; and
(2) the per share amount of any dividend or income distributions
made by the underlying mutual fund (if the ex-dividend date
occurs during the current valuation period).
(b) is the net asset value of the underlying mutual fund determined as of the
end of the preceding valuation period.
(c) is a factor representing the daily variable account charges, which may
include charges for contract options chosen by the contract owner. The
factor is equal to an annual rate ranging from 1.20% to 1.70% of the
daily net assets of the variable account, depending on which contract
features the contract owner chose.
Based on the net investment factor, the value of an accumulation unit may
increase or decrease. Changes in the net investment factor may not be directly
proportional to changes in the net asset value of the underlying mutual fund
shares because of the deduction of variable account charges.
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.
Nationwide determines the value of the fixed account by:
1) adding all amounts allocated to the fixed account, minus any
amounts previously transferred or withdrawn; and
2) adding any interest earned on the amounts allocated.
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<PAGE> 20
Determining the Guaranteed Term Option Value
Nationwide determines the value of a Guaranteed Term Option by:
1) adding all amounts allocated to any Guaranteed Term Option,
minus amounts previously transferred or withdrawn (which may
be subject to a market value adjustment); and
2) adding any interest earned on the amounts allocated to any
Guaranteed Term Option; and
3) subtracting charges deducted in accordance with the contract.
TRANSFERS
Transfers from the Fixed Account to the Variable Account or a Guaranteed Term
Option
Fixed account allocations may be transferred to the variable account or a
Guaranteed Term Option only upon reaching the end of an interest rate guarantee
period. Normally, Nationwide will permit 100% of such fixed account allocations
to be transferred to the variable account or a Guaranteed Term Option; however
Nationwide may, under certain economic conditions and at its discretion, limit
the maximum transferable amount. Under no circumstances will the maximum
transferable amount be less than 10% of the fixed account allocation reaching
the end of an interest rate guarantee period. Transfers of the fixed account
allocations must be made within 45 days after reaching the end of an interest
rate guarantee period.
Contract owners who use Dollar Cost Averaging may transfer from the fixed
account to the variable account (but not to Guaranteed Term Options) under the
terms of that program (see "Dollar Cost Averaging").
Transfers to the Fixed Account
Variable account allocations may be transferred to the fixed account at any
time. Normally, Nationwide will not restrict transfers from the variable account
to the fixed account; however, Nationwide may establish a maximum transfer limit
from the variable account to the fixed account. Except as noted below, under no
circumstances will the transfer limit be less than 10% of the current value of
the variable account, less any transfers made in the 12 months preceding the
date the transfer is requested, but not including transfers made prior to the
imposition of the transfer limit. However, where permitted by state law,
Nationwide reserves the right to refuse transfers or purchase payments to the
fixed account (whether from the variable account or a Guaranteed Term Option)
when the fixed account value is greater than or equal to 30% of the contract
value at the time the purchase payment is made or the transfer is requested.
Transfers from a Guaranteed Term Option
Transfers from a Guaranteed Term Option prior to maturity are subject to a
market value adjustment.
Transfer Requests
Nationwide will accept transfer requests in writing or, in those states that
allow them, over the telephone. Nationwide will use reasonable procedures to
confirm that telephone instructions are genuine and will not be liable for
following telephone instructions that it reasonably determined to be genuine.
Nationwide may withdraw the telephone exchange privilege upon 30 days written
notice to contract owners.
After annuitization, transfers may only be made on the anniversary of the
annuitization date.
Amounts transferred to the variable account will receive the accumulation unit
value next determined after the transfer request is received.
Interest Rate Guarantee Period
The interest rate guarantee period is the period of time that the fixed account
interest rate is guaranteed to remain the same.
Within 45 days of the end of an interest rate guarantee period, transfers may be
made from the fixed account to the variable account or to the Guaranteed Term
Options. Nationwide will determine the amount that may be transferred
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<PAGE> 21
and will declare this amount at the end of the guarantee period. This amount
will not be less than 10% of the amount in the fixed account that is maturing.
For new purchase payments allocated to the fixed account, or transfers to the
fixed account from the variable account or a Guaranteed Term Option, this period
begins on the date of deposit or transfer and ends on the one year anniversary
of the deposit or transfer. The guaranteed interest rate period may last for up
to 3 months beyond the 1 year anniversary because guaranteed terms end on the
last day of a calendar quarter.
The interest rate guarantee period does not in any way refer to interest rate
crediting practices connected with Guaranteed Term Options.
During an interest rate guarantee period, transfers cannot be made from the
fixed account and amounts transferred to the fixed account must remain on
deposit.
Market Timing Firms
Some contract owners may use market timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market timing firms will submit transfer or exchange requests on
behalf of multiple contract owners at the same time. Sometimes this can result
in unusually large transfers of funds. These large transfers might interfere
with the ability of Nationwide or the underlying mutual fund to process
transactions. This can potentially disadvantage contract owners not using market
timing firms. To avoid this, Nationwide may modify transfer and exchange rights
of contract owners who use market timing firms (or other third parties) to
transfer or exchange funds on their behalf.
The exchange and transfer rights of individual contract owners will not be
modified in any way when instructions are submitted directly by the contract
owner, or by the contract owner's representative (as authorized by the execution
of a valid Nationwide Limited Power of Attorney Form).
To protect contract owners, Nationwide may refuse exchange and transfer
requests:
o submitted by any agent acting under a power of attorney on
behalf of more than one contract owner; or
o submitted on behalf of individual contract owners who have
executed pre-authorized 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.
Nationwide will not restrict exchange rights unless Nationwide believes it to be
necessary for the protection of all contract owners.
RIGHT TO REVOKE
Contract owners have a ten day "free look" to examine the contract. The contract
may be returned to Nationwide's home office for any reason within ten days of
receipt and Nationwide will refund the contract value or another amount required
by law. The refunded contract value will reflect the deduction of any contract
charges, unless otherwise required by law. All Individual Retirement Annuity and
Roth IRA refunds will be a return of purchase payments. State and/or federal law
may provide additional free look privileges.
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 Nationwide.
SURRENDER (REDEMPTION)
Contract owners may surrender some or all of their contract value before the
earlier of the annuitization date or the annuitant's death. Surrender requests
must be in writing and Nationwide may require additional information. When
taking a full surrender, the contract must accompany the written request.
Nationwide may require a signature guarantee.
Nationwide will pay any amounts surrendered from the sub-accounts within 7 days.
However,
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<PAGE> 22
Nationwide may suspend or postpone payment when it is unable to price a purchase
payment or transfer.
PARTIAL SURRENDERS (PARTIAL REDEMPTIONS)
Nationwide will surrender accumulation units from the sub-accounts and an amount
from the fixed account and Guaranteed Term Options. The amount withdrawn from
each investment option will be in proportion to the value in each option at the
time of the surrender request.
A CDSC may apply. The contract owner may take the CDSC from either:
a) the amount requested; or
b) the contract value remaining after the contract owner has
received the amount requested.
If the contract owner does not make a specific election, any applicable CDSC
will be taken from the contract value remaining after the contract owner has
received the amount requested.
FULL SURRENDERS (FULL REDEMPTIONS)
The contract value upon full surrender may be more or less than the total of all
purchase payments made to the contract. The contract value will reflect variable
account charges, underlying mutual fund charges and the investment performance
of the underlying mutual funds. A CDSC may apply.
SURRENDERS UNDER A TEXAS OPTIONAL RETIREMENT PROGRAM OR A LOUISIANA OPTIONAL
RETIREMENT PLAN
Redemption restrictions apply to contracts issued under the Texas Optional
Retirement Program or the Louisiana Optional Retirement Plan.
The Texas Attorney General has ruled that participants in contracts issued under
the Texas Optional Retirement Program may only take withdrawals if:
o the participant dies;
o the participant retires;
o the participant terminates employment due to total disability;
or
o the participant that works in a Texas public institution of
higher education terminates employment.
A participant under a contract issued under the Louisiana Optional Retirement
Plan may only take distributions from the contract upon retirement or
termination of employment. All retirement benefits under this type of plan must
be paid as lifetime income; lump sum cash payments are not permitted, except for
death benefits.
Due to the restrictions described above, a participant under either of these
plans will not be able to withdraw cash values from the contract unless one of
the applicable conditions is met. However, contract value may be transferred to
other carriers, subject to any CDSC.
Nationwide issues this contract to participants in the Texas Optional Retirement
Program in reliance upon and in compliance with Rule 6c-7 of the Investment
Company Act of 1940. Nationwide issues this contract to participants in the
Louisiana Optional Retirement Plan in reliance upon and in compliance with an
exemptive order that Nationwide received from the SEC on August 22, 1990.
SURRENDERS UNDER A TAX SHELTERED ANNUITY
Contract owners of a Tax Sheltered Annuity may surrender part or all of their
contract value before the earlier of the annuitization date or the annuitant's
death, except as provided below:
A. Contract value attributable to contributions made under a qualified
cash or deferred arrangement (within the meaning of Internal Revenue
Code Section 402(g)(3)(A)), a salary reduction agreement (within the
meaning of Internal Revenue Code Section 402(g)(3)(C)), or transfers
from a Custodial Account (described in Section 403(b)(7) of the
Internal Revenue Code), may be surrendered only:
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<PAGE> 23
1. when the contract owner reaches age 59 1/2, separates from
service, dies or becomes disabled (within the meaning of
Internal Revenue Code Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Internal
Revenue Code Section 401(k)), provided that any such hardship
surrender may NOT include any income earned on salary
reduction contributions.
B. The surrender limitations described in Section A 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 a ten day free look
cancellation of the contract (when available) may result in taxes,
penalties and/or retroactive disqualification of a Tax Sheltered
Annuity.
In order to prevent disqualification of a Tax Sheltered Annuity after a ten day
free look cancellation, Nationwide will transfer the proceeds to another Tax
Sheltered Annuity upon proper direction by the contract owner.
These provisions explain Nationwide's understanding of current withdrawal
restrictions. These restrictions may change.
Distributions pursuant to Qualified Domestic Relations Orders will not violate
the restrictions stated above.
LOAN PRIVILEGE
The loan privilege is ONLY available to owners of Tax Sheltered Annuities. These
contract owners can take loans from the contract value beginning 30 days after
the contract is issued up to the annuitization date. Loans are subject to the
terms of the contract, the plan and the Internal Revenue Code. Nationwide may
modify the terms of a loan to comply with changes in applicable law.
MINIMUM & MAXIMUM LOAN AMOUNTS
Contract owners may borrow a minimum of $1000, unless Nationwide is required by
law to allow a lesser minimum amount. Each loan must individually satisfy the
contract minimum amount.
Nationwide will calculate the maximum nontaxable loan amount based upon
information provided by the participant or the employer. Loans may be taxable if
a participant has additional loans from other plans. The total of all
outstanding loans must not exceed the following limits:
<TABLE>
<CAPTION>
- -------------------------------------------------------
CONTRACT MAXIMUM OUTSTANDING LOAN
VALUES BALANCE ALLOWED
- --------------- ------------ --------------------------
<S> <C> <C>
NON-ERISA up to up to 80% of contract
PLANS $20,000 value (not more than
$10,000)
- --------------- ------------ --------------------------
$20,000 up to 50% of contract
and over value (not more than
$50,000*)
- --------------- ------------ --------------------------
ERISA PLANS All up to 50% of contract
value (not more than
$50,000*)
- -------------------------------------------------------
</TABLE>
* The $50,000 limits will be reduced by the highest outstanding balance owed
during the previous 12 months.
For salary reduction Tax Sheltered Annuities, loans may be secured only by the
contract value.
LOAN PROCESSING FEE
Nationwide charges a $25 loan processing fee at the time each new loan is
processed. This fee compensates Nationwide for expenses related to administering
and processing loans.
The fee is taken from the sub-accounts, fixed account, and Guaranteed Term
Options in proportion to the contract value at the time the loan is processed.
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<PAGE> 24
HOW LOAN REQUESTS ARE PROCESSED
All loans are made from the collateral fixed account. Nationwide transfers
accumulation units in proportion to the assets in each sub-account to the
collateral fixed account until the requested amount is reached. If there are not
enough accumulation units available in the contract to reach the requested loan
amount, Nationwide next transfers contract value from the fixed account. Any
remaining required collateral will be transferred from the Guaranteed Term
Options. Transfers from the Guaranteed Term Options may be subject to a market
value adjustment. No CDSC will be deducted on transfers related to loan
processing.
LOAN INTEREST
The outstanding loan balance in the collateral fixed account is credited with
interest until the loan is repaid in full. The interest rate will be 2.25% less
than the loan interest rate fixed by Nationwide. It is guaranteed never to fall
below 3.0%.
Specific loan terms are disclosed at the time of loan application or issuance.
LOAN REPAYMENT
Loans must be repaid in five years. However, if the loan is used to purchase the
contract owner's principal residence, the contract owner has 15 years to repay
the loan.
Contract owners must identify loan repayments as loan repayments or they will be
treated as purchase payments and will not reduce the outstanding loan. Payments
must be substantially level and made at least quarterly.
Loan repayments will consist of principal and interest in amounts set forth in
the loan agreement. Repayments are allocated to the sub-accounts in accordance
with the contract, unless Nationwide and the contract owner have agreed to amend
the contract at a later date on a case by case basis.
Loan repayments to the Guaranteed Term Options must be at least $1,000. If the
proportional share of the repayment to the Guaranteed Term Option is less than
$1,000, that portion of the repayment will be allocated to the NSAT-Money Market
Fund unless the contract owner directs otherwise.
DISTRIBUTIONS & ANNUITY PAYMENTS
Distributions made from the contract while a loan is outstanding will be reduced
by the amount of the outstanding loan plus accrued interest if:
o the contract is surrendered;
o the contract owner/annuitant dies;
o the contract owner who is not the annuitant dies prior to
annuitization; or
o annuity payments begin.
TRANSFERRING THE CONTRACT
Nationwide reserves the right to restrict any transfer of the contract while the
loan is outstanding.
GRACE PERIOD & LOAN DEFAULT
If a loan payment is not made when due, interest will continue to accrue. A
grace period may be available (please refer to the terms of the loan agreement).
If a loan payment is not made by the end of the applicable grace period, the
entire loan will be treated as a deemed distribution and will be taxable to the
borrower. This deemed distribution may also be subject to an early withdrawal
tax penalty by the Internal Revenue Service.
After default, interest will continue to accrue on the loan. Defaulted amounts,
plus interest, are deducted from the contract value when the participant is
eligible for a distribution of at least that amount. Additional loans are not
available while a previous loan is in default.
ASSIGNMENT
Contract rights are personal to the contract owner and may not be assigned
without Nationwide's written consent.
A Non-Qualified Contract owner may assign some or all rights under the contract.
An assignment must occur before annuitization while the annuitant is alive. Once
proper notice
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<PAGE> 25
of assignment is recorded by Nationwide's home office, the assignment will
become effective as of the date the written request was signed.
Investment-only Contracts, Individual Retirement Annuities, Roth IRAs, and Tax
Sheltered Annuities may not be assigned, pledged or otherwise transferred except
where allowed by law.
Nationwide is not responsible for the validity or tax consequences of any
assignment. Nationwide is not liable for any payment or settlement made before
the assignment is recorded. Assignments will not be recorded until Nationwide
receives sufficient direction from the contract owner and the assignee regarding
the proper allocation of contract rights.
Amounts pledged or assigned will be treated as distributions 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. Amounts assigned may be subject to a tax penalty equal to 10% of the
amount included in gross income.
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.
CONTRACT OWNER SERVICES
ASSET REBALANCING
Asset rebalancing is the automatic reallocation of contract values to the
sub-accounts on a predetermined percentage basis. Asset rebalancing is not
available for assets held in the fixed account or the Guaranteed Term Options.
Requests for asset rebalancing must be on a Nationwide form.
Asset rebalancing occurs every three months or on another frequency if permitted
by Nationwide. 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, asset rebalancing will occur on the next business day.
Asset rebalancing may be subject to employer limitations or restrictions for
contracts issued to a Tax Sheltered Annuity plan. Contract owners should consult
a financial adviser to discuss the use of asset rebalancing.
Nationwide reserves the right to stop establishing new asset rebalancing
programs. Nationwide also reserves the right to assess a processing fee for this
service.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from the fixed account and/or certain sub-accounts into other
sub-accounts. Contract owners may participate in this program if their contract
value is $10,000 or more. Nationwide does not guarantee that this program will
result in profit or protect contract owners from loss.
Contract owners direct Nationwide to automatically transfer specified amounts
from the fixed account and the following underlying mutual funds: NSAT
Nationwide High Income Bond Fund and NSAT Money Market Fund to any other
underlying mutual fund. Dollar Cost Averaging transfers may not be directed to
Guaranteed Term Options. The minimum monthly transfer is $100.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the contract owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new Dollar Cost Averaging
programs. Nationwide also reserves the right to assess a processing fee for this
service.
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<PAGE> 26
Dollar Cost Averaging from the Fixed Account
Transfers from the fixed account must be equal to or less than 1/30th of the
fixed account value at the time the program is requested. A Dollar Cost
Averaging program which transfers amounts from the fixed account to the variable
account is not the same as an Enhanced Rate Dollar Cost Averaging program.
Contract owners that wish to utilize Dollar Cost Averaging from the fixed
account should first inquire whether any Enhanced Rate Dollar Cost Averaging
programs are available.
Enhanced Rate Dollar Cost Averaging
Nationwide may, from time to time, offer Enhanced Rate Dollar Cost Averaging
programs. Dollar Cost Averaging transfers for this program may only be made from
the fixed account. Such Enhanced Rate Dollar Cost Averaging programs allow the
contract owner to earn a higher rate of interest on assets in the fixed account
than would normally be credited when not participating in the program. Each
enhanced interest rate is guaranteed for as long as the corresponding program is
in effect. Nationwide will process transfers until either amounts in the
enhanced rate fixed account are exhausted, or the contract owner instructs
Nationwide in writing to stop the transfers. For this program only, when a
written request to discontinue transfers is received, Nationwide will
automatically transfer the remaining amount in the enhanced rate fixed account
to the NSAT Money Market Fund.
SYSTEMATIC WITHDRAWALS
Systematic withdrawals allow contract owners to receive a specified amount (of
at least $100) on a monthly, quarterly, semi-annual, or annual basis. Requests
for systematic withdrawals and requests to discontinue systematic withdrawals
must be in writing.
The withdrawals will be taken from the sub-accounts and the fixed account
proportionately unless Nationwide is instructed otherwise. Systematic
withdrawals are not available from the Guaranteed Term Options.
Nationwide will withhold federal income taxes from systematic withdrawals unless
otherwise instructed by the contract owner. The Internal Revenue Service may
impose a 10% penalty tax if the contract owner is under age 59 1/2 unless the
contract owner has made an irrevocable election of distributions of
substantially equal payments.
If the contract owner takes systematic withdrawals, the maximum amount that can
be withdrawn annually without a CDSC is the greatest of:
1) 10% of all purchase payments made to the contract as of the
withdrawal date;
2) an amount withdrawn to meet minimum distribution requirements
under the Internal Revenue Code; or
3) a percentage of the contract value based on the contract
owner's age, as shown in the table that follows:
<TABLE>
<CAPTION>
---------------------------------------------------
CONTRACT OWNER'S PERCENTAGE OF
AGE CONTRACT VALUE
--------------------------- -----------------------
<S> <C>
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%
--------------------------- -----------------------
</TABLE>
Contract value and contract owner's age are determined as of the date the
request for the withdrawal program is recorded by Nationwide's home office. For
joint owners, the older joint owner's age will be used.
If total amounts withdrawn in any contract year exceed the CDSC-free amount
described above, those amounts will only be eligible for the 10% of purchase
payment CDSC-free withdrawal privilege described in the "Contingent Deferred
Sales Charge" section. The total amount of CDSC for that contract year will be
determined in accordance with that provision.
The CDSC-free withdrawal privilege for systematic withdrawals is non-cumulative.
Free amounts not taken during any contract year cannot be taken as free amounts
in a subsequent contract year.
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<PAGE> 27
Nationwide reserves the right to stop establishing new systematic withdrawal
programs. Nationwide also reserves the right to assess a processing fee for this
service. Systematic withdrawals are not available before the end of the ten day
free look period (see "Right to Revoke").
ANNUITY COMMENCEMENT DATE
The annuity commencement date is the date on which annuity payments are
scheduled to begin. The contract owner may change the annuity commencement date
before annuitization. This change must be in writing and approved by Nationwide.
ANNUITIZING THE CONTRACT
ANNUITIZATION DATE
The annuitization date is the date that annuity payments begin. It will be the
first day of a calendar month unless otherwise agreed, and must be at least 2
years after the contract is issued. If the contract is issued to fund a Tax
Sheltered Annuity plan, annuitization may occur during the first 2 years subject
to Nationwide's approval.
ANNUITIZATION
Annuitization is the period during which annuity payments are received. It is
irrevocable once payments have begun. Upon arrival of the annuitization date,
the annuitant must choose:
(1) an annuity payment option; and
(2) either a fixed payment annuity, variable payment annuity, or
an available combination.
Nationwide guarantees that each payment under a fixed payment annuity will be
the same throughout annuitization. Under a variable payment annuity, the amount
of each payment will vary with the performance of the underlying mutual funds
chosen by the contract owner.
FIXED PAYMENT ANNUITY
A fixed payment annuity is an annuity where the amount of the annuity payments
remains level.
The first payment under a fixed payment annuity is determined on the
annuitization date on an "age last birthday" basis by:
1) deducting applicable premium taxes from the total contract
value; then
2) applying the contract value amount specified by the contract
owner to the fixed payment annuity table for the annuity
payment option elected.
Subsequent payments will remain level unless the annuity payment option elected
provides otherwise. Nationwide does not credit discretionary interest during
annuitization.
VARIABLE PAYMENT ANNUITY
A variable payment annuity is an annuity where the amount of the annuity
payments will vary depending on the performance of the underlying mutual funds
selected.
- --------------------------------------------------------------------------------
A VARIABLE PAYMENT ANNUITY MAY NOT BE
ELECTED WHEN EXERCISING A GUARANTEED
MINIMUM INCOME BENEFIT OPTION.
- --------------------------------------------------------------------------------
The first payment under a variable payment annuity is determined on the
annuitization date on an "age last birthday" basis by:
1) deducting applicable premium taxes from the total contract
value; then
2) applying the contract value amount specified by the contract
owner to the variable payment annuity table for the annuity
payment option elected.
The dollar amount of the first payment is converted into a set number of annuity
units that will represent each monthly payment. This is done by dividing the
dollar amount of the first payment by the value of an annuity unit as of the
annuitization date. This number of annuity units remains fixed during
annuitization.
The second and subsequent payments are determined by multiplying the fixed
number of annuity units by the annuity unit value for the
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<PAGE> 28
valuation period in which the payment is due. The amount of the second and
subsequent payments will vary with the performance of the selected underlying
mutual funds. Nationwide guarantees that variations in mortality experience from
assumptions used to calculate the first payment will not affect the dollar
amount of the second and subsequent payments.
Assumed Investment Rate
An assumed investment rate is the percentage rate of return assumed to determine
the amount of the first payment under a variable payment annuity. Nationwide
uses the assumed investment rate of 3.5% to calculate the first annuity payment
and to calculate the investment performance of an underlying mutual fund in
order to determine subsequent payments under a variable payment annuity. An
assumed investment rate is the percentage rate of return required to maintain
level variable annuity payments. Subsequent variable annuity payments may be
more or less than the first payment based on whether actual investment
performance of the underlying mutual funds is higher or lower than the assumed
investment rate of 3.5%.
Value of an Annuity Unit
Annuity unit values for sub-accounts are determined by multiplying the net
investment factor for the valuation period for which the annuity unit is being
calculated by the immediately preceding valuation period's annuity unit value,
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.
Exchanges among Underlying Mutual Funds
Exchanges among underlying mutual funds during annuitization must be in writing.
Exchanges will occur on each anniversary of the annuitization date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments are made based on the annuity payment option selected, unless:
o the amount to be distributed is less than $5,000, in which
case Nationwide may make one lump sum payment of the contract
value; or
o an annuity payment would be less than $50, in which case
Nationwide can change the frequency of payments to intervals
that will result in payments of at least $50. Payments will be
made at least annually.
GUARANTEED MINIMUM INCOME BENEFIT OPTIONS ("GMIB")
What is a GMIB?
A GMIB is a benefit which ensures the availability of a minimum amount when the
contract owner wishes to annuitize the contract. This minimum amount, referred
to as the Guaranteed Annuitization Value, may be used at specified times to
provide a guaranteed level of determinable lifetime annuity payments. The GMIB
may provide protection in the event of lower contract values that may result
from the investment performance of the contract.
How is the Guaranteed Annuitization Value Determined?
There are two options available at the time of application. The Guaranteed
Annuitization Value is determined differently based on which option the contract
owner elects.
Calculation Under GMIB Option 1
The Guaranteed Annuitization Value is equal to (a) - (b), but will never be
greater than 200% of all purchase payments, where:
(a) is the sum of all purchase payments, plus interest accumulated
at a compounded annual rate of 5% starting at the date of
issue and ending on the contract anniversary occurring
immediately prior to the annuitant's 86th birthday;
(b) is the reductions to (a) due to surrenders made from the
contract. All such reductions will be proportionately the same
as reductions to the contract value caused by surrenders. For
example, a surrender which reduces the contract value by 25%
will also reduce the Guaranteed Annuitization Value by 25%.
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<PAGE> 29
Special Restrictions for GMIB Option 1
After the first contract year, if the value of the contract owner's fixed
account allocation becomes greater than 30% of the contract value in any
contract year due to:
(1) the application of additional purchase payments;
(2) surrenders; or
(3) transfers from the variable account,
then 0% interest will accrue in that contract year for purposes of calculating
the Guaranteed Annuitization Value.
If the contract owner's fixed account allocation becomes greater than 30% of the
contract value solely as a result of fluctuations in the value of the variable
account, then interest will continue to accrue for the purposes of the
Guaranteed Annuitization Value at 5% annually, subject to the other terms and
conditions outlined herein.
Calculation Under GMIB Option 2
The Guaranteed Annuitization Value will be equal to the highest contract value
on any contract anniversary occurring prior to the annuitant's 86th birthday,
less an adjustment for amounts surrendered, plus purchase payments received
after that contract anniversary.
GMIB Illustrations
The following charts illustrate the amount of income that will be provided to an
annuitant if the contract owner annuitizes the contract at the 7th, 10th or 15th
contract anniversary date, using a GMIB.
The illustrations assume the following:
o An initial purchase payment of $100,000 is made to the
contract and allocated to the variable account;
o There are no surrenders from the contract or transfers to the
fixed account (raising the fixed account value to greater than
30% of the contract value);
o The contract is issued to a MALE at age 55, 65 or 70;
o A Life Annuity with 120 Months Guaranteed Fixed Payment
Annuity Option is elected.
<TABLE>
7 Years in Accumulation
$140,710.04 for GMIB at Annuitization
<CAPTION>
---------------------------------------------------------
Male Age at Male Age at GMIB Purchase Monthly
Issue Annuitization Rate* GMIB
------------- --------------- --------------- -----------
<S> <C> <C> <C>
55 62 $4.72 $664.15
------------- --------------- --------------- -----------
65 72 $5.96 $838.63
------------- --------------- --------------- -----------
70 77 $5.79 $955.42
------------- --------------- --------------- -----------
</TABLE>
<TABLE>
10 Years in Accumulation
$162,889.46 for GMIB at Annuitization
<CAPTION>
-----------------------------------------------------------
Male Age at Male Age at GMIB Purchase Monthly
Issue Annuitization Rate* GMIB
-------------- --------------- ---------------- -----------
<S> <C> <C> <C>
55 65 $5.03 $819.33
-------------- --------------- ---------------- -----------
65 75 $6.44 $1,049.01
-------------- --------------- ---------------- -----------
70 80 $7.32 $1,192.35
-----------------------------------------------------------
</TABLE>
<TABLE>
15 Years in Accumulation
$200,000.00 for GMIB at Annuitization
<CAPTION>
----------------------------------------------------------
Male Age at Male Age at GMIB Purchase Monthly
Issue Annuitization Rate* GMIB
-------------- -------------- ---------------- -----------
<S> <C> <C> <C>
55 70 $5.66 $1,132.00
-------------- -------------- ---------------- -----------
65 80 $7.32 $1,464.00
-------------- -------------- ---------------- -----------
70 85 $8.18 $1,636.00
-------------- -------------- ---------------- -----------
</TABLE>
*Guaranteed Monthly Benefit per $1,000 applied.
The illustrations should be used as a tool to assist an investor in determining
whether purchasing and exercising a GMIB option is right for them. The
guaranteed purchase rates assumed in the illustrations may not apply in some
states, or for contracts issued under an employer sponsored plan. Different
guaranteed purchase rates will also apply for females, for males who annuitize
at ages other than the ages shown above, or for annuitizations under other
annuity payment options. Where different guaranteed purchase rates apply, GMIB
amounts shown above will be different. In all cases, the guaranteed purchase
rates used to calculate the GMIB will be the same as the purchase rates
guaranteed in the contract for fixed annuitizations without the GMIB.
The purchase rates available in connection with annuitization options under a
GMIB are minimum guaranteed purchase rates. Alternative purchase rates, which
may be more favorable, may apply to annuitizations which occur without a GMIB
option.
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<PAGE> 30
When May the Guaranteed Annuitization Value be Used?
The contract owner may use the Guaranteed Annuitization Value by annuitizing the
contract during the thirty day period following any contract anniversary:
(1) after the contract has been in effect for seven years; AND
(2) the annuitant has attained age 60.
What Annuity Payment Options May Be Used With the Guaranteed Annuitization
Value?
The contract owner may elect any life contingent FIXED ANNUITY PAYMENT OPTION
calculated using the guaranteed annuity purchase rates set forth in the
contract. Such Fixed Annuity Payment Options include:
o Life Annuity;
o Joint and Last Survivor Annuity; and
o Life Annuity with 120 or 240 Monthly Payments Guaranteed.
Other GMIB Terms and Conditions
**PLEASE READ CAREFULLY**
o The GMIB must be elected at the time of application.
o The annuitant must be age 83 or younger at the time the
contract is issued.
The GMIB is irrevocable and will remain for as long as the contract remains in
force.
- --------------------------------------------------------------------------------
IMPORTANT CONSIDERATIONS TO KEEP IN MIND REGARDING
THE GMIB OPTION
While a GMIB does provide a Guaranteed Annuitization Value, A GMIB MAY NOT BE
APPROPRIATE FOR ALL INVESTORS and should be understood completely and analyzed
thoroughly before being elected.
o A GMIB DOES NOT in any way guarantee the performance of any
underlying mutual fund, or any other investment option
available under the contract.
o Once elected, the GMIB is irrevocable, meaning that even if
the investment performance of underlying mutual funds or other
available investment options surpasses the minimum guarantees
associated with the GMIB, the GMIB charges will still be
assessed.
o The GMIB in no way restricts or limits the rights of contract
owners to annuitize the contract at other times permitted
under the contract, nor will it in any way restrict the right
to annuitize the contract using contract values that may be
higher than the Guaranteed Annuitization Value.
o Please take advantage of the guidance of a qualified financial
adviser in evaluating the GMIB options, and all other aspects
of the contract.
o GMIB may not be approved in all state jurisdictions.
- --------------------------------------------------------------------------------
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<PAGE> 31
ANNUITY PAYMENT OPTIONS
Contract owners must elect an annuity payment option before the annuitization
date. The annuity payment options are:
(1) LIFE ANNUITY - An annuity payable periodically, but at least annually, for
the lifetime of the annuitant. Payments will end upon the annuitant's
death. 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 a
designated second individual. If one of these parties dies, payments will
continue for the lifetime of the survivor. As is the case under option 1,
there is no guaranteed number of payments. Payments end upon the death of
the last surviving party, 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 the end of the guaranteed period and will be paid to a designee
chosen by the annuitant at the time the annuity payment option was elected.
The designee may elect to receive the present value of the remaining
guaranteed payments in a lump sum. The present value will be computed as of
the date Nationwide receives the notice of the annuitant's death.
Not all of the annuity payment options may be available in all states. Contract
owners may request other options before the annuitization date. These options
are subject to Nationwide's approval.
No distribution for Non-Qualified Contracts will be made until an annuity
payment option has been elected. Individual Retirement Annuities and Tax
Sheltered Annuities are subject to the "minimum distribution" requirements set
forth in the plan, contract, and the Internal Revenue Code.
DEATH BENEFITS
DEATH OF CONTRACT OWNER - NON-QUALIFIED CONTRACTS
If the contract owner who is not the annuitant dies before the annuitization
date, the joint owner becomes the contract owner. If no joint owner is named,
the contingent owner becomes the contract owner. If no contingent owner is
named, the last surviving contract owner's estate becomes the contract owner.
If the contract owner and annuitant are the same, and the contract
owner/annuitant dies before the annuitization date, the contingent owner will
not have any rights in the contract unless the contingent owner is also the
beneficiary.
Distributions under Non-Qualified Contracts will be made pursuant to the
"Required Distributions for Non-Qualified Contracts" provision.
DEATH OF ANNUITANT - NON-QUALIFIED CONTRACTS
If the annuitant who is not the contract owner dies before the annuitization
date, a death benefit is payable to the beneficiary unless a contingent
annuitant is named. If a contingent annuitant is named, 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;
(2) as an annuity; or
(3) in any other manner permitted by law and approved by
Nationwide.
The beneficiary must notify Nationwide of this election within 60 days of the
annuitant's death.
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If no beneficiaries survive the annuitant, the contingent beneficiary(ies)
receives the death benefit. Contingent beneficiaries will share the death
benefit equally, unless otherwise specified.
If no beneficiaries or contingent beneficiaries survive the annuitant, the
contract owner or the last surviving contract owner's estate will receive the
death benefit.
If the contract owner is a Charitable Remainder Trust and the annuitant dies
before the annuitization date, the death benefit will accrue to the Charitable
Remainder Trust. Any designation in conflict with the Charitable Remainder
Trust's right to the death benefit will be void.
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 a contract owner who is also the annuitant dies before the annuitization
date, a death benefit is payable according to the "Death of Annuitant -
Non-Qualified Contracts" provision.
A joint owner will receive a death benefit if a contract owner/annuitant dies
before the annuitization date.
If the contract owner/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
Contract owners may select one of two death benefits available under the
contract at the time of application (not all death benefit options may be
available in all states). If no selection is made at the time of application,
the death benefit will be the One-Year Step Up Death Benefit.
The death benefit value is determined as of the date Nationwide receives:
(1) proper proof of the annuitant's death;
(2) an election specifying the distribution method; and
(3) any state required form(s).
If a contract owner who is also the annuitant dies, and the beneficiary is the
contract owner/ annuitant's spouse who is:
(a) eligible to continue the contract; and
(b) entitled to a death benefit,
then the spousal-beneficiary shall have the option of continuing the contract
with the contract value adjusted to include the difference between the death
benefit (if greater than the contract value) and the contract value at the time
of the contract owner/annuitant's death.
One-Year Step Up Death Benefit (Standard Death Benefit)
If the annuitant dies before the annuitization date, 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 contract anniversary prior
to the annuitant's 86th birthday, less an adjustment for
amounts subsequently 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).
5% Enhanced Death Benefit
If the annuitant dies before the annuitization date, 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 prior to the annuitant's 86th birthday,
less an adjustment for amounts subsequently surrendered, plus
purchase payments received since that contract anniversary.
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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 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).
REQUIRED DISTRIBUTIONS
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
Internal Revenue Code Section 72(s) requires Nationwide to make certain
distributions when a contract owner dies. The following distributions will be
made according to those requirements:
1) If any contract owner dies on or after the annuitization date
and before the entire interest in the contract has been
distributed, then the remaining interest must be distributed
at least as rapidly as the distribution method in effect on
the contract owner's death.
2) If any contract owner dies before the annuitization date, then
the entire interest in the contract (consisting of either the
death benefit or the contract value reduced by charges set
forth elsewhere in the contract) will be distributed within 5
years of the contract owner's death, 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
longer than the life expectancy of the designated
beneficiary. Payments must begin within one year of
the contract owner's death unless otherwise permitted
by federal income tax regulations;
b) if the designated beneficiary is the surviving spouse
of the deceased contract owner, the spouse can choose
to become the contract owner instead of receiving a
death benefit. Any distributions required under these
distribution rules will be made upon that spouse's
death.
In the event that the contract owner is NOT a natural person (e.g., a trust or
corporation), then, for purposes of these distribution provisions:
a) the death of the annuitant will be treated as the death of a
contract owner;
b) any change of annuitant will be treated as the death of a
contract owner; and
c) in either case, the appropriate distribution will be made upon
the death or change, as the case may be.
These distribution provisions do not apply to any contract exempt from Section
72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other
law or rule.
The designated beneficiary must elect a method of distribution and notify
Nationwide of this election within 60 days of the contract owner's death.
REQUIRED DISTRIBUTIONS FOR TAX SHELTERED ANNUITIES
Distributions from Tax Sheltered Annuities will be made according to the Minimum
Distribution and Incidental Benefit ("MDIB") provisions of Section 401(a)(9) of
the Internal Revenue Code. Distributions will be made to the annuitant according
to the annuity payment option selected over a period not longer than:
a) the life of the annuitant or the joint lives of the annuitant
and the annuitant's designated beneficiary; or
b) a period not longer than the life expectancy of the annuitant
or the joint life expectancies of the annuitant and the
annuitant's designated beneficiary.
Required distributions will not be withdrawn from this contract if they are
being withdrawn from another Tax Sheltered Annuity of the annuitant.
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If the annuitant's entire interest in a Tax Sheltered Annuity will be
distributed in equal or substantially equal payments over a period described in
a) or b), the payments will begin on the required beginning date. The required
beginning date is the later of:
a) April 1 of the calendar year following the calendar year in
which the annuitant reaches age 70 1/2; or
b) the annuitant's retirement date.
Provision b) does not apply to any employee who is a 5% owner (as defined in
Section 416 of the Internal Revenue Code) with respect to the plan year ending
in the calendar year when the employee attains the age of 70 1/2.
Distribution commencing on the required distribution date must satisfy minimum
distribution and incidental benefit provisions set forth in the Internal Revenue
Code. Those provisions require that distributions cannot be less than the amount
determined by dividing the annuitant's interest in the Tax Sheltered Annuity
determined by the end of the previous calendar year by (a) the annuitant's life
expectancy; or if applicable, (b) the joint and survivor life expectancy of the
annuitant and the annuitant's beneficiary. The life expectancies and joint life
expectancies are determined by reference to Treasury Regulation 1.72-9.
If the annuitant dies before distributions begin, the interest in the Tax
Sheltered Annuity must be distributed by December 31 of the calendar year in
which the fifth anniversary of the annuitant's death occurs unless:
a) the annuitant names his or her surviving spouse as the
beneficiary and the spouse chooses to receive distribution of
the contract in substantially equal payments over his or her
life (or a period not longer than his or her life expectancy)
and beginning no 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
distribution of the contract in substantially equal payments
over his or her life (or a period not longer than his or her
life expectancy) beginning no later than December 31 of the
year following the year in which the annuitant dies.
If the annuitant dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule used before the annuitant's
death.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES
Distributions from an Individual Retirement Annuity must begin no later than
April 1 of the calendar year following the calendar year in which the contract
owner reaches age 70 1/2. Distribution may be paid 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 longer than 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 before distributions begin, the interest in the
Individual Retirement Annuity must be distributed by December 31 of the calendar
year in which the fifth anniversary of the contract owner's death occurs,
unless:
a) the contract owner names his or her surviving spouse as the
beneficiary and such spouse chooses to:
1) treat the contract as an Individual Retirement
Annuity established for his or her benefit; or
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2) receive distribution of the contract in substantially
equal payments over his or her life (or a period not
longer than his or her life expectancy) and beginning
no later than December 31 of the year in which the
contract owner would have reached 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 longer than his or her
life expectancy) beginning no later than December 31 of the
year following the year of the contract owner's death.
Required distributions will not be withdrawn from this contract if they are
being withdrawn from another Individual Retirement Annuity or Individual
Retirement Account of the contract owner.
If the contract owner dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule being used before the
contract owner's death. However, a surviving spouse who is the beneficiary under
the annuity payment option may treat the contract as his or her own, in the same
manner as is described in section (a)(i) of this provision.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
A portion of each distribution will be included in the recipient's gross income
and taxed at ordinary income tax rates. The portion of a distribution which is
taxable is based on the ratio between the amount by which non-deductible
purchase payments exceed prior non-taxable distributions and total account
balances at the time of the distribution. The owner of an Individual Retirement
Annuity must annually report the amount of non-deductible purchase payments, the
amount of any distribution, the amount by which non-deductible purchase payments
for all years exceed non-taxable distributions for all years, and the total
balance of all Individual Retirement Annuities.
Individual Retirement Annuity distributions will not receive the favorable tax
treatment of a lump sum distribution from a Qualified Plan. If the contract
owner dies before the entire interest in the contract has been distributed, the
balance will also be included in his or her gross estate.
REQUIRED DISTRIBUTIONS FOR ROTH IRAS
The rules for Roth IRAs do not require distributions to begin during the
contract owner's lifetime.
When the contract owner dies, the 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 the spouse chooses to:
1) treat the contract as a Roth IRA established for his
or her benefit; or
2) receive distribution of the contract in substantially
equal payments over his or her life (or a period not
longer than his or her life expectancy) and beginning
no later than December 31 of the year following the
year in which the contract owner would have reached
age 70 1/2; or
b) the contract owner names a beneficiary other than his or her
surviving spouse and the beneficiary chooses to receive
distribution of the contract in substantially equal payments
over his or her life (or a period not longer than his or her
life expectancy) beginning no later than December 31 of the
year following the 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 "non-qualified distributions" (see
"Federal Tax Considerations").
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FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
Contract owners should consult a financial consultant, legal counsel or tax
advisor to discuss in detail the taxation and the use of the contracts.
Nationwide does not guarantee the tax status of the contracts or any
transactions involving the contracts.
Section 72 of the Internal Revenue Code governs federal income taxation of
annuities in general. That section sets forth different rules for: (1)
Individual Retirement Annuities; (2) Roth IRAs; (3) Tax Sheltered Annuities; and
(4) Non-Qualified Contracts. Each type of annuity is discussed below.
Individual Retirement Annuities and Individual Retirement Accounts
Distributions from Individual Retirement Annuities and contracts owned by
Individual Retirement Accounts are generally taxed when received. The excludable
portion of each payment is based on the ratio between the amount by which
non-deductible purchase payments to all the contracts exceeds prior non-taxable
distributions from the contracts, and the total account balances in the
contracts at the time of the distribution. The owner of these Individual
Retirement Annuities or the annuitant under contracts held by Individual
Retirement Accounts must annually report to the Internal Revenue Service:
o the amount of nondeductible purchase payments;
o the amount of any distributions;
o the amount by which nondeductible purchase payments for all
years exceed non-taxable distributions for all years; and
o the total balance in all Individual Retirement Annuities and
Individual Retirement Accounts.
Roth IRAs
Distributions of earnings from Roth IRAs are taxable or nontaxable, depending
upon whether they are "qualified distributions" or "non-qualified
distributions." A "qualified distribution" is one that satisfies the five year
rule and meets one of the following requirements:
(i) it is made on or after the date on which the contract owner
attains age 59 1/2;
(ii) it is made to a beneficiary (or the contract owner's estate)
on or after the death of the contract owner;
(iii) it is attributable to the contract owner's disability; or
(iv) it is a qualified first-time home buyer distribution (as
defined in Section 72(t)(2)(F) of the Internal Revenue 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
contains 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 non-qualified 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 non-qualified distribution is not includible in gross income to the
extent that the distribution, when added to all previous distributions, does not
exceed that total amount of contributions made to the Roth IRA. Any
non-qualified 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.
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Taxable distributions will not receive the same favorable tax treatment of a
lump sum distribution from a Qualified Plan. If the contract owner dies before
the contract is completely distributed, 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 Internal
Revenue Service as a taxable transaction.
Tax Sheltered Annuities
Distributions 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 Internal Revenue Code. The formula excludes from income the
amount invested in the contract divided by the number of anticipated payments
(as determined pursuant to Section 72(d) of the Internal Revenue Code) until the
full investment in the contract is recovered.
Thereafter all distributions are fully taxable.
Non-Qualified Contracts - Natural Persons as Contract Owners
The rules applicable to Non-Qualified Contracts provide that a portion of each
annuity payment 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 before the entire investment
in the contract has been excluded from income and no additional payments are due
after his or her death, then he or she may be entitled to a deduction for the
balance of the unrecovered investment in the contract on his or her final income
tax return.
Distributions before 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
that 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 before the annuitization date allocable to a portion of the
contract invested prior to August 14, 1982, are treated first as a recovery of
the investment in the contract as of that date. A distribution in excess of the
amount of the investment in the contract as of August 14, 1982, will be treated
as taxable income.
The Tax Reform Act of 1986 has changed the tax treatment of certain
Non-Qualified Contracts held by entities other than individuals. Such entities
are taxed currently on earnings from 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 Internal Revenue 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.
Internal Revenue Code Section 72 also assesses a penalty tax if a distribution
is made before the contract owner reaches age 59 1/2. The amount of the penalty
is 10% of the portion of any distribution that is includible in gross income.
The penalty tax does not apply if the distribution:
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1) is the result of a contract owner's death;
2) is the result of a contract owner's disability;
3) is one of a series of substantially equal periodic payments
made over the life or life expectancy of the contract owner
(or the joint lives or joint life expectancies of the contract
owner and the beneficiary selected by the contract owner to
receive payment under the annuity payment option selected by
the contract owner),
4) is for the purchase of an immediate annuity; or
5) is allocable to an investment in the contract before August
14, 1982.
A contract owner that wants to begin taking distributions to which the 10% tax
penalty does not apply should forward a written request to Nationwide. Upon
receipt of this written request, Nationwide will inform the contract owner of
Nationwide's policies and procedures, as well as contract limitations. An
election to begin taking these withdrawals will be irrevocable and may not be
amended or changed.
In order to qualify as an annuity contract under Section 72 of the Internal
Revenue Code, the contract must provide for distribution of the entire contract
upon a contract owner's death. These rules are described in "Required
Distributions for Non-Qualified Contracts."
The Internal Revenue Code requires that any election to receive an annuity
instead of a lump sum payment be made within 60 days after the lump sum becomes
payable (generally, within 60 days of the death of a contract owner or the
annuitant). As long as the election is made within the 60 day period, each
distribution will be taxable when it is paid. Upon the end of this 60 day
period, if no election has been made, the entire amount of the lump sum will be
subject to immediate tax, even if the payee decides at a later date to take the
distribution as an annuity.
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned
(or, pursuant to Section 72(u) of the Internal Revenue Code, deemed to be owned)
by individuals. Different rules apply if the contract owner is not a natural
person.
Generally, contracts owned by corporations, partnerships, trusts, and similar
entities ("non-natural persons") are not treated as annuity contracts under the
Internal Revenue Code. Specifically, they are not treated as annuity contracts
for purposes of Section 72. Therefore, 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. Taxation is not deferred, even if the
income is not distributed out of the contract to the contract owner.
This 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 would put the contract back under
Section 72, allowing tax deferral. However, this exception does not apply when
the non-natural person is an employer that holds the contract under a
non-qualified deferred compensation arrangement for one or more employees.
The non-natural person rule also does not apply to contracts that are:
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.
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INDIVIDUAL RETIREMENT ANNUITIES AND TAX SHELTERED ANNUITIES
Contract owners looking for information on eligibility, limitations on
permissible amounts of purchase payments, and the tax consequences of
distributions from Individual Retirement Annuities and Tax Sheltered Annuities
should contact a qualified adviser. The terms of each plan may limit the rights
available under the contracts.
Section 403(b)(1)(E) of the Internal Revenue Code requires a contract issued as
a Tax Sheltered Annuity to limit purchase payments for any year to an amount
that does not exceed the limit set forth in Section 402(g) of the Internal
Revenue Code. This limit is increased from time to time to reflect increases in
the cost of living. This limit may be reduced by deposits, contributions or
payments made to another Tax Sheltered Annuity or other plan, contract or
arrangement by or on behalf of the contract owner.
The Internal Revenue Code allows most distributions from Qualified Plans to be
rolled into Individual Retirement Annuities. Most distributions from Tax
Sheltered Annuities may be rolled into another Tax Sheltered Annuity, Individual
Retirement Annuity, or an Individual Retirement Account. Distributions that may
NOT be rolled over are those that are:
a) one of a series of substantially equal annual (or more
frequent) payments made:
1) over the life (or life expectancy) of the contract
owner;
2) over the joint lives (or joint life expectancies) of
the contract owner and the contract owner's
designated beneficiary; or
3) for a specified period of ten years or more; or
b) a required minimum distribution.
Any distribution that is eligible for rollover will be subject to federal tax
withholding of 20% if the distribution is not rolled into an appropriate plan as
described above.
Individual Retirement Accounts and Individual Retirement Annuities may not
provide life insurance benefits. If the death benefit exceeds the greater of the
contract's cash value or the sum of all purchase payments (less any surrenders),
the contract could be considered life insurance. Consequently, the Internal
Revenue Service could determine that the Individual Retirement Account or
Individual Retirement Annuity does not qualify for the desired tax treatment.
ROTH IRAS
The contract may be purchased as a Roth IRA. For detailed information on
purchasing and holding this contract as a Roth IRA, the contract owner should
contact a financial adviser.
The Internal Revenue Code allows distributions from Individual Retirement
Accounts and Individual Retirement Annuities to be rolled into Roth IRAs. The
rollovers are subject to federal income tax as distributions from the Individual
Retirement Account or Individual Retirement Annuity.
For rollovers from Individual Retirement Accounts or Individual Retirement
Annuities, all of the 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 Individual Retirement Annuity.
A distribution from a Roth IRA that contains the proceeds of a rollover from an
Individual Retirement Account or Individual Retirement Annuity within the
preceding 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 Individual Retirement Annuity 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 result in
the loss of the four year spread, subject to the amount deferred under the four
year election to be taxed immediately.
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WITHHOLDING
Pre-death distributions from the contracts are subject to federal income tax.
Nationwide will withhold the tax from the distributions unless the contract
owner requests otherwise. Contract owners may not waive withholding if the
distribution is subject to mandatory back-up withholding (if no mandatory
taxpayer identification number is given or if the Internal Revenue Service
notifies Nationwide that mandatory back-up withholding is required), or if it is
an eligible rollover distribution. Mandatory back-up withholding rates are 31%
of income that is distributed.
NON-RESIDENT ALIENS
Generally, a pre-death distribution from a contract to a non-resident alien is
subject to federal income tax at a rate of 30% of the amount of income that is
distributed. Nationwide is required to withhold this amount and send it to the
Internal Revenue Service. Some distributions to non-resident aliens may be
subject to a lower (or no) tax if a treaty applies. In order to obtain the
benefits of such a treaty, the non-resident alien must:
1) provide Nationwide with proof of residency and citizenship (in
accordance with Internal Revenue Service requirements); and
2) provide Nationwide with an individual taxpayer identification
number.
If the non-resident alien does not meet the above conditions, Nationwide will
withhold 30% of income from the distribution.
Another way to avoid the 30% withholding is for the non-resident alien to
provide Nationwide with sufficient evidence that:
1) the distribution is connected to the non-resident alien's
conduct of business in the United States; and
2) the distribution is includable in the non-resident alien's
gross income for United States federal income tax purposes.
Note that these distributions may be subject to back-up withholding, currently
31%, if a correct taxpayer identification number is not provided.
FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES
The following transfers may be considered a gift for federal gift tax purposes:
o a transfer of the contract from one contract owner to another;
or
o a distribution to someone other than a contract owner.
Upon the contract owner's death, the value of the contract may be subject to
estate taxes, even if all or a portion of the value is also subject to federal
income taxes.
Section 2612 of the Internal Revenue Code may require Nationwide to determine
whether a death benefit or other distribution is a "direct skip" and the amount
of the resulting generation skipping transfer tax, if any. A direct skip is 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 Internal
Revenue 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:
o 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
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o who is required to report the transfer of the contract, death
benefit, distribution, or other payment for federal gift tax
purposes.
If a transfer is a direct skip, Nationwide will deduct the amount of the
transfer tax from the death benefit, distribution or other payment, and remit it
directly to the Internal Revenue Service.
PUERTO RICO
Under the Puerto Rico tax code, distributions from a Non-Qualified Contract
before 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 in these
situations.
CHARGE FOR TAX
Nationwide is not required to maintain a capital gain reserve liability on
Non-Qualified Contracts. If tax laws change requiring a reserve, Nationwide may
implement and adjust a tax charge.
DIVERSIFICATION
Internal Revenue Code Section 817(h) contains rules on diversification
requirements for variable annuity contracts. A variable annuity contract that
does not meet these diversification requirements will not be treated as an
annuity, unless:
o the failure to diversify was accidental;
o the failure is corrected; and
o a fine is paid to the Internal Revenue Service.
The amount of the fine will be the amount of 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 violation is not corrected, the contract owner will be considered the
owner of the underlying securities and will be taxed on the earnings of his or
her contract. Nationwide believes that the investments underlying this contract
meet these diversification requirements.
TAX CHANGES
The foregoing tax information is based on Nationwide's understanding of federal
tax laws. It is NOT intended as tax advice. All information is subject to change
without notice. For more details, contact your personal tax and/or financial
advisor.
STATEMENTS AND REPORTS
Nationwide will mail contract owners statements and reports. Therefore, contract
owners should promptly notify Nationwide of any address change.
These mailings will contain:
o statements showing the contract's quarterly activity;
o confirmation statements showing transactions that affect the
contract's value. Confirmation statements will not be sent for
recurring transactions (i.e., Dollar Cost Averaging or salary
reduction programs). Instead, confirmation of recurring
transactions will appear in the contract's quarterly
statements;
o annual and semi-annual reports containing all applicable
information and financial statements or their equivalent,
which must be sent to the underlying mutual fund beneficial
shareholders as required by the rules under the Investment
Company Act of 1940 for the variable account.
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<PAGE> 42
Contract owners should review these statements and confirmations carefully. All
errors or corrections must be reported to Nationwide immediately to assure
proper crediting to the contract. Unless Nationwide is notified within 30 days
of receipt of the statement, Nationwide will assume statements and confirmation
statements are correct.
YEAR 2000 COMPLIANCE ISSUES
Nationwide has developed and implemented a plan to address issues related to the
Year 2000. The problem relates to many existing computer systems using only two
digits to identify a year in a date field. These systems were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer systems could fail or create erroneous results
when processing information dated after December 31, 1999. Like many
organizations, Nationwide is required to renovate or replace computer systems so
that the systems will function properly after December 31, 1999.
Nationwide has completed an inventory and assessment of all computer systems and
has implemented a plan to renovate or replace all applications that were
identified as not Year 2000 compliant. Nationwide has renovated all applications
that required renovation. Testing of the renovated programs included running
each application in a Year 2000 environment and was completed as planned during
1998. For applications being replaced, Nationwide had all replacement systems in
place and functioning as planned by year-end 1998. Conversions of existing
traditional life policies will continue through second quarter, 1999. In
addition, the shareholder services system that supports our mutual fund products
will be fully deployed in the first quarter of 1999.
Nationwide has completed an inventory and assessment of all vendor products and
has tested and certified that each vendor product is Year 2000 compliant. Any
vendor products that could not be certified as Year 2000 compliant were replaced
or eliminated in 1998.
Nationwide has also addressed issues associated with the exchange of electronic
data with external organizations. Nationwide has completed an inventory and
assessment of all business partners including electronic interfaces. Processes
have been put into place and programs initiated to process data irrespective of
the format by converting non-compliant data into a Year 2000 compliant format.
Systems supporting Nationwide's infrastructure such as telecommunications, voice
and networks will be compliant by March 1999. Nationwide's assessment of Year
2000 issues has also included non-information technology systems with embedded
computer chips. Nationwide's building systems such as fire, security, and
elevators and escalators supporting facilities in Columbus, Ohio have been
tested and are Year 2000 compliant.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
surveying significant external organizations (business partners) to assess if
they will be Year 2000 compliant and be in a position to do business in the Year
2000 and beyond. Specifically, Nationwide has contacted mutual fund
organizations that provide funds for our variable annuity and life products. The
same action will continue during the first quarter of 1999 with wholesale
producers. Nationwide continues its efforts to identify external risk factors
and is planning to develop contingency plans as part of its ongoing risk
management strategy.
Operating expenses in 1998 and 1997 included approximately $44.7 million and
$45.4 million, respectively, for technology projects, including costs related to
Year 2000. Nationwide anticipates spending approximately $5 million on Year 2000
activities in 1999. These expenses do not have an effect on the assets of the
variable account and are not charged through to the contract owner.
Management does not anticipate that the completion of Year 2000 renovation and
replacement activities will result in a reduction in operating expenses. Rather,
personnel and resources currently allocated to Year 2000 issues will be assigned
to other technology-related projects.
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LEGAL PROCEEDINGS
Nationwide 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 Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance and
annuity pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
In February 1997, Nationwide was named as a defendant in a lawsuit filed in New
York state court related to the sale of whole life policies on a "vanishing
premium" basis (John H. Snyder v. Nationwide Life Insurance Co.). In April 1998,
Nationwide was named as a defendant in a lawsuit filed in Ohio state court
similar to the Snyder case (David and Joan Mishler v. Nationwide Life Insurance
Co.). In August 1998, Nationwide Mutual Insurance Company and Nationwide and the
plaintiffs executed a stipulation of settlement and submitted it to the New York
state court for approval. On August 20, 1998, the court in the Snyder case
signed an order preliminarily approving a class for settlement purposes (which
would include the Mishler case) and scheduled a fairness hearing for December
17, 1998. At that hearing, the court reviewed the fairness and reasonableness of
the proposed settlement and issued a final order and judgment. The approved
settlement provides for dismissal of both the Snyder and Mishler cases, bars
class members from pursuing litigation against Nationwide Mutual Insurance
Company and its affiliates, including Nationwide and its subsidiaries, relating
to the allegations in the Snyder case, and provides class members with a
potential value of approximately $100 million in policy adjustments, discounted
premiums and discounted products.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance policy and the other who was the owner of a variable annuity contract,
commenced a lawsuit in a federal court in Texas against Nationwide and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs seek to
represent a class of variable life insurance policy owners and variable annuity
contract owners whom they claim were allegedly misled when purchasing these
variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century, whose shares are publicly traded. The amended
complaint seeks unspecified compensatory and punitive damages. On April 27,
1998, the district court denied, in part, and granted, in part, Nationwide and
American Century's motions to dismiss the complaint. The remaining claims
against Nationwide allege securities fraud, common law fraud, civil conspiracy
and breach of contract. On December 2, 1998, the district court issued an order
denying plaintiffs' motion for class certification. On December 10, 1998, the
district court stayed the lawsuit pending plaintiffs' petition to the federal
appeals court for interlocutory review of the order denying class certification.
On December 14, 1998, plaintiffs filed their petition for interlocutory review,
on which the federal appeals court has not yet ruled. Nationwide intends to
defend the case vigorously.
On October 29, 1998, Nationwide and certain of its subsidiaries were named in a
lawsuit filed in Ohio state court related to the sale of deferred annuity
products for use as investments in tax-deferred contributory retirement plans
(Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide's
customers and seeks unspecified compensatory and punitive damages.
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<PAGE> 44
Nationwide currently is evaluating this lawsuit, which has not been certified as
a class. Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
The general distributor, Nationwide Advisory Services, Inc., is not engaged in
any litigation of any material nature.
ADVERTISING AND SUB-ACCOUNT PERFORMANCE SUMMARY
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.
Nationwide may advertise the performance of a sub-account in relation to the
performance of other variable annuity sub-accounts, 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:
o precious metals;
o real estate;
o stocks and bonds;
o closed-end funds;
o bank money market deposit accounts and passbook
savings;
o CDs; and
o the Consumer Price Index.
Market Indexes
The sub-accounts will be compared to certain market indexes, such as:
o S&P 500;
o Shearson/Lehman Intermediate Government/Corporate Bond Index;
o Shearson/Lehman Long-Term Government/Corporate Bond Index;
o Donoghue Money Fund Average;
o U.S. Treasury Note Index;
o Bank Rate Monitor National Index of 2 1/2 Year CD Rates; and
o Dow Jones Industrial Average.
Tracking & Rating Services; Publications
Nationwide's rankings and ratings are sometimes published by other services,
such as:
o Lipper Analytical Services, Inc.;
o CDA/Wiesenberger;
o Morningstar;
o Donoghue's;
o magazines such as:
- Money;
- Forbes;
- Kiplinger's Personal Finance Magazine;
- Financial World;
- Consumer Reports;
- Business Week;
- Time;
- Newsweek;
- National Underwriter;
- News and World Report;
o LIMRA;
o Value;
o Best's Agent Guide;
o Western Annuity Guide;
o Comparative Annuity Reports;
o Wall Street Journal;
o Barron's;
o Investor's Daily;
o Standard & Poor's Outlook; and
o Variable Annuity Research & Data Service (The VARDS Report).
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<PAGE> 45
These rating services and publications rank the underlying mutual funds'
performance against other funds. These rankings may or may not include the
effects of sales charges or other fees.
Financial Rating Services
Nationwide is also ranked and rated by independent financial rating services,
among which are Moody's, Standard & Poor's and A.M. Best Company. Nationwide may
advertise these ratings. These ratings reflect Nationwide's financial strength
or claims-paying ability. The ratings are not intended to reflect the investment
experience or financial strength of the variable account.
Some Nationwide advertisements and endorsements may include lists of
organizations, individuals or other parties that recommend Nationwide or the
contract. Furthermore, Nationwide may occasionally advertise comparisons of
currently taxable and tax deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles and general economic
conditions.
Historical Performance of the Sub-Accounts
Nationwide will advertise historical performance of the sub-accounts. Nationwide
may advertise for the sub-account's standardized average annual total return
("standardized return") calculated in a manner prescribed by the SEC, and
non-standardized total return ("non-standardized return").
Standardized return shows 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 it has not been available for one of the prescribed
periods). This calculation reflects the standard 7 year CDSC schedule and the
charges that could be assessed to a contract if the maximum rider options are
chosen (1.25%). Standardized return does not reflect the deduction of state
premium taxes, which may be imposed by certain states.
Non-standardized return is calculated similarly to standardized return except
non-standardized return assumes an initial investment of $25,000, with base
contract variable account charges of 1.25% and does not reflect CDSC. An assumed
initial investment of $25,000 is used because that amount more accurately
reflects the average contract size.
Both methods of calculation reflect total return for the most recent one, five
and ten year periods (or for a period covering the time the underlying mutual
fund has been in existence). For those underlying mutual funds which have not
been available for one of the prescribed periods, the nonstandardized total
return illustrations will show the investment performance the underlying mutual
funds would have achieved had they been available in the variable account for
one of the periods.
The standardized average annual total return and nonstandardized total return
quotations are calculated using data for the period ended December 31, 1998.
However, Nationwide generally provides performance information more frequently.
Information relating to performance of the sub-accounts is based on historical
earnings and does not represent or guarantee future results.
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<TABLE>
SUB-ACCOUNT PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
10 Years
or Date Fund
Available in Date Fund
the Variable Available in
1 Year 5 Years Account the Variable
Sub-Account Option to 12/31/98 to 12/31/98 to 12/31/98 Account
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc. - 18.98% N/A 20.45% 11/03/97
American Century VP Income & Growth
- ------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 10.98% N/A 10.24% 11/03/97
American Century VP International
- ------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - -2.80% N/A 0.19% 11/03/97
American Century VP Value
- ------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital 22.29% N/A 21.62% 11/03/97
Appreciation Portfolio
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service Class 31.34% N/A 26.84% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: Service Class 22.01% N/A 18.21% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund -2.33% N/A -1.38% 10/31/97
- ------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund 7.40% N/A 7.88% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund -1.83% N/A 0.30% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund -4.98% N/A -3.58% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund -6.54% N/A -8.84% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Mid-Cap Growth Portfolio 31.24% N/A 45.66% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Partners Portfolio -3.39% N/A -1.80% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - Oppenheimer 4.66% N/A -0.50% 11/03/97
Aggressive Growth Fund/VA
- ------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity Portfolio -2.27% N/A -6.83% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
$25,000 INITIAL INVESTMENT, VARIABLE ACCOUNT CHARGES OF 1.25%, NO CDSC
PLEASE NOTE: THE PERFORMANCE NUMBERS BELOW REFLECT THE DEDUCTION OF THE AMOUNT
ASSESSED FOR THE BASE CONTRACT OF 1.25%. FOR CONTRACT OWNERS WHICH HAVE CHOSEN
ONE OR MORE RIDER OPTIONS, THE FUND PERFORMANCE AS SHOWN BELOW WOULD BE REDUCED
IN ACCORDANCE TO THE COSTS OF THE RIDER OPTIONS SELECTED.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
10 Years
to 12/31/98
1 Year 5 Years or Life of Date Fund
Sub-Account Option to 12/31/98 to 12/31/98 Fund Effective
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc. - 25.28% N/A 29.07% 10/30/97
American Century VP Income & Growth
- ------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 17.28% N/A 10.90% 05/02/94
American Century VP International
- ------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 3.50% N/A 14.50% 05/01/96
American Century VP Value
- ------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital 28.59% 22.04% 20.11% 04/05/93
Appreciation Portfolio
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service Class 37.64% 20.19% 17.89% 10/09/86
- ------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: Service Class 28.31% N/A 27.02% 01/03/95
- ------------------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 3.97% 3.74% 4.12% 11/30/81
- ------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund 13.70% N/A 13.12% 10/31/97
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN (CONTINUED)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
10 Years
to 12/31/98
1 Year 5 Years or Life of Date Fund
Sub-Account Option to 12/31/98 to 12/31/98 Fund Effective
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NSAT Nationwide High Income Bond Fund 4.47% N/A 5.66% 10/31/97
- ------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund 1.32% N/A 1.85% 10/31/97
- ------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund -0.25% N/A 15.87% 10/23/95
- ------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Mid-Cap Growth Portfolio 37.54% N/A 50.77% 11/03/97
- ------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Partners Portfolio 2.91% N/A 18.22% 03/22/94
- ------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - Oppenheimer 10.96% 11.66% 14.68% 08/15/86
Aggressive Growth Fund/VA
- ------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity Portfolio 4.03% N/A 4.40% 06/30/95
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Victory Variable Insurance Funds - Diversified Stock Fund: Class A, Victory
Variable Insurance Funds - Investment Quality Bond Fund: Class A and Victory
Variable Insurance Funds - Small Company Opportunity Fund: Class A were added to
the variable account July 1, 1999. Therefore, no sub-account performance is
available.
<TABLE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<CAPTION>
PAGE
<S> <C>
General Information and History.............................................1
Services....................................................................1
Purchase of Securities Being Offered........................................2
Underwriters................................................................2
Calculations of Performance.................................................2
Annuity Payments............................................................3
Financial Statements........................................................4
</TABLE>
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APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investments
for variable annuity contracts and variable life insurance policies issued by
insurance companies.
There is no guarantee that the investment objectives will be met.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end 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 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
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<PAGE> 49
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.
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 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.
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.
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.
MONEY MARKET FUND
Investment Objective: As high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity.
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<PAGE> 50
SUBADVISED NATIONWIDE FUNDS
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 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.
NATIONWIDE SMALL COMPANY FUND
Subadvisers: The Dreyfus Corporation, Neuberger Berman, LLC,
Lazard Asset Management, Strong Capital Management, Inc. and
Warburg Pincus Asset Management, Inc.
Investment Objective: Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity securities of companies
whose equity market capitalizations at the time of investment are similar
to the market capitalizations of companies in the Russell 2000 Small
Stock Index.
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<PAGE> 51
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust ("NB AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of NB 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 Partners and Mid-Cap Growth Portfolios of NB AMT invest all of their
investable assets in a corresponding series of Advisers Managers Trust managed
by Neuberger Berman Management Incorporated ("NB 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 NB Management.
AMT MID-CAP GROWTH PORTFOLIO
Investment Objective: Capital appreciation by investing in equity
securities of medium-sized companies that NB 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 NB 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/VA (FORMERLY "OPPENHEIMER CAPITAL
APPRECIATION FUND") Investment Objective: Capital appreciation by investing
in "growth type" companies. Such companies are believed to have relatively
favorable long-term prospects for increasing demand for their goods or
services, or to be developing new products, services or markets and
normally retain a relatively larger portion of their earnings for research,
development and investment in capital assets. The Fund may also invest in
cyclical industries in "special situations" that OppenheimerFunds, Inc.
believes present opportunities for capital growth.
VICTORY VARIABLE INSURANCE FUNDS
The Victory Variable Insurance Funds (the "Trust") is a Delaware business trust
formed on February 11, 1998. The Trust is offered
51
<PAGE> 52
exclusively through contracts offered by the separate accounts of participating
insurance companies. Key Asset Management Inc. serves as the investment adviser
for each fund offered through the Trust.
DIVERSIFIED STOCK FUND: CLASS A
Investment Objective: Seeks to provide long-term growth of capital. The
Fund pursues its objective by investing primarily in equity securities and
securities convertible into common stocks traded on U.S. exchanges and
issued by large, established companies.
INVESTMENT QUALITY BOND FUND: CLASS A
Investment Objective: Seeks to provide a high level of income. The Fund
pursues its objective by investing primarily in investment-grade bonds
issued by corporations and the U.S. Government and is agencies or
instrumentalities.
SMALL COMPANY OPPORTUNITY FUND: CLASS A
Investment Objective: Seeks to provide capital appreciation. The Fund
pursues its objective by investing primarily in common stocks of smaller
companies that show the potential for high earnings growth in relation to
their price-earnings ratio.
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. The portfolio is managed by Warburg Pincus Asset Management,
Inc. ("Warburg").
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.
52
<PAGE> 53
APPENDIX B: CONDENSED FINANCIAL INFORMATION
Accumulation unit values for accumulation units outstanding throughout the
period.
<TABLE>
NO OPTIONAL DEATH BENEFITS
(VARIABLE ACCOUNT CHARGES OF 1.20% OF THE DAILY NET ASSETS OF THE VARIABLE ACCOUNT)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
FUND VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION
BEGINNING OF PERIOD VALUE UNITS AT END OF
PERIOD PERIOD
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
<S> <C> <C> <C> <C> <C>
American Century 10.000000 12.431326 24.31% 1,366 1998
Variable Portfolios,
Inc. - American
Century VP Income &
Growth - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
American Century 10.000000 12.431326 24.31% 1,176 1998
Variable Portfolios,
Inc. - American
Century VP Income &
Growth - NQ
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
American Century 10.000000 10.904652 9.05% 0 1998
Variable Portfolios,
Inc. - American
Century VP
International - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
American Century 10.000000 10.904652 9.05% 223 1998
Variable Portfolios,
Inc. - American
Century VP
International - NQ
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
American Century 10.000000 11.497731 14.98% 3 1998
Variable Portfolios,
Inc. - American
Century VP Value - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
American Century 10.000000 11.497731 14.98% 1,306 1998
Variable Portfolios,
Inc. - American
Century VP Value - NQ
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
Dreyfus Variable 10.000000 12.207586 22.08% 390 1998
Investment Fund -
Capital Appreciation
Portfolio - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
Dreyfus Variable 10.000000 12.207586 22.08% 2,910 1998
Investment Fund -
Capital Appreciation
Portfolio - NQ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 54
<TABLE>
- --------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
FUND VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION
BEGINNING OF PERIOD VALUE UNITS AT END OF
PERIOD PERIOD
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
<S> <C> <C> <C> <C> <C>
Fidelity VIP Growth 10.000000 13.015101 30.15% 10,429 1998
Portfolio: Service
Class - Q
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
Fidelity VIP Growth 1998
Portfolio: Service
Class - NQ
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
10.000000 13.015101 30.15% 0 1997
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
Fidelity VIP II 10.000000 12.602507 26.03% 10,719 1998
Contrafund
Portfolio: Service
Class - NQ
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Money Market 10.000000 10.126097 1.26% 0 1998
Fund - Q*
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Money Market 10.000000 10.126097 1.26% 48,756 1998
Fund - NQ*
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Nationwide 10.000000 11.927845 19.28% 0 1998
Equity Income Fund -
Q
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Nationwide 10.000000 11.927845 19.28% 1,552 1998
Equity Income Fund -
NQ
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Nationwide High 10.000000 10.558563 5.59% 19 1998
Income Bond Fund - Q
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Nationwide High 10.000000 10.558563 5.59% 1,154 1998
Income Bond Fund - NQ
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Nationwide 10.000000 10.475252 4.75% 0 1998
Multi-Sector Bond
Fund - Q
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Nationwide 10.000000 10.475252 4.75% 1,706 1998
Multi-Sector Bond
Fund - NQ
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
NSAT Nationwide 10.000000 12.016781 20.17% 3 1998
Small Company Fund -
Q
- --------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 55
<TABLE>
- --------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
FUND VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION
BEGINNING OF PERIOD VALUE UNITS AT END OF
PERIOD PERIOD
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
<S> <C> <C> <C> <C> <C>
NSAT Nationwide 10.000000 12.016781 20.17% 0 1998
Small Company Fund -
NQ
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
Neuberger Berman AMT 10.000000 13.702754 37.03% 0 1998
Mid-Cap Growth
Portfolio - Q
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
Neuberger Berman AMT 10.000000 13.702754 37.03% 1,744 1998
Mid-Cap Growth
Portfolio - NQ
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
Neuberger Berman AMT 10.000000 11.821068 18.21% 874 1998
Partners Portfolio -
Q
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
Neuberger Berman AMT 10.000000 11.821068 18.21% 1,913 1998
Partners Portfolio -
NQ
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
Oppenheimer Variable 10.000000 12.961315 29.61% 47 1998
Account Funds -
Oppenheimer
Aggressive Growth
Fund/VA - Q
- ---------------------- -------------------- ------------------ ------------------- ------------------- -------
Oppenheimer Variable 10.000000 12.961315 29.61% 1,383 1998
Account Funds -
Oppenheimer
Aggressive Growth
Fund/VA - NQ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* The 7 day yield for the NSAT Money Market Fund as of December 31, 1998 was
3.57%.
The Victory Variable Insurance Funds - Diversified Stock Fund: Class A, Victory
Variable Insurance Funds - Investment Quality Bond Fund: Class A and Victory
Variable Insurance Funds - Small Company Opportunity Fund: Class A were added to
the variable account July 1, 1999. Therefore, no Condensed Financial Information
is available.
55
<PAGE> 56
<TABLE>
OPTIONAL 5% ENHANCED DEATH BENEFIT
(VARIABLE ACCOUNT CHARGES OF 1.25% OF THE DAILY NET ASSETS OF THE VARIABLE ACCOUNT)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
FUND VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION
BEGINNING OF PERIOD VALUE UNITS AT END OF
PERIOD PERIOD
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
<S> <C> <C> <C> <C> <C>
American Century 10.000000 11.495807 14.96% 0 1998
Variable Portfolios,
Inc - American
Century VP Value - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
American Century 10.000000 11.495807 14.96% 322 1998
Variable Portfolios,
Inc - American
Century VP Value - NQ
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
Fidelity VIP Growth 10.000000 13.012933 30.13% 41 1998
Portfolio: Service
Class - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
Fidelity VIP Growth 10.000000 13.012933 30.13% 1,201 1998
Portfolio: Service
Class - NQ
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
NSAT Nationwide High 10.000000 10.556787 5.57% 0 1998
Income Bond Fund - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
NSAT Nationwide High 10.000000 10.556787 5.57% 151 1998
Income Bond Fund - NQ
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
NSAT Nationwide 10.000000 10.473496 4.73% 0 1998
Multi-Sector Bond
Fund - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
NSAT Nationwide 10.000000 10.473496 4.73% 153 1998
Multi-Sector Bond
Fund - NQ
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
Neuberger Berman AMT 10.000000 11.819096 18.19% 7 1998
Partners Portfolio -
Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
Neuberger Berman AMT 10.000000 11.819096 18.19% 789 1998
Partners Portfolio -
NQ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 57
<TABLE>
- --------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL ACCUMULATION UNIT ACCUMULATION UNIT PERCENT CHANGE IN NUMBER OF YEAR
FUND VALUE AT VALUE AT END OF ACCUMULATION UNIT ACCUMULATION
BEGINNING OF PERIOD VALUE UNITS AT END OF
PERIOD PERIOD
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
<S> <C> <C> <C> <C> <C>
Oppenheimer Variable 10.000000 12.959156 29.59% 147 1998
Account Funds -
Oppenheimer
Aggressive Growth
Fund/VA - Q
- ---------------------- ------------------- ------------------- ------------------- ------------------- -------
Oppenheimer Variable 10.000000 12.959156 29.59% 678 1998
Account Funds -
Oppenheimer
Aggressive Growth
Fund/VA - NQ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Victory Variable Insurance Funds - Diversified Stock Fund: Class A, Victory
Variable Insurance Funds - Investment Quality Bond Fund: Class A and Victory
Variable Insurance Funds - Small Company Opportunity Fund: Class A were added to
the variable account July 1, 1999. Therefore, no Condensed Financial Information
is available.
57
