<PAGE> 1
NATIONWIDE LIFE INSURANCE COMPANY
Deferred Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through its
Nationwide Variable Account
The date of this prospectus is May 1, 2000.
- ------------------------------------------------------------------------------
Variable annuities are complex investment products with unique benefits and
advantages that may be particularly useful to many investors in meeting
long-term savings and retirement needs. There are, however, costs and charges
associated with some of these unique benefits - costs and charges that do not
exist or are not present with other investment products. With help from
financial consultants or advisers, investors are encouraged to compare and
contrast the costs and benefits of the variable annuity described in this
prospectus with those of other investment products, including other variable
annuity or variable life insurance products offered by Nationwide Life Insurance
Company and its affiliates. This process will aid in determining whether the
purchase of the contract described in this prospectus is consistent with an
individual's goals, risk tolerance, time horizon, marital status, tax situation,
and other personal characteristics and needs.
THIS PROSPECTUS CONTAINS BASIC INFORMATION YOU SHOULD KNOW ABOUT THE CONTRACTS
BEFORE INVESTING. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE.
- ------------------------------------------------------------------------------
The following underlying mutual funds are available under the contracts:
- American Century: Short Term Government - Investor Class
- American Century: Income & Growth - Advisor Class
- American Century: Growth - Investor Class
- American Century: International Growth - Advisor Class
- American Century: Ultra - Investor Class
- Dreyfus Appreciation Fund, Inc.
- Dreyfus Balanced Fund, Inc.
- Dreyfus Emerging Leaders Fund
- Dreyfus Premier Third Century Fund, Inc. - Class Z
- Federated Bond Fund - Class F
- Federated High Yield Trust*
- Fidelity Advisor Balanced Fund - Class A
- Fidelity Advisor Equity Income Fund - Class A
- Fidelity Advisor Growth Opportunities Fund - Class A
- Fidelity Advisor High Yield Fund - Class T*
- Franklin Mutual Series Fund, Inc. - Mutual Shares Fund: Class A
- Franklin Small Cap Growth Fund - Class A
- INVESCO Dynamics Fund
- INVESCO Small Company Growth Fund
- INVESCO Total Return Fund
- Janus Fund
- Janus Twenty Fund
- Janus Worldwide Fund
- Lazard Small Cap Portfolio - Open Shares
- Nationwide(R)Bond Fund - Class D
- Nationwide(R)Fund - Class D
- Nationwide(R)Growth Fund - Class D
- Nationwide(R)Intermediate U.S. Government Bond Fund - Class D
- Nationwide(R)Money Market Fund - Service Class
- Nationwide S&P 500(R)Index Fund - Service Class
- Neuberger Berman Genesis Trust
- Neuberger Berman Guardian Trust
- Neuberger Berman Partners Trust
- Oppenheimer Global Fund - Class A
- Prestige Balanced Fund - Class A
- Prestige International Fund - Class A
- Prestige Large Cap Growth Fund - Class A
- Prestige Large Cap Value Fund - Class A
- Prestige Small Cap Fund - Class A
- Strong Common Stock Fund, Inc.
- Templeton Foreign Fund - Class A
(*) May invest in lower quality debt securities commonly referred to as junk
bonds.
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Purchase payments not invested in the underlying mutual fund options of the
Nationwide Variable Account ("variable account") may be allocated to the
Guaranteed Term Options (Guaranteed Term Options may not be available in every
jurisdiction - refer to your contract for specific benefit information).
The Statement of Additional Information (dated May 1, 2000) which contains
additional information about the contracts and the variable account, is 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 35.
For general information or to obtain FREE copies of the:
- Statement of Additional Information;
- prospectus, annual report or semi-annual report for any underlying
mutual fund;
- prospectus for the Guaranteed Term Options; or
- 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
THIS ANNUITY IS NOT:
- - A BANK DEPOSIT - FEDERALLY INSURED
- - ENDORSED BY A BANK - AVAILABLE IN
OR GOVERNMENT AGENCY EVERY STATE
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.
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.
2
<PAGE> 3
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the contract
value allocated to the variable account 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 annuitization
payments when the variable annuity payment option is chosen.
CONTRACT VALUE- The total of all accumulation units in a contract plus any
amount held under Guaranteed Term Options.
CONTRACT YEAR- Each year the contract is in force beginning with the date the
contract is issued.
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 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.
NATIONWIDE- Nationwide Life Insurance Company.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Internal Revenue Code.
ROTH IRA- An account that 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 - each sub-account corrsponds to a single underlying
mutual fund.
VALUATION PERIOD- Each day the New York Stock Exchange is open for business.
VARIABLE ACCOUNT- Nationwide Variable Account, 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.
3
<PAGE> 4
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS.........................3
SUMMARY OF CONTRACT EXPENSES......................5
UNDERLYING MUTUAL FUND ANNUAL EXPENSES............7
EXAMPLE...........................................9
SYNOPSIS OF THE CONTRACTS........................11
FINANCIAL STATEMENTS.............................12
NATIONWIDE LIFE INSURANCE COMPANY................12
NATIONWIDE INVESTMENT SERVICES
CORPORATION....................................12
TYPES OF CONTRACTS...............................12
Individual Retirement Annuities
Roth IRAs
INVESTING IN THE CONTRACT........................13
The Variable Account and Underlying
Mutual Funds
Guaranteed Term Options
STANDARD CHARGES AND DEDUCTIONS..................14
Mortality and Expense Risk Charge
Premium Taxes
OPTIONAL CONTRACT BENEFITS, CHARGES AND
DEDUCTIONS...................................... 15
CDSC Options
Reduced Purchase Payment Option
Death Benefit Options
Guaranteed Minimum Income Benefit Option
OWNERSHIP RIGHTS.................................17
Contract Owner
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..................................20
SURRENDER (REDEMPTION)...........................21
Partial Surrenders (Partial Redemptions)
Full Surrenders (Full Redemptions)
ASSIGNMENT.......................................21
SERVICES.........................................21
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE........................22
ANNUITIZING THE CONTRACT.........................23
Annuitization Date
Annuitization
Fixed Payment Annuity
Variable Payment Annuity
Frequency and Amount of Annuity Payments
Guaranteed Minimum Income Benefit Option ("GMIB")
Annuity Payment Options
DEATH BENEFITS...................................27
Death of Contract/Owner Annuitant
Death Benefit Payment
REQUIRED DISTRIBUTIONS...........................27
Individual Retirement Accounts
Required Distributions for Roth IRAs
FEDERAL TAX CONSIDERATIONS.......................29
Federal Income Taxes
Withholding
Federal Estate, Gift, and Generation
Skipping Transfer Taxes
Diversification
Tax Changes
STATEMENTS AND REPORTS...........................32
LEGAL PROCEEDINGS................................32
ADVERTISING......................................33
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION..........................35
APPENDIX A: OBJECTIVES FOR UNDERLYING
MUTUAL FUNDS....................................36
4
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SUMMARY OF CONTRACT EXPENSES
The expenses listed below include both standard expenses and expenses associated
with optional benefits that may be elected by the applicant.
The optional benefits listed below may be chosen by applicants provided such
options are approved by state insurance authorities. These options must be
elected at the time of application and will replace the corresponding standard
contract benefits.
If the applicant chooses one or more options, a corresponding reduction or
charge (whichever is applicable) will apply to the standard variable account
annual expenses of 1.20%. The adjustment is made on a daily basis at the annual
rate noted below. Optional benefit charges/reductions will only apply to
allocations made to the variable account and are calculated as a percentage of
the average variable account value.
CONTRACT OWNER TRANSACTION EXPENSES
Standard Contract Contingent Deferred Sales Charge ("CDSC") (as a percentage of
purchase payments surrendered).......0%
VARIABLE ACCOUNT ANNUAL EXPENSES(1)
(as a percentage of the daily net assets of the varible account)
Mortality and Expense Risk Charge.............1.20%
Total Variable Account Annual
Expenses.................................1.20%(2)
The standard contract does not include a CDSC. However, if the applicant
chooses, a CDSC schedule may be elected in return for a reduction in the
standard contract Variable Account Annual Expenses.
CDSC OPTIONS AVAILABLE AT THE TIME OF APPLICATION
7 YEAR CDSC OPTION
Maximum Contingent Deferred Sales Charge ("CDSC") (as a percentage of purchase
payments surrendered).......................... 7%
<TABLE>
<CAPTION>
Range of 7 Year CDSC over time:
-------------------------- ----------------------
Number of Completed
Years from Date of CDSC
Purchase Payment Percentage
-------------------------- ----------------------
<S> <C>
0 7%
-------------------------- ----------------------
1 7%
-------------------------- ----------------------
2 7%
-------------------------- ----------------------
3 6%
-------------------------- ----------------------
4 5%
-------------------------- ----------------------
5 4%
-------------------------- ----------------------
6 3%
-------------------------- ----------------------
7 2%
-------------------------- ----------------------
Thereafter 0%
-------------------------- ----------------------
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF THE DAILY NET ASSETS OF THE
VARIABLE ACCOUNT)
Mortality and Expense Risk Charge
(including the 7 Year CDSC Option)..............0.95%(1),(3)
5 YEAR CDSC OPTION
Maximum Contingent Deferred Sales Charge ("CDSC") (as a percentage of purchase
payments surrendered) 7%
<TABLE>
<CAPTION>
Range of 5 Year CDSC over time:
-------------------------- ----------------------
Number of Completed
Years from Date of CDSC
Purchase Payment Percentage
-------------------------- ----------------------
<S> <C>
0 7%
-------------------------- ----------------------
1 7%
-------------------------- ----------------------
2 7%
-------------------------- ----------------------
3 6%
-------------------------- ----------------------
4 4%
-------------------------- ----------------------
5 2%
-------------------------- ----------------------
Thereafter 0%
-------------------------- ----------------------
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF THE DAILY NET ASSETS OF THE
VARIABLE ACCOUNT)
Mortality and Expense Risk Charge
(including the 5 Year CDSC Option)..............1.10%(1),(4)
- -------------------------------------------------------------------------------
(1) These charges apply only to sub-account allocations. The actual amount of
variable account annual expenses assessed to a particular contract will
depend on the optional benefits elected, which may increase or decrease
variable account annual expenses.
Variable account annual expenses do not apply to allocations made to the
Guaranteed Term Options. The variable account annual expenses are charged
on a daily basis at the annual rate determined by the optional benefits
elected.
5
<PAGE> 6
(2) Charges shown include the Standard Contractual Death Benefit that is
included in the standard contract (see "Death Benefit Payment").
(3) If the 7 Year CDSC Option is chosen at the time of application, the
standard contract variable account annual expenses will be REDUCED by
0.25%, making total variable account annual expenses equal to 0.95% of the
daily net assets of the variable account.
(4) If the 5 Year CDSC Option is chosen at the time of application, the
standard contract Variable Account Annual Expenses will be REDUCED by
0.10%, making total variable account annual expenses equal to 1.10% of the
daily net assets of the variable account.
For additional information on CDSC Options, see "Optional Contract
Benefits, Charges and Deductions" in the prospectus.
ADDITIONAL CONTRACT OPTIONS AVAILABLE AT THE TIME OF APPLICATION
Reduced Purchase Payment Option
For an additional 0.25% of the daily net assets of the variable account,
Nationwide will lower an applicant's minimum initial purchase payment to $1,000
and subsequent purchase payments to $25.
Reduced Purchase Payment Option...............0.25%
Total Variable Account Annual
Expenses (including Reduced
Purchase Payment Option) .....................1.45%
Death Benefit Options
For an additional charge, an applicant may choose one of two optional death
benefits instead of the Standard Contractual Death Benefit that is standard to
every contract. The optional death benefits are:
Optional Five-Year Reset
Death Benefit................................0.05%
Total Variable Account Annual
Expenses (including Five-Year
Reset Death Benefit).......................1.25%
Optional One-Year Step Up
Death Benefit................................0.10%
Total Variable Account Annual
Expenses (including One-Year Step
Up Death Benefit)..........................1.30%
Guaranteed Minimum Income Benefit Option
An applicant may elect one of two Guaranteed Minimum Income Benefit options
(see "Guaranteed Minimum Income Benefit Options").
Guaranteed Minimum Income Benefit
Option 1.....................................0.45%
Total Variable Account Annual
Expenses (including Guaranteed
Minimum Income Benefit Option 1)...........1.65%
Guaranteed Minimum Income Benefit
Option 2.....................................0.30%
Total Variable Account Annual Expenses
(including Guaranteed Minimum Income
Benefit Option 2).........................1.50%
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS,
AFTER EXPENSE REIMBURSEMENT)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Underlying Mutual
Fees Expenses ------------ Fund Annual Expenses
Fees
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century: Income & Growth - Advisor Class 0.43% 0.00% 0.50% 0.93%
American Century: Growth - Investor Class 1.00% 0.00% 0.00% 1.00%
American Century: International Growth - Advisor Class 1.02% 0.00% 0.50% 1.52%
American Century: Short Term Government - Investor Class 0.59% 0.00% 0.00% 0.59%
American Century: Ultra - Investor Class 1.00% 0.00% 0.00% 1.00%
Dreyfus Appreciation Fund, Inc. 0.28% 0.25% 0.36% 0.89%
Dreyfus Balanced Fund, Inc. 0.60% 0.12% 0.22% 0.94%
Dreyfus Emerging Leaders Fund 0.90% 0.23% 0.25% 1.38%
Dreyfus Premier Third Century Fund, Inc. - Class Z 0.75% 0.10% 0.11% 0.96%
Federated Bond Fund - Class F 0.64% 0.45% 0.00% 1.09%
Federated High Yield Trust 0.54% 0.34% 0.00% 0.88%
Fidelity Advisor Balanced Fund - Class A 0.43% 0.25% 0.25% 0.93%
Fidelity Advisor Equity Income Fund - Class A 0.48% 0.26% 0.25% 0.99%
Fidelity Advisor Growth Opportunities Fund - Class A 0.43% 0.24% 0.25% 0.92%
Fidelity Advisor High Yield Fund - Class T 0.58% 0.21% 0.25% 1.04%
Franklin Mutual Series Fund Inc. - Mutual Shares Fund: 0.56% 0.21% 0.35% 1.12%
Class A
Franklin Small Cap Growth Fund - Class A 0.46% 0.23% 0.25% 0.94%
INVESCO Dynamics Fund 0.52% 0.27% 0.25% 1.04%
INVESCO Small Company Growth Fund 0.72% 0.65% 0.25% 1.62%
INVESCO Total Return Fund 0.56% 0.23% 0.25% 1.04%
Janus Fund 0.65% 0.20% 0.00% 0.85%
Janus Twenty Fund 0.65% 0.23% 0.00% 0.88%
Janus Worldwide Fund 0.65% 0.24% 0.00% 0.89%
Lazard Small Cap Portfolio - Open Shares 0.75% 0.09% 0.25% 1.09%
Nationwide(R)Bond Fund - Class D 0.50% 0.33% 0.00% 0.83%
Nationwide(R)Fund - Class D 0.56% 0.17% 0.00% 0.73%
Nationwide(R)Growth Fund - Class D 0.58% 0.22% 0.00% 0.80%
Nationwide(R)Intermediate U.S. Government Bond Fund - 0.50% 0.29% 0.00% 0.79%
Class D
Nationwide(R)Money Market Fund - Service Class 0.40% 0.09% 0.15% 0.64%
Nationwide S&P 500(R)Index Fund - Service Class 0.13% 0.35% 0.15% 0.63%
Neuberger Berman Genesis Trust 1.12% 0.11% 0.00% 1.23%
Neuberger Berman Guardian Trust 0.84% 0.04% 0.00% 0.88%
Neuberger Berman Partners Trust 0.85% 0.06% 0.00% 0.91%
Oppenheimer Global Fund - Class A 0.69% 0.26% 0.21% 1.16%
Prestige Balanced Fund - Class A 0.75% 0.10% 0.25% 1.10%
Prestige International Fund - Class A 0.85% 0.20% 0.25% 1.30%
Prestige Large Cap Growth Fund - Class A 0.80% 0.15% 0.25% 1.20%
Prestige Large Cap Value Fund - Class A 0.75% 0.15% 0.25% 1.15%
Prestige Small Cap Fund - Class A 0.95% 0.15% 0.25% 1.35%
Strong Common Stock Fund, Inc. 1.00% 0.17% 0.00% 1.17%
Templeton Foreign Fund - Class A 0.61% 0.27% 0.25% 1.13%
</TABLE>
7
<PAGE> 8
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 in calculating 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 Underlying
Fees Expenses Fees Mutual Fund Annual
Expenses
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federated Bond Fund - Class F 0.75% 0.47% 0.00% 1.22%
Federated High Yield Trust 0.75% 0.39% 0.00% 1.14%
Franklin Mutual Series Fund Inc. - Mutual Shares Fund: 0.60% 0.21% 0.35% 1.16%
Class A
Nationwide(R)Intermediate U.S. Government Bond Fund - 0.50% 0.31% 0.00% 0.81%
Class D
Nationwide(R)Money Market Fund - Service Class 0.40% 0.24% 0.15% 0.79%
Nationwide S&P 500(R)Index Fund - Service Class 0.13% 0.54% 0.15% 0.82%
Prestige Balanced Fund - Class A 0.75% 2.44% 0.25% 3.44%
Prestige International Fund - Class A 0.85% 1.77% 0.25% 2.87%
Prestige Large Cap Growth Fund - Class A 0.80% 0.64% 0.25% 1.69%
Prestige Large Cap Value Fund - Class A 0.75% 0.87% 0.25% 1.87%
Prestige Small Cap Fund - Class A 0.95% 1.04% 0.25% 2.24%
</TABLE>
Nationwide provides the Summary of Contract Expenses and Underlying Mutual Fund
Annual Expenses to assist the contract owner in understanding the various costs
and expenses that he or she will bear directly or indirectly. Expenses of both
the variable account and the underlying mutual funds are set forth in the
tables. Premium taxes are not included in the tables, but may apply (see
"Premium Taxes").
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<PAGE> 9
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 example reflects expenses of both the variable account and the underlying
mutual funds. The example reflects an assumed variable account charge of 2.05%,
which is the maximum amount that could be assessed to a contract, and no CDSC.
For those contracts that do not elect the options that correspond to the maximum
variable account annual expenses, the expenses would be reduced. Deductions for
premium taxes are not reflected but may apply.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
If you surrender your contract If you do not surrender your If you annuitize your contract
at the end of the applicable contract at the end of the at the end of the applicable
time period applicable time period time period
- --------------------------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Century: Short Term 28 85 145 307 28 85 145 307 * 85 145 307
Government - Investor Class
- --------------------------------------------------------------------------------------------------------------------------
American Century: Income & 31 96 162 341 31 96 162 341 * 96 162 341
Growth - Advisor Class
- --------------------------------------------------------------------------------------------------------------------------
American Century: Growth - 32 98 166 347 32 98 166 347 * 98 166 347
Investor Class
- --------------------------------------------------------------------------------------------------------------------------
American Century: 37 114 192 397 37 114 192 397 * 114 192 397
International Growth -
Advisor Class
- --------------------------------------------------------------------------------------------------------------------------
American Century: Ultra - 32 98 166 347 32 98 166 347 * 98 166 347
Investor Class
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Appreciation Fund, 31 94 160 337 31 94 160 337 94 160 337
Inc.
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Balanced Fund, Inc. 31 96 163 342 31 96 163 342 * 96 163 342
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Emerging Leaders Fund 36 110 185 384 36 110 185 384 * 110 185 384
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Premier Third Century 32 97 164 344 32 97 164 344 * 97 164 344
Fund, Inc. - Class Z
- --------------------------------------------------------------------------------------------------------------------------
Federated Bond Fund - Class F 33 101 171 356 33 101 171 356 101 171 356
- --------------------------------------------------------------------------------------------------------------------------
Federated High Yield Trust 31 94 160 336 31 94 160 336 * 94 160 336
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Balanced 31 96 162 341 31 96 162 341 * 96 162 341
Fund - Class A
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Equity 32 98 165 346 32 98 165 346 * 98 165 346
Income Fund - Class A
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor Growth 31 95 162 340 31 95 162 340 * 95 162 340
Opportunities Fund - Class A
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Advisor High Yield 32 99 168 351 32 99 168 351 * 99 168 351
Fund - Class T
- --------------------------------------------------------------------------------------------------------------------------
Franklin Mutual Series Fund, 33 102 172 359 33 102 172 359 * 102 172 359
Inc. - Mutual Shares Fund:
Class A
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
If you surrender your contract If you do not surrender your If you annuitize your contract
at the end of the applicable contract at the end of the at the end of the applicable
time period applicable time period
- --------------------------------------------------------------------------------------------------------------------------
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>
Franklin Small Cap Growth 31 96 163 342 31 96 163 342 * 96 163 342
Fund - Class A
- --------------------------------------------------------------------------------------------------------------------------
INVESCO Dynamics Fund 32 99 168 351 32 99 168 351 * 99 168 351
- --------------------------------------------------------------------------------------------------------------------------
INVESCO Small Company Growth 39 117 197 406 39 117 197 406 * 117 197 406
Fund
- --------------------------------------------------------------------------------------------------------------------------
INVESCO Total Return Fund 32 99 168 351 32 99 168 351 * 99 168 351
- --------------------------------------------------------------------------------------------------------------------------
Janus Fund 30 93 158 333 30 93 158 333 * 93 158 333
- --------------------------------------------------------------------------------------------------------------------------
Janus Twenty Fund 31 94 160 336 31 94 160 336 * 94 160 336
- --------------------------------------------------------------------------------------------------------------------------
Janus Worldwide Fund 31 94 160 337 31 94 160 337 * 94 160 337
- --------------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Portfolio - 33 101 171 356 33 101 171 356 * 101 171 356
Open Shares
- --------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Bond Fund - Class 30 93 157 331 30 93 157 331 * 93 157 331
D
- --------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Fund - Class D 29 89 152 321 29 89 152 321 * 89 152 321
- --------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Growth Fund - 30 92 156 328 30 92 156 328 * 92 156 328
Class D
- --------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Intermediate U.S. 30 91 155 327 30 91 155 327 * 91 155 327
Government Bond Fund - Class D
- --------------------------------------------------------------------------------------------------------------------------
Nationwide(R)Money Market Fund 28 87 148 312 28 87 148 312 * 87 148 312
- - Service Class
- --------------------------------------------------------------------------------------------------------------------------
Nationwide S&P 500(R)Index 28 86 147 311 28 86 147 311 * 86 147 311
Fund - Service Class
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Genesis Trust 34 105 178 370 34 105 178 370 * 105 178 370
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Guardian 31 94 160 336 31 94 160 336 * 94 160 336
Trust
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners 31 95 161 339 31 95 161 339 * 95 161 339
Trust
- --------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Fund - 34 103 174 363 34 103 174 363 * 103 174 363
Class A
- --------------------------------------------------------------------------------------------------------------------------
Prestige Balanced Fund - 33 101 171 357 33 101 171 357 * 101 171 357
Class A
- --------------------------------------------------------------------------------------------------------------------------
Prestige International Fund - 35 107 181 376 35 107 181 376 * 101 181 376
Class A
- --------------------------------------------------------------------------------------------------------------------------
Prestige Large Cap Growth 34 104 176 367 34 104 176 367 * 104 176 367
Fund - Class A
- --------------------------------------------------------------------------------------------------------------------------
Prestige Large Cap Value Fund 34 102 174 362 34 102 174 362 * 102 174 362
- - Class A
- --------------------------------------------------------------------------------------------------------------------------
Prestige Small Cap Fund - 36 109 184 381 36 109 184 381 * 109 184 381
Class A
- --------------------------------------------------------------------------------------------------------------------------
Strong Common Stock Fund, Inc. 34 103 175 364 34 103 175 364 * 103 175 364
- --------------------------------------------------------------------------------------------------------------------------
Templeton Foreign Fund - 33 102 173 360 33 102 173 360 * 102 173 360
Class A
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The contracts sold under this prospectus do not permit annuitization during the
first two contract years.
10
<PAGE> 11
SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are individual deferred variable
annuity contracts, which can be categorized as:
- - Individual Retirement Annuities with contributions rolled over or
transferred from certain tax-qualified plans;* and
- - Roth IRAs.
*Contributions are not required to be rolled-over or transferred if the contract
owner elects the Reduced Purchase Payment Option.
For more detailed information with regard to the differences in contract types,
please see "Types of Contracts" later in this prospectus.
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
The minimum initial purchase payment to a contract is $15,000. Subsequent
purchase payments must be at least $1,000.
If the contract owner has elected the Reduced Purchase Payment Option, minimum
initial and subsequent purchase payments will be reduced accordingly.
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 administrative risks.
Nationwide does not deduct a sales charge from purchase payments upon deposit
into or withdrawal from the contract, unless the contract owner has elected one
of two optional Contingent Deferred Sales Charge ("CDSC") schedules in exchange
for a reduction of variable account charges. If the contract owner has elected
one of the CDSC options, Nationwide will REDUCE the variable account annual
expenses by either 0.25% for the 7 Year CDSC Option, or 0.10% for the 5 Year
CDSC Option.
If the contract owner has elected the Reduced Purchase Payment Option,
Nationwide will reduce the minimum initial purchase payment to $1,000 and
subsequent purchase payments to $25. In return for the reduction, Nationwide
will deduct an additional charge equal to an annual rate of 0.25% of the daily
net assets of the variable account.
Two optional death benefits are available under the contract. Nationwide will
deduct either a charge equal to an annual rate of 0.05% of the daily net assets
of the variable account if the Five-Year Reset Death Benefit is elected, or
0.10% of the daily net assets of the variable account if the One-Year Step Up
Death Benefit is elected.
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 equal to an annual rate 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 Benefit").
Upon annuitization of the contract, any amounts assessed for any rider options
elected will be waived and only those charges applicable to the base contract
will be assessed.
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 a contract is taxed depends on the type of contract issued and the purpose
for which the contract is purchased. Nationwide will charge against the contract
any premium taxes levied by any governmental authority (see "Federal Tax
Considerations" and "Premium Taxes").
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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 other amounts required
by state 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.
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 INVESTMENT SERVICES CORPORATION
The contracts are distributed by the general distributor, Nationwide Investment
Services Corporation ("NISC"), Two Nationwide Plaza, Columbus, Ohio 43215. (For
contracts issued in the State of Michigan, all references to NISC shall mean
Nationwide Investment Svcs. Corporation.) NISC is a wholly owned subsidiary of
Nationwide.
TYPES OF CONTRACTS
The following is a general description of the types of annuity contracts, and is
intended to provide only general information of the various types of contracts;
it is not intended to be comprehensive. The eligibility requirements, tax
benefits, limitations, and other features of these contracts differ one from the
other.
INDIVIDUAL RETIREMENT ANNUITIES (IRAs)
Individual Retirement Annuities are contracts that are issued by insurance
companies and satisfy the following requirements:
- - the contract is not transferable by the owner;
- - the premiums are not fixed;
- - the annual premium cannot exceed $2,000 (although rollovers of greater
amounts from qualified plans, tax-sheltered annuities and other IRAs can be
received);
- - certain minimum distribution requirements must be satisfied after the owner
attains the age of 70 1/2;
- - the entire interest of the owner in the contract is nonforfeitable; and
- - after the death of the owner, additional distribution requirements may be
imposed to ensure distribution of the entire balance in the contract within
the statutory period of time.
Depending on the circumstance of the owner, all or a portion of the
contributions made to the account may be deducted for federal income tax
purposes.
Failure to make the mandatory distributions can result in an additional penalty
tax of 50% of the excess of the amount required to be distributed over the
amount that was actually distributed.
IRAs may receive rollover contributions from other Individual Retirement
Accounts and Individual Retirement Annuities, from Tax Sheltered Annuities, and
from qualified retirement plans, including 401(k) plans.
For further details regarding IRAs, please refer to the disclosure statement
provided when the IRA was established.
ROTH IRAs
Roth IRA contracts are contracts that are issued by insurance companies and
satisfy the following requirements:
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- - the contract is not transferable by the owner;
- - the premiums are not fixed;
- - the annual premium cannot exceed $2,000 (although rollovers of greater
amounts from other Roth IRAs and IRAs can be received);
- - the entire interest of the owner in the contract is nonforfeitable; and
- - after the death of the owner, certain distribution requirements may be
imposed to ensure distribution of the entire balance in the contract within
the statutory period of time.
A Roth IRA can receive a rollover from an IRA; however, the amount rolled over
from the IRA to the Roth IRA is required to be included in the owner's federal
gross income at the time of the rollover, and will be subject to federal income
tax.
There are income limitations on eligibility to participate in a Roth IRA and
additional income limitations for eligibility to roll over amounts from an IRA
to a Roth IRA. For further details regarding Roth IRAs, please refer to the
disclosure statement provided when the Roth IRA was established.
INVESTING IN THE CONTRACT
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
The Nationwide Variable Account is a separate account that invests in the
underlying mutual funds listed in Appendix A. Nationwide established the
variable account on March 3, 1976, pursuant to Ohio law. Although the variable
account is registered with the SEC as a unit 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 each corresponding to a single
underlying mutual fund. Nationwide uses the assets of each sub-account to buy
shares of the underlying mutual funds based on contract owner instructions.
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.
Voting Rights
Contract owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote shares at special
shareholder meetings based on contract owner instructions. However, if the law
changes and Nationwide is allowed 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 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 that 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 variable accounts of Nationwide.
Nationwide does not
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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, 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 underlying mutual
funds 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.
GUARANTEED TERM OPTIONS
Guaranteed Term Options are separate investment options under the contract. A
Guaranteed Term Option prospectus must be read along 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.
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 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.
STANDARD CHARGES AND DEDUCTIONS
The maximum commissions payable on the sale of a contract described in this
prospectus is 6% of purchase payments.
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 Charge portion (0.80%) compensates Nationwide for
guaranteeing the
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<PAGE> 15
annuity purchase rates of the contracts. This guarantee ensures that the annuity
purchase rates will not change regardless of the death rates of annuity payees
or the general population. The Mortality Risk Charge also compensates Nationwide
for risks assumed in connection with the standard death benefit, but only
partially compensates Nationwide in connection with the optional death benefits
for which there are separate charges.
The Expense Risk Charge portion (0.40%) compensates 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.
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
5.0%. 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.
If applicable, Nationwide will deduct 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
CDSC OPTIONS
No Contingent Deferred Sales Charge is deducted from purchase payments when
amounts are deposited into, or withdrawn from, the contract, if the contract
owner has a standard contract.
HOWEVER, IF THE CONTRACT OWNER HAS CHOSEN A CDSC OPTION, NATIONWIDE WILL REDUCE
VARIABLE ACCOUNT ANNUAL EXPENSES. In exchange for the reduction, Nationwide may
assess a CDSC upon surrender of purchase payments from the contract. For either
option, the CDSC will not exceed 7% of purchase payments surrendered.
The CDSC is used to cover sales expenses, including production of sales material
and other promotional expenses. The maximum commission payable on the sale of
this product is 6.0% of purchase payments made to the contract.
The CDSC is calculated by multiplying the applicable CDSC percentage (noted in
the table corresponding to the option chosen) 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. Earnings are not subject to the CDSC,
however, earnings may not be distributed prior to the distribution of all
purchase payments. For tax purposes, a surrender is usually treated as a
withdrawal of earnings first.
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.
7 Year CDSC Option
In exchange for a REDUCTION equal to an annual rate of 0.25% of the daily net
assets of the variable account, a contract owner can elect, at the time of
application, to have a 7 Year CDSC schedule applied to surrenders from his or
her contract. The 7 Year CDSC schedule is as follows:
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<TABLE>
<CAPTION>
7 Year CDSC Schedule
-------------------------- ----------------------
Number of Completed
Years from Date of CDSC
Purchase Payment Percentage
-------------------------- ----------------------
<S> <C>
0 7%
-------------------------- ----------------------
1 7%
-------------------------- ----------------------
2 7%
-------------------------- ----------------------
3 6%
-------------------------- ----------------------
4 5%
-------------------------- ----------------------
5 4%
-------------------------- ----------------------
6 3%
-------------------------- ----------------------
7 2%
-------------------------- ----------------------
Thereafter 0%
-------------------------- ----------------------
</TABLE>
5 Year CDSC Option
In exchange for a REDUCTION equal to an annual rate of 0.10% of the daily net
assets of the variable account, a contract owner can elect, at the time of
application to have a 5 Year CDSC schedule applied to surrenders from his or her
contract. The 5 Year CDSC schedule is as follows:
<TABLE>
<CAPTION>
5 Year CDSC Schedule
-------------------------- ----------------------
Number of Completed
Years from Date of CDSC
Purchase Payment Percentage
-------------------------- ----------------------
<S> <C>
0 7%
-------------------------- ----------------------
1 7%
-------------------------- ----------------------
2 7%
-------------------------- ----------------------
3 6%
-------------------------- ----------------------
4 4%
-------------------------- ----------------------
5 2%
-------------------------- ----------------------
Thereafter 0%
-------------------------- ----------------------
</TABLE>
Waiver of Contingent Deferred Sales Charge Under Either CDSC Option
Each contract year, the contract owner may withdraw without a CDSC the greater
of:
(1) the lesser of:
(a) 10% of all purchase payments made to the contract, reduced by any
withdrawals; or
(b) 10% of the contract value; or
(2) 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 in a contract for at least 5 or 7
years, depending on the CDSC option elected.
No CDSC applies to transfers among sub-accounts or between or among the
Guaranteed Term Options and 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.
The CDSC will not be eliminated if to do so would be unfairly discriminatory or
prohibited by state law.
REDUCED PURCHASE PAYMENT OPTION
If the contract owner has chosen the Reduced Purchase Payment Option, Nationwide
will deduct a charge equal to an annual rate of 0.25% of the daily net assets of
the variable account. In return, the minimum initial purchase payment for that
contract will be $1,000 and minimum subsequent purchase payment will be $25.
The contract owner may elect to terminate this rider if, throughout a period of
at least two years and continuing until such election:
(1) the total of all purchase payments, less surrenders and withdrawals,
is maintained at $25,000 or more; and
(2) during such period and continuance, all subsequent purchase payments
were at least $1,000.
This election must be submitted in writing on a form provided by Nationwide.
Termination of the rider will occur as of the date on the election form, and the
charge for this rider will no longer be assessed. Subsequent purchase payments,
if any, will be subject to the terms of the contract and must be at least
$1,000.
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DEATH BENEFIT OPTIONS
If the contract owner has chosen an optional death benefit, Nationwide will
deduct an additional charge equal to an annual rate of either 0.05% for the
Five-Year Reset Death Benefit or 0.10% for the One-Year Step Up Death Benefit of
the daily net assets of the variable account. Nationwide may lower either of
these charges at any time without notification. Further information about these
benefits can be found in the "Death Benefit Payment" provision. The following
death benefits may not be available in all states.
Five-Year Reset 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 contract value as of the most recent five-year contract
anniversary occurring before the annuitant's 86th birthday, less an
adjustment for amounts subsequently surrendered, plus purchase
payments received after that five-year 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).
One-Year Step Up 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 before 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).
GUARANTEED MINIMUM INCOME BENEFIT OPTION
The contract owner may, at the time of application, purchase one of two
Guaranteed Minimum Income Benefit options. 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.
Upon annuitization of the contract, any amounts assessed for any rider options
will be waived and only those charges applicable to the base contract will be
assessed.
OWNERSHIP RIGHTS
CONTRACT OWNER
The contract owner and the annuitant must be the same person for contracts
described in this prospectus. The contract owner has all rights under the
contract.
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, unless
Nationwide approves a request for an annuitant of greater age.
BENEFICIARY AND CONTINGENT BENEFICIARY
The contract owner may request a change in the beneficiary or contingent
beneficiary before the annuitization date. These changes must be:
- on a Nationwide form;
- signed by the contract owner; and
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- received at Nationwide's home office before the annuitization date.
Nationwide must review and approve any change requests.
The beneficiary(ies) is the person(s) who is entitled to the death benefit if
the annuitant dies before the annuitization date. The annuitant can name more
than one beneficiary. The beneficiaries will share the death benefit equally,
unless otherwise specified.
If no beneficiary(ies) survives the annuitant, the contingent beneficiary(ies)
will receive the death benefit. Contingent beneficiaries will share the death
benefit equally, unless otherwise specified.
If no beneficiaries or contingent beneficiaries survive the annuitant, the
annuitant's estate will receive the death benefit.
Once recorded, the change will be effective as of the date the request was
signed, whether or not the annuitant was living at the time the request was
recorded. The change will not affect any action taken by Nationwide before the
change was recorded.
OPERATION OF THE CONTRACT
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
The minimum initial purchase payment to a contract is $15,000. Subsequent
purchase payments must be at least $1,000.
If the contract owner has elected the Reduced Purchase Payment Option, the
minimum initial and subsequent purchase payments will be reduced accordingly.
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 if the application and all necessary information are
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 allows 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 Nationwide 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 Exchanged is closed
or on the following nationally recognized holidays:
- - New Year's Day - Independence Day
- - Martin Luther King, Jr. Day - Labor Day
- - Presidents' Day - Thanksgiving
- - Good Friday - Christmas
- - 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 the New York Stock
Exchange is open, contract value may be affected since the annuitant will not
have access to their account.
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<PAGE> 19
ALLOCATION OF PURCHASE PAYMENTS
Nationwide allocates purchase payments to sub-accounts 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 or Guaranteed Term Options. However, no
change may be made that would result in an amount less than 1% of the purchase
payment 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; and
(2) amounts allocated to a Guaranteed Term Option.
If part or all of the contract value is surrendered, or charges are assessed
against the contract value, Nationwide will deduct a proportionate amount from
each of the sub-accounts and amounts from the Guaranteed Term Options based on
current cash values.
Determining Variable Account Value - Valuing an Accumulation Unit
Purchase payments or transfers allocated to the underlying mutual funds 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 fund 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; and
(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 0.95% to 2.05% of the daily
net assets of the variable account, depending on which contract features
the contract owner chooses.
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.
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
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<PAGE> 20
(which may be subject to a market value adjustment);
(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
Contract owners can transfer allocations without penalty or adjustment subject
to the following conditions:
- transfers among the sub-accounts are limited to 12 times per year.
- transfers from a Guaranteed Term Option prior to maturity are subject
to a market value adjustment.
- after annuitization, transfers may only be made on an 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.
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 determines to be genuine.
Nationwide may withdraw the telephone exchange privilege upon 30 days written
notice to contract owners.
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 contracts owner, Nationwide may refuse exchange and transfer
requests:
- submitted by any agent acting under a power of attorney on behalf of
more than one contract owner; or
- 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 return purchase payments paid. 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 will be paid by Nationwide.
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SURRENDER (REDEMPTION)
Contract owners may surrender some or all of the contract value before the
earlier of the annuitization date or his or her 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, 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 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, unless otherwise instructed by the contract owner.
A CDSC may apply if the contract owner elected a CDSC option. The CDSC deducted
is a percentage of the amount requested by the contract owner. Amounts deducted
for CDSC are not subject to a subsequent CDSC. 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 annual expenses, interest earned under Guaranteed Term Options (if
applicable), underlying mutual fund charges and the investment performance of
the underlying mutual funds. If the contract owner elected a CDSC option, a CDSC
may apply.
ASSIGNMENT
Contract rights may not be assigned.
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 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.
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 the contract
owner to make regular, level investments over time. It involves the automatic
transfer of a specified amount from certain sub-accounts into other
sub-accounts.
Contract owners direct Nationwide to automatically transfer specified amounts
from the Nationwide(R) Money Market Fund - Service Class to any other underlying
mutual fund. Dollar Cost Averaging transfers may not be directed to Guaranteed
Term Options. Transfers occur monthly or on another frequency if permitted by
Nationwide.
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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 does not guarantee that this program will result in a profit or
protect contract owners from a loss.
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.
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 proportionately unless
Nationwide is instructed otherwise. Systematic withdrawals are not available
from the Guaranteed Term Options. If the contract owner elected a CDSC option, a
CDSC may apply.
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 elected a CDSC option and takes systematic withdrawals,
the maximum amount that can be withdrawn annually without a CDSC is the greatest
of:
(1) the lesser of:
(a) 10% of all purchase payments made to the contract, reduced by any
withdrawals; or
(b) 10% of the contract value;
(2) any 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 below:
<TABLE>
<CAPTION>
----------------------------- -----------------------
PERCENTAGE OF
CONTRACT OWNER'S CONTRACT VALUE
AGE
----------------------------- -----------------------
<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.
If total amounts withdrawn in any contract year exceed the CDSC-free amount
described above, those amounts will only be eligible for the CDSC-free
withdrawal privilege described in the "CDSC Options - Waiver of Contingent
Deferred Sales Charge Under Either CDSC Option" 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.
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.
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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. The contract must be in
effect at least 2 years before annuitization may begin.
ANNUITIZATION
Annuitization is the period during which annuity payments are received. It is
irrevocable once payments have begun. Before the annuitization date, the
contract owner 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 depending on 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 THE
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 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
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<PAGE> 24
payments may be more or less than the first payment depending 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
Annuity payments are made based on the annuity payment option selected, unless:
- 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
- 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 OPTION ("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) minus (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; and
(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%.
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) surrender; or
(3) transfers from the variable account,
then 0% interest will accrue in that contract year for purposes of calculation
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
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<PAGE> 25
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. If the contract owner elects to annuitize the
contract using this GMIB option, prior to the first contract anniversary the
Guaranteed Annuitization Value will be equal to the amount of purchase payments
made, less an adjustment for amounts surrendered.
GMIB Illustrations
The following charts illustrate the amount of income that will be provided to
the annuitant if the contract is annuitized at the 7th, 10th, or 15th contract
anniversary date, using the GMIB.
The illustrations assume the following:
- - an initial purchase payment of $100,000 is made to the contract and
allocated to the variable account;
- - the contract is issued to a MALE at age 55, 65, or 70; and
- - a Life Annuity with 120 Months Guaranteed Fixed Payment Annuity Option is
elected.
<TABLE>
<CAPTION>
7 Years in Accumulation
$140,710.04 for GMIB at Annuitization
- -------------- -------------- ---------------- ------------
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
- -------------- -------------- ---------------- ------------
<CAPTION>
10 Years in Accumulation
$162,889.46 for GMIB at Annuitization
- -------------- -------------- ---------------- -----------
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
- -------------- -------------- ---------------- -----------
<CAPTION>
15 Years in Accumulation
$200,000.00 for GMIB at Annuitization
- -------------- --------------- --------------- -----------
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. 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 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 that occur without a GMIB
option.
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:
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<PAGE> 26
- - Life Annuity;
- - Joint and Last Survivor Annuity; and
- - Life Annuity with 120 or 240 Monthly Payments Guaranteed.
Other GMIB Terms and Conditions
**PLEASE READ CAREFULLY**
- - The GMIB must be elected at the time of application;
- - The annuitant must be age 82 or younger at the time the contract is issued;
and
- - 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.
- - A GMIB DOES NOT in any way guarantee the performance of any underlying
mutual fund, or any other investment option available under the contract.
- - 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.
- - 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.
- - Please take advantage of the guidance of a qualified financial adviser in
evaluating the GMIB options, and all other aspects of the contract.
- - GMIB may not be approved in all states.
- -------------------------------------------------------------------------------
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.
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<PAGE> 27
DEATH BENEFITS
DEATH OF CONTRACT OWNER/ANNUITANT
Because the contract owner and the annuitant must be the same person, if the
contract owner/annuitant dies before the annuitization date, a death benefit is
payable to the beneficiary.
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.
If the annuitant dies after the annuitization date, any benefit that may be
payable will be paid according to the selected annuity payment option.
DEATH BENEFIT PAYMENT
Contract owners may select one of three 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 Standard Contractual 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).
Standard Contractual 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 an adjustment for amounts
surrendered.
The adjustment for amounts surrendered will reduce item (2) above in the same
proportion that the contract value was reduced on the date(s) of the partial
surrender(s).
Five-Year Reset 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 contract value as of the most recent five-year contract anniversary
occurring before the annuitant's 86th birthday, less an adjustment for
amounts subsequently surrendered, plus purchase payments received after
that five-year 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).
One-Year Step Up 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 before 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).
REQUIRED DISTRIBUTIONS
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.
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<PAGE> 28
Distribution may be paid in a lump sum or in substantially equal payments over:
(a) the contract owner's life or the life of 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 or 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 contracts as an Individual Retirement Annuity or 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 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 do not have to 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 account as his or her own, in the same
manner as is described in section (a)(1) 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 contract 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
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:
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<PAGE> 29
(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").
FEDERAL TAX CONSIDERATIONS
FEDERAL INCOME TAXES
The tax consequences of purchasing a contract described in this prospectus will
depend on:
- the type of contract purchased;
- the purposes for which the contract is purchased; and
- the personal circumstances of individual investors having interests in
the contracts.
See "Synopsis of the Contracts" for a brief description of the various types of
contracts and the different purposes for which the contracts may be purchased.
Existing tax rules are subject to change, and may affect individuals differently
depending on their situation. Nationwide does not guarantee the tax status of
any contracts or any transactions involving the contracts.
If the contract is purchased as an investment of certain retirement plans (such
as qualified retirement plans, Individual Retirement Accounts, and custodial
accounts as described in Sections 401, 408(a), and 403(b)(7) of the Internal
Revenue Code), tax advantages enjoyed by the contract owner and/or annuitant may
relate to participation in the plan rather than ownership of the annuity
contract. Such plans are permitted to purchase investments other than annuities
and retain tax-deferred status.
The following is a brief summary of some of the federal income tax
considerations related to the contracts. In addition to the federal income tax,
distributions from annuity contracts may be subject to state and local income
taxes. The tax rules across all states and localities are not uniform and
therefore will not be discussed in this prospectus. Tax rules that may apply to
contracts issued in U.S. territories such as Puerto Rico and Guam are also not
discussed. Nothing in this prospectus should be considered to be tax advice.
Contract owners and prospective contract owners are encouraged to consult a
financial consultant, tax advisor or legal counsel to discuss the taxation and
use of the contracts.
The Internal Revenue Code sets forth different income tax rules for the
following types of annuity contracts:
- - Individual Retirement Annuities; and
- - Roth IRAs.
This discussion is not intended to serve as tax advice. Contract owners should
consult a financial consultant, legal counsel or tax advisor to discuss in
detail the taxation and the use of the contracts.
Individual Retirement Annuitie
Distributions from Individual Retirement Annuities, are generally taxed when
received. If any of the amount contributed to the IRA was nondeductible for
federal income tax purposes, then a portion of each distribution is excludable
from income.
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<PAGE> 30
If distributions of income from an IRA are made prior to the date that the owner
attains the age of 59 1/2 years, the income is subject to both the regular
income tax and an additional penalty tax of 10%. The penalty tax can be avoided
if the distribution is:
- made to a beneficiary on or after the death of the owner;
- attributable to the owner becoming disabled (as defined in the
Internal Revenue Code);
- part of a series of substantially equal periodic payments made not
less frequently than annually made for the life (or life expectancy)
of the owner, or the joint lives (or joint life expectancies) of the
owner and his or her designated beneficiary;
- used for qualified higher education expenses; or
- used for expenses attributable to the purchase of a home for a
qualified first-time buyer.
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:
- it is made on or after the date on which the contract owner attains
age 59 1/2;
- it is made to a beneficiary (or the contract owner's estate) on or
after the death of the contract owner;
- it is attributable to the contract owner's disability; or
- it is used for expenses attributable to the purchase of a home for a
qualified first-time buyer.
The five year rule generally is satisfied if the distribution is not made within
the five taxable year period beginning with the first taxable year in which a
contribution is made to any Roth IRA established for the owner.
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.
Special rules apply for Roth IRAs that have proceeds received from a traditional
IRA prior to January 1, 1999 if the owner elected the special 4-year income
averaging provisions that were in effect for 1998.
If non-qualified distributions of income from a Roth IRA are made prior to the
date that the owner attains the age of 59 1/2 years, the income is subject to
both the regular income tax and an additional penalty tax of 10%. The penalty
tax can be avoided if the distribution is:
- made to a beneficiary on or after the death of the owner;
- attributable to the owner becoming disabled as defined in the Internal
Revenue Code;
- part of a series of substantially equal periodic payments made not
less frequently than annually made for the life (or life expectancy)
of the owner, or the joint lives (or joint life expectancies) of the
owner and his or her designated beneficiary;
- for qualified higher education expenses; or
- used for expenses attributable to the purchase of a home for a
qualified first-time buyer.
If the contract owner dies before the contract is completely distributed, the
balance may be included in the contract owner's gross estate for tax purposes.
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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.
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 includible 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:
- a transfer of the contract from one contract owner to another; or
- a distribution to someone other than a contract owner.
Upon the contract owner's death, the value of the contract may 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:
- who would be required to include the contract, death benefit,
distribution, or other payment in his or her federal gross estate at
his or her death; or
- who is required to report the transfer of the contract, death benefit,
distribution, or other payment for federal gift tax purposes.
If 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.
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:
- - the failure to diversify was accidental;
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- - the failure is corrected; and
- - 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:
- statements showing the contract's quarterly activity;
- 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;
- semi-annual reports as of June 30 containing financial statements for
the variable account; and
- annual reports as of December 31 containing financial statements for
the variable account.
Contract owners should review 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.
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 November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced 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 sought to
represent a class of variable life insurance contract owners and variable
annuity contract owners whom they claim were allegedly misled when purchasing
these variable contracts into believing that 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, motions to
dismiss the complaint filed by Nationwide and American
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Century. The remaining claims against Nationwide allege securities fraud, common
law fraud, civil conspiracy, and breach of contract. The District Court, on
December 2, 1998, issued an order denying plaintiffs' motion for class
certification and the appeals court declined to review the order denying class
certification upon interlocutory appeal. On June 11, 1999, the District Court
denied the plaintiffs' motion to amend their complaint and reconsider class
certification. In January 2000 Nationwide and American Century settled this
lawsuit now limited to the claims of the two named plaintiffs. On February 9,
2000 the court dismissed this lawsuit with prejudice.
On October 29, 1998, Nationwide was 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). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The amended
complaint is brought as a class action on behalf of all persons who purchased
individual deferred annuity contracts or participated in group annuity contracts
sold by Nationwide and the other named Nationwide affiliates which were used to
fund certain tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. No class has been certified. On
June 11, 1999, Nationwide and the other named defendants filed a motion to
dismiss the amended complaint. On March 8, 2000, the court denied the motion to
dismiss the amended complaint filed by Nationwide and other named defendants.
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, NISC, is not engaged in any litigation of any material
nature.
ADVERTISING
A "yield" and "effective yield" may be advertised for the Nationwide(R) Money
Market Fund - Service Class. "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 Nationwide(R) Money Market Fund - Service Class' units. Yield is an
annualized figure, which means that it is assumed that the Nationwide(R) Money
Market Fund - Service Class 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:
- precious metals;
- real estate;
- stocks and bonds;
- closed-end funds;
- bank money market deposit accounts and passbook savings;
- CDs; and
- the Consumer Price Index.
Market Indexes
The sub-accounts will be compared to certain market indexes, such as:
- S&P 500;
- Shearson/Lehman Intermediate Government/Corporate Bond Index;
- Shearson/Lehman Long-Term Government/Corporate Bond Index;
- Donoghue Money Fund Average;
- U.S. Treasury Note Index;
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- Bank Rate Monitor National Index of 2 1/2 Year CD Rates; and
- Dow Jones Industrial Average.
Tracking & Rating Services; Publications
Nationwide's rankings and ratings are sometimes published by other services,
such as:
- - Lipper Analytical Services, Inc.;
- - CDA/Wiesenberger;
- - Morningstar;
- - Donoghue's;
- - magazines such as:
= Money;
= Forbes;
= Kiplinger's Personal Finance Magazine;
= Financial World;
= Consumer Reports;
= Business Week;
= Time;
= Newsweek;
= National Underwriter; and
= News and World Report;
- - LIMRA;
- - Value;
- - Best's Agent Guide;
- - Western Annuity Guide;
- - Comparative Annuity Reports;
- - Wall Street Journal;
- - Barron's;
- - Investor's Daily;
- - Standard & Poor's Outlook; and
- - Variable Annuity Research & Data Service (The VARDS Report).
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.
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,"
calculated in a manner prescribed by the SEC, and nonstandardized "total
return." Average annual total 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 maximum charges that
could be assessed to a contract (2.05%). It does not take into consideration
premium taxes, which may be imposed by certain states.
Nonstandardized "total return," calculated similar to standardized "average
annual total return," shows the percentage rate of return of a hypothetical
initial investment of $25,000 for the most recent one, five and ten year periods
(or for a period covering the time the underlying mutual fund 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 (reduced by the same charges) had they been available in the variable
account for one of the periods. An initial investment of $25,000 is assumed
because that amount is closer to the size of a typical contract than $1,000,
which was used in calculating the standardized average annual total return.
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
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
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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: SHORT-TERM GOVERNMENT - INVESTOR CLASS
Investment Objective: To seek current income and limited price volatility by
maintaining an average weighted portfolio maturity of four years or less. U.S.
Governments invests in securities of the United States government and its
agencies. American Century Investment Management, Inc. serves as the Fund's
investment adviser.
AMERICAN CENTURY: INCOME & GROWTH - ADVISOR CLASS
Investment Objective: Seeks dividend growth, current income and capital
appreciation by investing in common stocks. The Fund may buy securities
convertible into common stock, such as convertible bonds, convertible preferred
stocks or warrants. The Fund may also, for liquidity purposes, invest in
high-quality money market instruments with remaining maturities of one year or
less. The Fund may also enter into repurchase agreements, collateralized by U.S.
government securities, with banks or broker-dealers deemed to present minimal
credit risk. American Century Investment Management, Inc. serves as the Fund's
investment adviser.
AMERICAN CENTURY: GROWTH - INVESTOR CLASS
Investment Objective: Seeks capital growth through investment in securities
which the management considers to have better than average prospects for
appreciation of value. The Fund's investment approach identifies companies with
accelerating earnings and revenues. As part of its strategy, the Fund remains
essentially fully invested in stocks at all times. American Century Investment
Management, Inc. serves as the Fund's investment adviser.
AMERICAN CENTURY: INTERNATIONAL GROWTH - ADVISOR CLASS
Investment Objective: Seeks capital growth by investing in an international
portfolio of common stocks, primarily in developed markets; stocks considered by
the investment manager to have prospects for appreciation. The Fund will invest
primarily in common stocks (defined to include depository receipts for common
stocks) and other equity equivalents of such companies. American Century
Investment Management, Inc. serves as the Fund's investment adviser.
AMERICAN CENTURY: ULTRA - INVESTOR CLASS
Investment Objective: The investment objective of the Fund is to seek capital
growth by investing primarily in common stocks that are considered by management
to have better-than-average prospects for appreciation. American Century
Investment Management, Inc. serves as the Fund's investment adviser.
DREYFUS APPRECIATION FUND, INC.
Investment Objective: To provide long-term capital growth consistent with the
preservation of capital. Current income is a secondary investment objective. The
Fund seeks to meet its objective by investing primarily in the common stocks of
domestic and foreign issuers. The Dreyfus Corporation serves as the Fund's
investment adviser.
DREYFUS BALANCED FUND, INC.
Investment Objective: To provide long-term capital growth and current income,
consistent with reasonable investment risk. The Fund is managed as a balanced
fund and invests in equity and debt securities, the proportion of which will
vary from time to time in accordance the fund manager's assessment of economic
conditions and investment opportunities. The Dreyfus Corporation serves as the
Fund's investment adviser.
DREYFUS EMERGING LEADERS FUND
Investment Objective: Capital growth by investing in companies Dreyfus believes
to be emerging leaders: small companies
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characterized by new or innovative products, services, or processes having the
potential to enhance earnings growth. The Fund invests at least 65% of total
assets in companies with total market values of less than $1.5 billion at the
time of purchase. The Fund's investments may include common stocks, preferred
stocks and convertible securities. The Dreyfus Corporation serves as the Fund's
investment adviser.
DREYFUS PREMIER THIRD CENTURY FUND, INC. - CLASS Z
Investment Objective: Primarily seeks to provide capital growth through equity
investment in companies that, in the opinion of the Fund's management, not only
meet traditional investment standards but which also show evidence that they
conduct their business, in a manner that contributes to the enhancement of the
quality of life in America. Current income is secondary to the primary goal. The
Dreyfus Corporation serves as the Fund's investment adviser.
FEDERATED BOND FUND - CLASS F
Investment Objective: To provide as high a level of current income as is
consistent with the preservation of capital. The Fund invests primarily in a
professionally managed, diversified portfolio of bonds. Under normal
circumstances, at least 65% of the Fund's net assets will be invested in
investment grade securities, including repurchase agreements collateralized by
investment grade securities. The Fund may invest in corporate debt obligations,
U.S. Government obligations, municipal securities, asset-backed securities,
adjustable rate mortgage securities, collateralized mortgage obligations, and
other securities which are deemed to be consistent with the Fund's investment
objective. Federated Investment Management Company serves as the Fund's
investment adviser.
FEDERATED HIGH YIELD TRUST
Investment Objective: Seeks high current income by investing primarily in a
professionally managed, diversified portfolio of fixed income securities. Such
securities are expected to be lower-rated corporate debt obligations commonly
referred to as "junk bonds." Investments of this type are subject to a greater
risk of loss of principal and interest than investments in higher rated
securities. The Trust's investment adviser will endeavor to limit these risks
through diversifying the portfolio and through careful credit analysis of
individual issuers. Federated Investment Management Company serves as the Fund's
investment adviser.
FIDELITY ADVISOR BALANCED FUND - CLASS A
Investment Objective: Seeks income and growth potential by investing in
securities including U.S. government and corporate bonds, and a diversified
selection of common stocks. Fidelity Management & Research Company serves as the
Fund's investment adviser.
FIDELITY ADVISOR EQUITY INCOME FUND - CLASS A
Investment Objective: Seeks to obtain reasonable income from a portfolio
consisting primarily of income-producing equity securities, with a secondary
emphasis on growth potential. Fidelity Management & Research Company serves as
the Fund's investment adviser.
FIDELITY ADVISOR GROWTH OPPORTUNITIES FUND - CLASS A
Investment Objective: Pursues capital growth that exceeds market performance
through investments in growth, cyclical, and value stocks, and securities
convertible to common stocks. Fidelity Management & Research Company serves as
the Fund's investment adviser.
FIDELITY ADVISOR HIGH YIELD FUND - CLASS T
Investment Objective: A bond Fund designed to meet the needs of the long-term
investor, seeking above-average monthly income and potential capital growth by
investing in lower-rated, high-yielding, fixed income securities. Fidelity
Management & Research Company serves as the Fund's investment adviser.
FRANKLIN MUTUAL SERIES FUND, INC. - MUTUAL SHARES FUND: CLASS A
Investment Objective: Seeks capital appreciation, which may occasionally be
short-term. Income is a secondary objective. The Fund seeks to meet its
objectives by primarily investing in common stock, preferred stock and corporate
debt securities which may be
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convertible into common stock. Franklin Mutual serves as the Fund's investment
adviser.
FRANKLIN SMALL CAP GROWTH FUND - CLASS A Investment Objective: Long-term capital
growth by investing primarily in equity securities of small capitalization
growth companies, which have market cap values of less than $1.5 billion.
Franklin Advisers, Inc. serves as the Fund's investment adviser.
INVESCO DYNAMICS FUND
Investment Objective: To seek appreciation of capital through aggressive
investment policies. The Fund invests primarily in common stocks of U.S.
companies traded on national securities exchanges and over-the-counter. The Fund
also has the flexibility to invest in preferred stocks and convertible or
straight issues of debentures, as well as foreign securities. INVESCO Funds
Group, Inc. serves as the Fund's investment adviser. INVESCO Trust Company
serves as the Fund's sub-adviser.
INVESCO SMALL COMPANY GROWTH FUND
Investment Objective: To seek long-term capital growth. The Fund invests
primarily in equity securities of small-capitalization U.S. companies traded
"over-the-counter." INVESCO Funds Group, Inc. serves as the Fund's investment
adviser.
INVESCO TOTAL RETURN FUND
Investment Objective: To seek to achieve a high total return on investment
through capital appreciation and current income by investing in a combination of
equity securities (consisting of common stocks and, to a lesser degree,
securities convertible into common stock) and fixed income securities. The
equity securities purchased by the Fund generally will be issued by companies
which are listed on a national securities exchange and which usually pay regular
dividends. This Fund seeks reasonably consistent total returns over a variety of
market cycles. INVESCO Funds Group, Inc. serves as the Fund's investment
adviser. INVESCO Capital Management, Inc. serves as the Fund's sub-adviser.
JANUS FUND
Investment Objective: Seeks long-term growth of capital by investing primarily
in common stocks of a large number of issuers of any size. Generally this Fund
emphasizes issuers with larger market capitalizations. Janus Capital Corporation
serves as the Fund's investment adviser.
JANUS TWENTY FUND
Investment Objective: Seeks growth of capital in a manner consistent with the
preservation of capital. Under normal conditions, the Fund will concentrate its
investments in a core position of 20-30 common stocks. However, the percentage
of the Fund's assets invested in common stocks will vary, depending upon its
investment adviser's opinion of prevailing market, financial and economic
conditions. Consequently, the Fund may at times hold substantial positions in
cash, or interest bearing securities. Janus Capital Corporation serves as the
Fund's investment adviser.
JANUS WORLDWIDE FUND
Investment Objective: To seek long-term growth of capital in a manner consistent
with the preservation of capital. The objective is pursued primarily through
investments in common stocks of foreign and domestic issuers. The Fund may
invest on a worldwide basis in companies and organizations of any size,
regardless of country of organization or place of principal business activity.
The Fund normally invests in issuers from at least five different countries.
Janus Capital Corporation serves as the Fund's investment adviser.
LAZARD SMALL CAP PORTFOLIO - OPEN SHARES
Investment Objective: To seek capital appreciation through investing primarily
in equity securities of companies with market capitalizations under $1 billion
that are believed by the investment adviser to be inexpensively priced relative
to the return on total capital or equity. Lazard Asset Management serves as the
Fund's investment adviser.
NATIONWIDE(R) BOND FUND - CLASS D
Investment Objective: Seeks as high a level of income as is consistent with
preservation of
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capital. The Fund invests primarily in fixed-income securities and currently
focuses on corporate debt investments and U.S. Government mortgage-backed
securities. Under normal market conditions, the dollar-weighted average
portfolio maturity of the Fund will be intermediate, which is defined as being
between six and ten years. Villanova Mutual Fund Capital Trust, an indirect
subsidiary of Nationwide Financial Services, Inc., serves as the Fund's
investment adviser.
NATIONWIDE(R) FUND - CLASS D
Investment Objective: Seeks total return through a flexible combination of
current income and capital appreciation. The Fund invests primarily in common
stocks, but also in convertible securities, other equity securities, bonds and
money market obligations. Villanova Mutual Fund Capital Trust, an indirect
subsidiary of Nationwide Financial Services, Inc., serves as the Fund's
investment adviser.
NATIONWIDE(R) GROWTH FUND - CLASS D
Investment Objective: Seeks long-term capital appreciation. The Fund invests
primarily in equity securities of companies of all sizes. Major emphasis in the
selection of securities is placed on companies which have capable management,
and are in fields where social and economic trends, technological developments,
and new processes or products indicate a potential for greater-than-average
growth. Villanova Mutual Fund Capital Trust, an indirect subsidiary of
Nationwide Financial Services, Inc., serves as the Fund's investment adviser.
NATIONWIDE(R) INTERMEDIATE U.S. GOVERNMENT BOND FUND - CLASS D Investment
Objective: Seeks as high a level of current income as is consistent with the
preservation of capital. The Fund invests in securities of the U.S. Government
and its agencies and instrumentalities. The average duration of the Fund will be
between three and a half and six years. Villanova Mutual Fund Capital Trust, an
indirect subsidiary of Nationwide Financial Services, Inc., serves as the Fund's
investment adviser.
NATIONWIDE(R) MONEY MARKET FUND - SERVICE CLASS Investment Objective: Seeks as
high a level of current income as is consistent with the preservation of capital
and maintenance of liquidity. The Fund invests in high-quality money market
instruments maturing in 397 days or less. Villanova Mutual Fund Capital Trust,
an indirect subsidiary of Nationwide Financial Services, Inc., serves as the
Fund's investment adviser.
NATIONWIDE S&P 500(R) INDEX FUND - SERVICE CLASS
Investment Objective: To provide investment results that correspond to the price
and yield performance of publicly traded common stocks as represented by the
Standard & Poor's 500 Composite Stock Price Index (the "Index"). The Fund
attempts to be fully invested at all times in stocks that comprise the Index and
stock index futures, and in any event, at least 80% of the Fund's net assets
will be invested in stocks comprising the Index. Villanova Mutual Fund Capital
Trust serves as the Fund's investment adviser and The Dreyfus Corporation is the
Fund's sub-adviser.
"S&P 500(R)" has been licensed for use by Nationwide Advisory Services, Inc. The
Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Fund.
NEUBERGER BERMAN GENESIS TRUST
Investment Objective: Seeks capital appreciation by investing primarily in
stocks of companies with small market capitalizations (usually up to $1.5
billion). The portfolio manager seeks to buy the stocks of strong companies with
a history of solid performance and a proven management team, which are selling
at attractive prices. Neuberger Berman Management Incorporated serves as the
Fund's investment adviser
NEUBERGER BERMAN GUARDIAN TRUST
Investment Objective: Seeks capital appreciation through investments generally
in dividend-paying issues of established companies that its
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investment officers believe are well managed. The emphasis of the Fund's
investments is on common stock. The Fund diversifies its holdings among
different industries and different companies in light of conditions prevailing
at any given time. Current income is a secondary objective. Neuberger Berman
Management Incorporated serves as the Fund's investment adviser.
NEUBERGER BERMAN PARTNERS TRUST
Investment Objective: Seeks capital growth. The Fund invests in securities
solely on the basis of management's evaluation of their investment merit and
potential for growth using a value-oriented approach to the selection of
individual securities. The Fund's management believes that the Fund is an
attractive investment vehicle for conservative investors who are interested in
long-term appreciation from stock investments, but who have a low tolerance for
risk. Neuberger Berman Management Incorporated serves as the Fund's investment
adviser.
OPPENHEIMER GLOBAL FUND - CLASS A
Investment Objective: Seeks capital appreciation. The Fund emphasizes investment
in foreign and domestic securities considered by the Fund's investment manager
to have appreciation possibilities, primarily common stocks or securities having
investment characteristics of common stocks (such as convertible securities) of
"growth-type" companies. As a matter of fundamental policy, under normal market
conditions, the Fund will invest its total assets in securities of issuers
traded in markets in at least three different countries (which may include the
United States). The portfolio may also emphasize securities of cyclical
industries and "special situations" when the Fund's manager believes that they
present opportunities for capital growth. The remainder of the Fund's invested
assets will be invested in securities for liquidity purposes. OppenheimerFunds,
Inc. serves as the Fund's investment adviser.
PRESTIGE BALANCED FUND - CLASS A
Investment Objective: To provide a high total return from a diversified
portfolio of equity and fixed income securities. The Fund seeks to provide a
total return that approaches the total return of the universe of equity
securities of large and medium sized companies and that exceeds the return
typical of a portfolio of fixed income securities. Under normal market
conditions, the Fund will invest approximately 60% of its assets in equity
securities and 40% in fixed income securities. The equity securities will
primarily be securities of large and medium sized companies included in the
Standard & Poor's 500 Composite Stock Price Index, and the fixed income
securities will cover a range of fixed income sectors and securities, including
government, corporate, asset-backed and mortgage-backed securities. Villanova
Mutual Fund Capital Trust serves as the Fund's investment adviser and J.P.
Morgan Investment Management Inc. is the Fund's sub-adviser.
PRESTIGE INTERNATIONAL FUND - CLASS A
Investment Objective: Capital appreciation. The Fund seeks to accomplish its
investment objective by investing primarily in equity securities of non-United
States companies that, in the opinion of its subadviser, are inexpensively
priced relative to the return on total capital or equity. The Fund invests
primarily in equity securities of non-United States companies. Under normal
market conditions, the Fund will invest at least 80% of the value of its total
assets in the equity securities of companies within at least three different
countries (not including the United States). Villanova Mutual Fund Capital Trust
serves as the Fund's investment adviser and Lazard Asset Management is the
Fund's sub-adviser.
PRESTIGE LARGE CAP GROWTH FUND - CLASS A
Investment Objective: Long-term capital appreciation. The Fund seeks to achieve
its investment objective from a broadly diversified portfolio of equity
securities of large capitalization companies that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary objective. A large capitalization
company is a company with a market capitalization and industry characteristics
that are similar to
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companies in the Russell 1000(R) Growth Index, which currently have market
capitalizations that range from $1.4 billion to $272 billion. Villanova Mutual
Fund Capital Trust serves as the Fund's investment adviser and Goldman Sachs
Asset Management is the Fund's sub-adviser.
PRESTIGE LARGE CAP VALUE FUND - CLASS A
Investment Objective: To maximize total return, consisting of both capital
appreciation and current income. The Fund seeks to achieve its investment
objective by investing in U.S. equity securities that are currently undervalued
as determined by its subadviser. Under normal market conditions, substantially
all, but in no event less than 65% of the Fund's total assets will be invested
in equity securities of large capitalization U.S. companies, including foreign
companies whose securities are traded in the United States and who comply with
U.S. accounting standards. A large capitalization company is a company with a
market capitalization and industry characteristics that are similar to companies
in the Russell 1000(R) Value Index, which currently have market capitalizations
that range from $1.4 billion to $272 billion. Villanova Mutual Fund Capital
Trust serves as the Fund's investment adviser and Brinson Partners, Inc. is the
Fund's sub-adviser.
PRESTIGE SMALL CAP FUND - CLASS A
Investment Objective: Long-term capital appreciation. The Fund seeks to
accomplish its investment objective from a broadly diversified portfolio of
equity securities issued by U.S. companies that have small market
capitalizations. Under normal market conditions, the Fund will invest at least
65% of its total assets in equity securities of companies whose market
capitalizations at the time of investment do not exceed 110% of the largest
company in the Russell 2000(R) Small Stock Index; these companies currently have
market capitalizations that range from $222 million to $1.4 billion. Villanova
Mutual Fund Capital Trust serves as the Fund's investment adviser and INVESCO
Management & Research, Inc. serves as the Fund's sub-adviser, providing daily
portfolio management for the Fund.
STRONG COMMON STOCK FUND, INC.
Investment Objective: To seek capital growth by investing in a diversified
portfolio of equity securities which, in the opinion of the Fund's investment
adviser, possess the potential for price appreciation. Strong Capital
Management, Inc. serves as the Fund's investment adviser.
TEMPLETON FOREIGN FUND - CLASS A
Investment Objective: Seeks long-term capital growth through a flexible policy
of investing in stocks and debt obligations of companies and governments outside
the United States. Any income realized will be incidental. Templeton Investment
Counsel, Inc. serves as the Fund's investment adviser.
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