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NATIONWIDE LIFE INSURANCE COMPANY
Deferred Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through its Nationwide Variable
Account-5
The date of this prospectus is May 1, 2000.
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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.
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The following underlying mutual funds are available under the contracts:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
- American Century VP Advantage
- American Century VP Balanced
DREYFUS
- Dreyfus Stock Index Fund, Inc.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- VIP Equity-Income Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
- Government Bond Fund
- Money Market Fund
- Total Return Fund
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- AMT Balanced Portfolio
THE FOLLOWING UNDERLYING MUTUAL FUND IS NOT AVAILABLE IN CONNECTION WITH
CONTRACTS FOR WHICH GOOD ORDER APPLICATIONS ARE (OR WERE) RECEIVED ON OR AFTER
SEPTEMBER 27, 1999:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
- American Century VP Capital Appreciation
Purchase payments not invested in the underlying mutual fund options of the
Nationwide Variable Account-5 may be allocated to the fixed account.
The Statement of Additional Information (dated May 1, 2000) which contains
additional information about the contracts and the variable account, has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated
herein by reference. The table of contents for the Statement of Additional
Information is on page 48.
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; or
- required Nationwide forms,
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call: 1-800-321-9332
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182008
COLUMBUS, OHIO 43218-2008
The Statement of Additional Information and other material incorporated by
reference can be found on the SEC website at:
www.sec.gov
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY CITIBANK OR ANY OF ITS AFFILIATES OR CORRESPONDENTS. INVESTMENTS
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
Investors assume certain risks when investing in the contracts, including the
possibility of losing money.
These contracts are offered to customers of various financial institutions and
brokerage firms. No financial institution or brokerage firm is responsible for
the guarantees under the contracts. Guarantees under the contracts are the sole
responsibility of Nationwide.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT- An accounting unit of measure used to calculate the 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 the variable
annuity payments.
CONTRACT VALUE- The total of all accumulation units in a contract plus any
amount held in the fixed account.
CONTRACT YEAR- Each year the contract is in force beginning with the date the
contract is issued.
ERISA- The Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT- An investment option that is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
INDIVIDUAL RETIREMENT ACCOUNT- An account that qualifies for favorable tax
treatment under Section 408(a) of the Internal Revenue Code, but does not
include Roth IRAs.
INDIVIDUAL RETIREMENT ANNUITY- An annuity contract that qualifies for favorable
tax treatment under Section 408(b) of the Internal Revenue Code, but does not
include Roth IRAs or Simple IRAs.
NATIONWIDE- Nationwide Life Insurance Company.
NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax
treatment as a Qualified Plan, Individual Retirement Annuity, Roth IRA, SEP IRA,
Simple IRA, or Tax Sheltered Annuity.
QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Internal Revenue Code.
ROTH IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408A of the Internal Revenue Code.
SEP IRA- An annuity contract which qualifies for favorable tax treatment under
Section 408(k) of the Internal Revenue Code.
SUB-ACCOUNTS- Divisions of the variable account for which accumulation units and
annuity units are separately maintained - each sub-account corresponds to a
single underlying mutual fund.
TAX SHELTERED ANNUITY- An annuity that qualifies for favorable tax treatment
under Section 403(b) of the Internal Revenue Code.
VALUATION PERIOD- Each day the New York Stock Exchange is open for business.
VARIABLE ACCOUNT- Nationwide Variable Account-5, a separate account of
Nationwide that contains variable account allocations. The variable account is
divided into sub-accounts, each of which invests in shares of a separate
underlying mutual fund.
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TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS..........................
SUMMARY OF STANDARD CONTRACT
EXPENSES......................................
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES......................................
EXAMPLE............................................
SYNOPSIS OF THE CONTRACTS..........................
FINANCIAL STATEMENTS...............................
CONDENSED FINANCIAL INFORMATION....................
NATIONWIDE LIFE INSURANCE COMPANY..................
NATIONWIDE INVESTMENT SERVICES
CORPORATION........................................
TYPES OF CONTRACTS.................................
INVESTING IN THE CONTRACT..........................
The Variable Account and Underlying Mutual Funds
The Fixed Account
STANDARD CHARGES AND DEDUCTIONS....................
Contract Maintenance Charge
Mortality and Expense Risk Charges
Administration Charge
Contingent Deferred Sales Charge
Premium Taxes
CONTRACT OWNERSHIP.................................
Contingent Ownership
Beneficiary and Contingent Beneficiary
OPERATION OF THE CONTRACT..........................
Minimum Initial and Subsequent Purchase Payments
Pricing
Allocation of Purchase Payments
Determining the Contract Value
Transfers Prior to Annuitization
Transfers After Annuitization
Transfer Requests
RIGHT TO REVOKE....................................
SURRENDER (REDEMPTION).............................
Surrenders Under a Qualified Contract or Tax
Sheltered Annuity
LOAN PRIVILEGE.....................................
Minimum and Maximum Loan Amounts
Loan Processing Fee
How Loan Requests are Processed
Interest
Loan Repayment
Distributions and Annuity Payments
Transferring the Contract
Grace Period and Loan Default
ASSIGNMENT.........................................
CONTRACT OWNER SERVICES............................
Asset Rebalancing
Dollar Cost Averaging
Systematic Withdrawals
ANNUITY COMMENCEMENT DATE..........................
ANNUITIZING THE CONTRACT...........................
Annuitization Date
Annuitization
Fixed Payment Annuity
Variable Payment Annuity
Assumed Investment Rate
Value of an Annuity Unit
Exchanges among Underlying Mutual Funds
Frequency and Amount of Annuity Payments
Annuity Payment Options
DEATH BENEFITS.....................................
Death of Contract Owner - Non-Qualified Contracts
Death of Annuitant - Non-Qualified Contracts
Death of Contract Owner/Annuitant
How the Death Benefit Value is Determined
Death Benefit Payment
Death Benefit Payment for New York and North Carolina
REQUIRED DISTRIBUTIONS.............................
Required Distributions for Non-Qualified
Contracts
Required Distributions for Qualified Plans
or Tax Sheltered Annuities
Required Distributions for Individual
Retirement Annuities or SEP IRAs
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Required Distributions for Roth IRAs
FEDERAL TAX CONSIDERATIONS.........................
Federal Income Taxes
Withholding
Non-Resident Aliens
Federal Estate, Gift, and Generation Skipping Transfer Taxes
Charge for Tax
Diversification
Tax Changes
STATEMENTS AND REPORTS.............................
LEGAL PROCEEDINGS..................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
ADVERTISING AND SUB-ACCOUNT PERFORMANCE
SUMMARY.......................................
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS.
APPENDIX B: CONDENSED FINANCIAL INFORMATION........
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SUMMARY OF CONTRACT EXPENSES
The expenses listed below are charged to all contract owners unless the contract
owner meets an available exception under the contract.
CONTRACT OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales
Charge ("CDSC") (as a percentage of
of purchase payments).........................7%(1)
Range of CDSC over time:
NUMBER OF COMPLETED YEARS FROM CDSC
DATE OF PURCHASE PAYMENT PERCENTAGE
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
(1) During the first contract year, the contract owner may withdraw without a
CDSC any amount withdrawn to meet minimum distribution requirements under
the Internal Revenue Code.
Starting with the second contract year after a purchase payment has been
made, the contract owner may withdraw without a CDSC the greater of:
a) an amount equal to 10% of that purchase payment; or
b) any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
This free withdrawal privilege is non-cumulative. Free amounts not taken during
any given contract year cannot be taken as free amounts in a subsequent contract
year (see "Contingent Deferred Sales Charge").
Withdrawals may be restricted for contracts issued as Tax Sheltered Annuities or
Qualified Plans.
MAXIMUM ANNUAL CONTRACT
MAINTENANCE CHARGE.............................$30(2)
VARIABLE ACCOUNT CHARGES(3)
(as a percentage of daily net assets of the variable account)
Mortality and Expense Risk Charges............1.25%
Administration Charge.........................0.05%
Total Variable Account Charges...........1.30%
(2) The contract maintenance charge is deducted annually from all contracts on
each contract anniversary and upon a full surrender of the contract.
(3) These charges do not apply to allocations made to the fixed account. They
are charged on a daily basis at the annual rate noted above.
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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 MUTUAL
FEES EXPENSES FEES FUND EXPENSES
<S> <C> <C> <C> <C>
American Century Variable Portfolios Inc. - American 1.00% 0.00% 0.00% 1.00%
Century VP Advantage
American Century Variable Portfolios, Inc. - American 0.90% 0.00% 0.00% 0.90%
Century VP Balanced
American Century Variable Portfolios, Inc. - American 1.00% 0.00% 0.00% 1.00%
Century VP Capital Appreciation
Dreyfus Stock Index Fund, Inc. 0.25% 0.01% 0.00% 0.26%
Fidelity VIP Equity-Income Portfolio 0.48% 0.08% 0.00% 0.56%
NSAT - Government Bond Fund 0.50% 0.15% 0.00% 0.65%
NSAT - Money Market Fund 0.39% 0.15% 0.00% 0.54%
NSAT - Total Return Fund 0.58% 0.14% 0.00% 0.74%
Neuberger Berman AMT Balanced Portfolio 0.85% 0.17% 0.00% 1.02%
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value 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 Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
Fidelity VIP Equity - Income Portfolio 0.48% 0.09% 0.00% 0.57%
NSAT Government Bond Fund 0.50% 0.15% 0.00% 0.65%
NSAT Money Market Total Return 0.39% 0.15% 0.00% 0.54%
NSAT Total Return Fund 0.58% 0.14% 0.00% 0.72%
</TABLE>
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EXAMPLE
The following chart shows the 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 the standard 7 year CDSC schedule and the
maximum amount of variable account charges that could be assessed to a contract
(1.30%). The contract maintenance charge is reflected as a percentage of the
average contract account size for existing contracts. Since average account size
is greater than $1,000, the expense effect of the contract maintenance charge is
reduced accordingly. 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 Variable 96 124 163 288 26 79 136 288 * 79 136 288
Portfolios, Inc. - American
Century VP Advantage
American Century Variable 95 121 157 278 25 76 130 278 * 76 130 278
Portfolios, Inc. - American
Century VP Balanced
American Century Variable 96 125 164 291 26 80 137 291 * 80 137 291
Portfolios, Inc. - American
Century VP Capital
Appreciation
Dreyfus Stock Index Fund, Inc. 88 101 123 209 18 56 96 209 * 56 96 209
Fidelity VIP Equity - Income 91 110 139 242 21 65 112 242 * 65 112 242
Portfolio
NSAT - Government Bond Fund 92 113 144 251 22 68 117 251 * 68 117 251
NSAT - Money Market Fund 91 110 138 240 21 65 111 240 * 65 111 240
NSAT - Total Return Fund 93 116 148 259 23 71 121 259 * 71 121 259
Neuberger Berman AMT- 96 125 164 290 26 80 137 290 * 80 137 290
Balanced Portfolio
</TABLE>
*The contracts sold under this prospectus do not permit annuitization during the
first two contract years.
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SYNOPSIS OF THE CONTRACTS
The contracts described in this prospectus are deferred variable annuity
contracts. The contracts may be issued as either individual or group contracts.
In those states where contracts are issued as group contracts, references
throughout this prospectus to "contract owner" will also mean "participant"
unless the plan otherwise permits or requires the contract owner to exercise
contract rights under the plan terms. The contracts are sold for use in
retirement plans.
The contracts can be categorized as:
- Non-Qualified;
- Individual Retirement Annuities (IRAs);
- Roth IRAs;
- SEP IRAs;
- Tax Sheltered Annuities; and
- Qualified.
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
MINIMUM INITIAL MINIMUM
CONTRACT PURCHASE PAYMENT SUBSEQUENT
TYPE PAYMENTS
Non-Qualified $1,500 $10
IRA $0 $10
Roth IRA $0 $10
SEP IRA $0 $10
Tax Sheltered $0 $10
Annuity
Qualified $0 $10
CHARGES AND EXPENSES
Nationwide deducts a mortality and expense risk charge equal to an annual rate
of 1.25% and an administration charge equal to 0.05% of the daily net assets of
the variable account. Nationwide assesses these charges in return for bearing
certain mortality and administrative risks.
A $30 contract maintenance charge is assessed against each contract on the
contract anniversary and on the surrender date if the entire contract value is
surrendered. Contracts issued to a Qualified Plan, Tax Sheltered Annuity or SEP
IRA may have a lower contract maintenance charge (see "Contract Maintenance
Charge").
Nationwide does not deduct a sales charge from purchase payments upon deposit
into the contract. However, Nationwide may deduct a Contingent Deferred Sales
Charge ("CDSC") if any amount is withdrawn from the contract. This CDSC
reimburses Nationwide for sales expenses. The amount of the CDSC will not exceed
7% of purchase payments surrendered.
ANNUITY PAYMENTS
Annuity payments begin on the annuitization date. The payments will be based on
the annuity payment option chosen at the time of application (see "Annuity
Payment Options").
TAXATION
How the contracts are taxed depends on the type of contract issued 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").
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 the amount required by
law (see "Right to Revoke").
FINANCIAL STATEMENTS
Financial statements for the variable account and Nationwide are located in the
Statement of Additional Information. A current Statement of Additional
Information may be obtained without charge by contacting Nationwide's home
office at the telephone number listed on page 1 of this prospectus.
CONDENSED FINANCIAL INFORMATION
The value of an accumulation unit is determined on the basis of changes in the
per share value of the underlying mutual funds and the assessment
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of a variable account charge which may vary from contract to contract (for more
information on the calculation of accumulation unit values, see "Determining
Variable Account Value - Valuing an Accumulation Unit"). Please refer to
Appendix B for information regarding each class of accumulation units.
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under Ohio law in March,
1929, with its home office at One Nationwide Plaza, Columbus, Ohio 43215.
Nationwide is a provider of life insurance, annuities and retirement products.
It is admitted to do business in all states, the District of Columbia and Puerto
Rico.
NATIONWIDE 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.
Non-Qualified Annuity Contract
A Non-Qualified Annuity Contract is a contract that does not qualify for certain
tax benefits under the Internal Revenue Code, and which is not an IRA, a Roth
IRA, a SEP IRA, or a Tax Sheltered Annuity.
Upon the death of the owner of a Non-Qualified Annuity Contract, mandatory
distribution requirements are imposed to ensure distribution of the entire
balance in the contract within the statutory period.
Non-Qualified Annuity contracts that are owned by natural persons can defer the
incidence of taxation on the income earned in the contract until it is
distributed or deemed to be distributed.
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 contribution from other IRAs, from Tax Sheltered
Annuities, and from qualified retirement plans, including 401(k) plans.
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For further details regarding IRAs, please refer to the disclosure statement
provided when the IRA was established.
Simplified Employee Pension IRAs (SEP IRAs)
A SEP IRA is a written plan established by an employer for the benefit of
employees, which permits the employer to make contributions to an IRA
established for the benefit of each employee.
An employee may make deductible contributions to a SEP IRA in the same way, and
with the same restrictions and limitations, as for an IRA. In addition, the
employer may make contributions to the SEP IRA, subject to dollar and percentage
limitations imposed by both the Internal Revenue Code and the written plan.
A SEP IRA plan must satisfy the following requirements:
- minimum participation rules;
- top-heavy contribution rules;
- nondiscriminatory allocation rules; and
- requirements regarding a written allocation formula.
In addition, the plan cannot restrict withdrawals of non-elective contributions,
and must restrict withdrawals of elective contributions before March 15th of the
following year.
Roth IRAs
Roth IRA contracts 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 $2000 (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 a 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.
Tax Sheltered Annuities
Certain tax-exempt organizations (described in section 501(c)(3) of the Internal
Revenue Code) and public school systems may establish a plan under which annuity
contracts can be purchased for their employees. These annuity contracts are
often referred to as Tax Sheltered Annuities.
Purchase payments made to Tax Sheltered Annuities are excludible from the income
of the employee, up to statutory maximum amounts. These amounts should be set
forth in the plan adopted by the employer.
The owner's interest in the contract is nonforfeitable (except for failure to
pay premiums) and cannot be transferred. Certain minimum distribution
requirements must be satisfied after the owner attains the age of 70 1/2, 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.
Qualified Plans
Contracts that are owned by Qualified Plans are not intended to confer tax
benefits on the beneficiaries of the plan; they are used as investment vehicles
for the plan. The income tax consequences to the beneficiary of a
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Qualified Plan are controlled by the operation of the plan, not by operation of
the assets in which the plan invests.
Beneficiaries of Qualified Plans should contact their employer and/or trustee of
the plan to obtain and review the plan, trust, summary plan description and
other documents for the tax and other consequences of being a participant in a
qualified plan.
INVESTING IN THE CONTRACT
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide Variable Account-5 is a variable account that invests in the
underlying mutual funds listed in Appendix A. Nationwide established the
variable account on November 1, 1989, pursuant to Ohio law. Although the
variable account is registered with the SEC as an 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.
There are two sub-accounts for each underlying mutual fund. One sub-account
contains shares attributable to accumulation units under Non-Qualified
Contracts. The other contains shares attributable to accumulation units under
IRAs, Roth IRAs, SEP IRAs, Tax Sheltered Annuities, and Qualified Contracts.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. They are only available as investment options in variable life insurance
policies or variable annuity contracts issued by life insurance companies, or in
some cases, through participation in certain qualified pension or retirement
plans.
The investment advisers of the underlying mutual funds may manage publicly
traded mutual funds with similar names and investment objectives. However, the
underlying mutual funds are NOT directly related to any publicly traded mutual
fund. Contract owners should not compare the performance of a publicly traded
fund with the performance of underlying mutual funds participating in the
variable account. The performance of the underlying mutual funds could differ
substantially from that of any publicly traded funds.
Voting Rights
Contract owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote contract owner shares at
special shareholder meetings based on contract owner instructions. However, if
the law changes 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 the shareholders' vote as soon as possible before
the shareholder meeting. Notification will contain proxy materials and a form
with which to give Nationwide voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
The number of shares which a contract owner may vote is determined by dividing
the cash value of the amount they have allocated to an
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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 separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
Substitution of Securities
Nationwide may substitute, eliminate, or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occurs:
1) shares of a current underlying mutual fund are no longer available for
investment; or
2) further investment in an underlying mutual fund is inappropriate.
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks. The general account is not subject
to the same laws as the variable account and the SEC has not reviewed material
in this prospectus relating to the fixed account. However, information relating
to the fixed account is subject to federal securities laws relating to accuracy
and completeness of prospectus disclosure.
The investment income earned by the fixed account will be allocated to the
contracts at varying guaranteed interest rate(s) depending on the following
categories of fixed account allocations:
- New Money Rate - The rate credited on the fixed account allocation when
the contract is purchased or when subsequent purchase payments are made.
Subsequent purchase payments may receive different New Money Rates than
the rate when the contract was issued, since the New Money Rate is
subject to change based on market conditions.
- Variable Account to Fixed Rate - Allocations transferred from any of the
underlying investment options in the variable account to the fixed
account may receive a different rate. The rate may be lower than the New
Money Rate. There may be limits on the amount and frequency of movements
from the variable account to the fixed account.
- Renewal Rate - The rate available for maturing fixed account allocations
which are entering a new guarantee period. The contract owner will be
notified of this rate in a letter issued with the quarterly statements
when any of the money in the contract owner's fixed account matures. At
that time, the contract owner will have an opportunity to leave the money
in the fixed account and receive the Renewal Rate or the contract owner
can move the money to any of the other underlying mutual fund options.
- Dollar Cost Averaging Rate - From time to time, Nationwide may offer a
more
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favorable rate for an initial purchase payment into a new contract when
used in conjunction with a dollar cost averaging program.
All of these rates are subject to change on a daily basis; however, once applied
to the fixed account, the interest rates are guaranteed until the end of the
calendar quarter during which the 12 month anniversary of the fixed account
allocation occurs.
Credited interest rates are annualized rates - the effective yield of interest
over a one-year period. Interest is credited to each contract on a daily basis.
As a result, the credited interest rate is compounded daily to achieve the
stated effective yield.
The guaranteed rate for any purchase payment will be effective for not less than
twelve months. Nationwide guarantees that the rate will not be less than 3.0%
per year.
Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The contract owner assumes the risk that interest
credited to fixed account allocations may not exceed the minimum guarantee of
3.0% for any given year.
Nationwide guarantees that the fixed account contract value will not be less
than the amount of the purchase payments allocated to the fixed account, plus
interest credited as described above, less any applicable charges including
CDSC.
STANDARD CHARGES AND DEDUCTIONS
CONTRACT MAINTENANCE CHARGE
On each contract anniversary (and upon a full surrender of the contract),
Nationwide deducts a $30 contract maintenance charge. This charge reimburses
Nationwide for administrative expenses involved in issuing and maintaining the
contract. Contracts issued to a Qualified Plan, Tax Sheltered Annuity or SEP IRA
may have a lower contract maintenance charge. Reductions are based on internal
underwriting guidelines including the size of the group, average account balance
transferred to Nationwide and administrative savings, if any.
The contract maintenance charge is taken proportionately from each sub-account
and the fixed account based on the value in each option as compared to the total
contract value. If the contract is surrendered for its full value, the contract
maintenance charge will be deducted at the time of surrender.
Nationwide will not increase the contract maintenance charge. Nationwide will
not reduce or eliminate the contract maintenance charge where it would be
discriminatory or unlawful.
MORTALITY AND EXPENSE RISK CHARGES
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 1.25% of the daily net assets of the variable account.
The mortality risk charge is equal to an annual rate of 0.80% of the daily net
assets of the variable account. The mortality risk charge compensates Nationwide
for guaranteeing the 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 expense risk charge is equal to an annual rate of 0.45% of the daily net
assets of the variable account. The expense risk charge 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.
ADMINISTRATION CHARGE
Nationwide deducts an administration charge equal to 0.05% of the daily net
asset of the variable account. This charge reimburses Nationwide for
administrative expenses related to maintenance of the contract.
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If this charge is insufficient to cover actual expenses, the loss is borne by
Nationwide.
CONTINGENT DEFERRED SALES CHARGE
No sales charge deduction is made from the purchase payments when amounts are
deposited into the contracts. However, if any part of the contract is
surrendered, Nationwide will deduct a CDSC. The CDSC will not exceed 7% of
purchase payments surrendered.
The CDSC is calculated by multiplying the applicable CDSC percentage (noted
below) by the amount of purchase payments surrendered.
For purposes of calculating the CDSC, surrenders are considered to come first
from the oldest purchase payment made to the contract, then the next oldest
purchase payment, and so forth. 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.)
The CDSC applies as follows:
NUMBER OF COMPLETED YEARS CDSC
FROM DATE OF PURCHASE
PAYMENT PERCENTAGE
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
The CDSC is used to cover sales expenses, including commissions (maximum of 6.0%
of purchase payments), production of sales material, and other promotional
expenses. If expenses are greater than the CDSC, the shortfall will be made up
from Nationwide's general account, which may indirectly include portions of the
contract maintenance charge and other variable account charges, since Nationwide
may generate a profit from these charges.
Contract owners taking withdrawals before age 59 1/2 may be subject to a 10% tax
penalty. In addition, all or a portion of the withdrawal may be subject to
federal income taxes (see "Non-Qualified Contracts-Natural Persons as Contract
Owners")
Waiver of Contingent Deferred Sales Charge
During the first contract year, the contract owner may withdraw without a CDSC
any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
Starting with the second year, after a purchase payment has been made, the
contract owner may withdraw without a CDSC the greater of:
(a) an amount equal to 10% of that purchase payment; or
(b) any amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
Withdrawals may be restricted for contracts issued pursuant to the terms of a
Tax Sheltered Annuity or other Qualified Plan. This CDSC-free privilege is
non-cumulative. Free amounts not taken during any given contract year cannot be
taken as free amounts in a subsequent contract year.
In addition, no CDSC will be deducted:
(1) upon the annuitization of contracts which have been in force for at least
two years;
(2) upon payment of a death benefit; or
(3) from any values which have been held under a contract for at least 7
years.
No CDSC applies to transfers among sub-accounts or between or among the fixed
account or the variable account. Nationwide may waive the CDSC if a contract
described in this prospectus is exchanged for another Nationwide contract (or a
contract of any of its affiliated insurance companies). A CDSC may apply to the
contract received in the exchange.
A contract held by a Charitable Remainder Trust may withdraw CDSC-free the
greater of (a) or (b), where:
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(a) is the amount which would otherwise be available for withdrawal without a
CDSC; and
(b) is the difference between the total purchase payments made to the
contract as of the date of the withdrawal (reduced by previous
withdrawals) and the contract value at the close of the day prior to the
date of the withdrawal.
For Tax Sheltered Annuity Contracts, Qualified Contracts, and SEP IRAs,
Nationwide will waive the CDSC when:
(a) the plan participant experiences a case of hardship (as provided in
Internal Revenue Code Section 403(b) and as defined for purposes of
Internal Revenue Code Section 401(k));
(b) the plan participant becomes disabled (within the meaning of Internal
Revenue Code Section 72(m)(7));
(c) the plan participant attains age 59 1/2 and has participated in the
contract for at least 5 years, as determined from the contract
anniversary date immediately preceding the distribution;
(d) the plan participant has participated in the contract for at least 10
years of active deferrals;
(e) the plan participant dies; or
(f) the contract is annuitized after 2 years from the inception of the
contract.
The contract owner may be subject to income tax on all or a portion of any such
withdrawals and to a tax penalty if the contract owner takes withdrawals prior
to age 59 1/2 (see "Non-Qualified Contracts - Natural Persons as Contract
Owners").
The CDSC will not be eliminated if to do so would be unfairly discriminatory or
prohibited by state law.
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 other date as Nationwide becomes subject to premium taxes.
Premium taxes may be deducted from death benefit proceeds.
CONTRACT OWNERSHIP
The contract owner has all rights under the contract, including the right to
designate and change any designations of the contract owner, contingent owner,
annuitant, contingent annuitant, beneficiary, contingent beneficiary, annuity
payment option, and annuity commencement date. Purchasers who name someone other
than themselves as the contract owner will have no rights under the contract.
Contract owners of Non-Qualified Contracts may name a new contract owner at any
time before the annuitization date. Any change of contract owner automatically
revokes any prior contract owner designation. Changes in contract ownership may
result in federal income taxation and may be subject to state and federal gift
taxes.
A change in contract ownership must be submitted in writing and recorded at
Nationwide's home office. Once recorded, the change will be effective as of the
date signed. However, the change will not affect any payments made or actions
taken by Nationwide before it was recorded.
The contract owner may also request a change in the annuitant, contingent
annuitant, contingent owner, beneficiary, or contingent beneficiary before the
annuitization date. These changes must be:
- on a Nationwide form;
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- signed by the contract owner; and
- received at Nationwide's home office before the annuitization date.
Nationwide must review and approve any change requests. If the contract owner is
not a natural person and there is a change of the annuitant, distributions will
be made as if the contract owner died at the time of the change.
On the anuitization date, the annuitant will become the contract owner.
ANNUITANT
The annuitant is the person designated to receive annuity payments during
annuitization of the contract and upon whose continuation of life any annuity
payment involving life contingencies depends. This person must be age 78 or
younger at the time of contract issuance, unless Nationwide approves a request
for an annuitant of greater age. The annuitant may be changed prior to the
annuitization date with the consent of Nationwide.
CONTINGENT OWNERSHIP
The contingent owner is entitled to certain benefits under the contract, if a
contract owner who is NOT the annuitant dies before the annuitization date. If
more than one contingent owner survives the contract owner, each will share the
death benefit equally unless otherwise specified in the contingent owner
designation.
The contract owner may name or change a contingent owner at any time before the
annuitization date. To change the contingent owner, a written request must be
submitted to Nationwide. Once Nationwide has recorded the change, it will be
effective as of the date it was signed, whether or not the contract owner was
living at the time it was recorded. The change will not affect any action taken
by Nationwide before the change was recorded.
BENEFICIARY AND CONTINGENT BENEFICIARY
The beneficiary is the person who is entitled to the death benefit if the
annuitant dies before the annuitization date and there is no contingent
annuitant. The contract owner can name more than one beneficiary. Multiple
beneficiaries will share the death benefit equally, unless otherwise specified.
The contract owner may change the beneficiary or contingent beneficiary during
the annuitant's lifetime by submitting a written request to Nationwide. Once
recorded, the change will be effective as of the date it was signed, whether or
not the annuitant was living at the time it was recorded. The change will not
affect any action taken by Nationwide before the change was recorded.
OPERATION OF THE CONTRACT
MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS
CONTRACT MINIMUM INITIAL MINIMUM
TYPE PURCHASE PAYMENT SUBSEQUENT
PAYMENTS
Non-Qualified* $1,500 $10
IRA $0 $10
Roth IRA $0 $10
SEP IRA $0 $10
Tax Sheltered $0 $10
Annuity
Qualified $0 $10
*If periodic payments are expected by Nationwide, the initial first year minimum
may be satisfied by purchase payments made on an annualized basis.
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.
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Subsequent purchase payments will be priced based on the next available
accumulation unit value after the payment is received. The cumulative total of
all purchase payments under contracts issued by Nationwide on the life of any
one annuitant cannot exceed $1,000,000 without Nationwide's prior consent.
Purchase payments will not be priced when the New York Stock Exchange is closed
or on the following nationally recognized holidays:
- - 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 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 contract owner will not have access to
their account.
ALLOCATION OF PURCHASE PAYMENTS
Nationwide allocates purchase payments to the sub-accounts and the fixed account
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 the fixed account. However, no change may be
made that would result in an amount less than 1% of the purchase payments being
allocated to any sub-account for any contract owner. 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:
1) the value of amounts allocated to the sub-accounts of the variable
account; and
2) amounts allocated to the fixed account.
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 sub-account and the fixed account based on current cash values.
Determining Variable Account Value - Valuing an Accumulation Unit
Purchase payments or transfers allocated to sub-accounts are accounted for in
accumulation units. Accumulation unit values (for each sub-account) are
determined by calculating the net investment factor for the underlying mutual
funds for the current valuation period and multiplying that result with the
accumulation unit values determined on the previous valuation period.
Nationwide uses the net investment factor as a way to calculate the investment
performance of a sub-account from valuation period to valuation period. For each
sub-account, the net investment factor shows the investment performance of the
underlying mutual fund in which a particular sub-account invests, including the
charges assessed against that sub-account for a valuation period.
The net investment factor for any particular sub-account 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-
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dividend date occurs during the current valuation period).
(b) is the net asset value of the underlying mutual fund determined as of the
end of the preceding valuation period.
(c) is a factor representing the daily variable account charges, which may
include charges for contract options chosen by the contract owner. The
factor is equal to an annual rate of 1.30% of the daily net assets of the
variable account.
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 Fixed Account Value
Nationwide determines the value of the fixed account by:
(1) adding all amounts allocated to the fixed account, minus amounts
previously transferred or withdrawn; and
(2) adding any interest earned on the amounts allocated.
TRANSFERS PRIOR TO ANNUITIZATION
Transfers from the Fixed Account to the Variable Account
Fixed account allocations may be transferred to the variable account only upon
reaching the end of an interest rate guarantee period. Normally, Nationwide will
permit 100% of such fixed account allocations to be transferred to the variable
account; however, Nationwide may, under certain economic conditions and at its
discretion, limit the maximum transferable amount. Under no circumstances will
the maximum transferable amount be less than 10% of the fixed account allocation
reaching the end of an interest rate guarantee period. Transfers of the fixed
account allocations must be made within 45 days after reaching the end of an
interest rate guarantee period.
Contract owners who use dollar cost averaging may transfer from the fixed
account to the variable account under the terms of that program (see "Dollar
Cost Averaging").
Transfers to the Fixed Account
Variable account allocations may be transferred to the fixed account at any
time. Normally, Nationwide will not restrict transfers from the variable account
to the fixed account; however, Nationwide may establish a maximum transfer limit
from the variable account to the fixed account. Except as noted below, under no
circumstances will the transfer limit be less than 10% of the current value of
the variable account, less any transfers made in the 12 months preceding the
date the transfer is requested, but not including transfers made prior to the
imposition of the transfer limit. However, where permitted by state law,
Nationwide reserves the right to refuse transfers or purchase payments to the
fixed account from the variable account when the fixed account value is greater
than or equal to 30% of the contract value at the time the purchase payment is
made or the transfer is requested.
Amounts transferred to the variable account will receive the accumulation unit
value next determined after the transfer request is received.
Transfers Among the Sub-Accounts
Allocations may be transferred among the sub-accounts onece per valuation
period.
TRANSFERS AFTER ANNUITIZATION
After annuitization, transfers may only be made on the anniversary of the
annuitization date.
TRANSFER REQUESTS
Nationwide will accept transfer requests in writing or over the telephone.
Nationwide will use reasonable procedures to confirm that telephone instructions
are genuine and will not be liable for following telephone instructions
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that it reasonably determined to be genuine. Nationwide may withdraw the
telephone exchange privilege upon 30 days written notice to contract owners.
For transfers involving the variable account, Nationwide determines contract
value as of the date the completed transfer request is received.
Interest Rate Guarantee Period
The interest rate guarantee period is the period of time that the fixed account
interest rate is guaranteed to remain the same.
For new purchase payments allocated to the fixed account, or transfers to the
fixed account from the variable account this period begins on the date of
deposit or transfer and ends on the one year anniversary of the deposit or
transfer. The guaranteed interest rate period may last for up to 3 months beyond
the 1-year anniversary because guaranteed terms end on the last day of a
calendar quarter.
During an interest rate guarantee period, transfers cannot be made from the
fixed account, and amounts transferred to the fixed account must remain on
deposit.
Market Timing Firms
Some contract owners may use market timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market timing firms will submit transfer or exchange requests on
behalf of multiple contract owners at the same time. Sometimes this can result
in unusually large transfers of funds. These large transfers might interfere
with the ability of Nationwide or the underlying mutual fund to process
transactions. This can potentially disadvantage contract owners not using market
timing firms. To avoid this, Nationwide may modify transfer and exchange rights
of contract owners who use market timing firms (or other third parties) to
transfer or exchange funds on their behalf.
The exchange and transfer rights of individual contract owners will not be
modified in any way when instructions are submitted directly by the contract
owner, or by the contract owner's representative (as authorized by the execution
of a valid Nationwide Limited Power of Attorney Form).
To protect contract owners, Nationwide may refuse exchange and transfer
requests:
- 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 refund the contract value or another amount required
by law. The refunded contract value will reflect the deduction of any contract
charges, unless otherwise required by law. All IRA, SEP IRA and Roth IRA refunds
will be a return of purchase payments. State and/or federal law may provide
additional free look privileges.
Liability of the variable account under this provision is limited to the
contract value in each sub-account on the date of revocation. Any additional
amounts refunded to the contract owner will be paid by Nationwide.
SURRENDER (REDEMPTION)
Contract owners may surrender some or all of their contract value before the
earlier of the annuitization date or the annuitant's death. Surrender requests
must be in writing and Nationwide may require additional information. When
taking a full surrender, the contract must
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accompany the written request. Nationwide may require a signature guarantee.
Nationwide will pay any amount 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 Redemption)
Nationwide will surrender accumulation units from the sub-accounts and an amount
from the fixed account. The amount withdrawn from each investment option will be
in proportion to the value in each option at the time of the surrender request.
A CDSC may apply. The contract owner may direct Nationwide to deduct the CDSC
either from:
(a) the amount requested; or
(b) the contract value remaining after the contract owner has received the
amount requested.
If the contract owner does not make a specific election, any applicable CDSC
will be taken from the contract value remaining after the contract owner has
received the amount requested.
Full Surrenders (Full Redemptions)
The contract value upon full surrender may be more or less than the total of all
purchase payments made to the contract. The contract value will reflect variable
account charges, a contract maintenance charge, underlying mutual fund charges
and the investment performance of the underlying mutual funds. A CDSC may apply.
SURRENDERS UNDER A QUALIFIED CONTRACT OR TAX SHELTERED ANNUITY
Contract owners of a Qualified Contract or Tax Sheltered Annuity may surrender
part or all of their contract value before the earlier of the annuitization date
or the annuitant's death, except as provided below:
A. Contract value attributable to contributions made under a qualified cash or
deferred arrangement (within the meaning of Internal Revenue Code Section
402(g)(3)(A)), a salary reduction agreement (within the meaning of Internal
Revenue Code Section 402(g)(3)(C)), or transfers from a custodial account
(described in Section 403(b)(7) of the Internal Revenue Code), may be
surrendered only:
1. when the contract owner reaches age 59 1/2, separates from service,
dies, or becomes disabled (within the meaning of Internal Revenue Code
Section 72(m)(7)); or
2. in the case of hardship (as defined for purposes of Internal Revenue
Code Section 401(k)), provided that any such hardship surrender may NOT
include any income earned on salary reduction contributions.
B. The surrender limitations described in Section A also apply to:
1. salary reduction contributions to Tax Sheltered Annuities made for plan
years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year beginning
before January 1, 1989, on amounts attributable to salary reduction
contributions; and
3. all amounts transferred from 403(b)(7) custodial accounts (except that
earnings and employer contributions as of December 31, 1988 in such
custodial accounts may be withdrawn in the case of hardship).
C. Any distribution other than the above, including a ten day free look
cancellation of the contract (when available) may result in taxes,
penalties, and/or retroactive disqualification of a Qualified Contract or
Tax Sheltered Annuity.
In order to prevent disqualification of a Tax Sheltered Annuity after a ten day
free look cancellation, Nationwide will transfer the
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proceeds to another Tax Sheltered Annuity upon proper direction by the contract
owner.
Surrender provisions may be modified pursuant to the plan terms and tax
provisions of the Internal Revenue Code when a contract is issued to fund a
Qualified Plan.
These provisions explain Nationwide's understanding of current withdrawal
restrictions. These restrictions may change.
Distributions pursuant to Qualified Domestic Relations Orders will not violate
the restrictions stated above.
Contract provisions may be modified pursuant to plan terms when the contract is
issued to fund a Qualified Plan.
LOAN PRIVILEGE
The loan privilege is ONLY available to owners of Qualified Contracts and Tax
Sheltered Annuities. These contract owners can take loans from the contract
value beginning 30 days after the contract is issued up to the annuitization
date. Loans are subject to the terms of the contract, the plan, and the Internal
Revenue Code. Nationwide may modify the terms of a loan to comply with changes
in applicable law.
MINIMUM AND MAXIMUM LOAN AMOUNTS
Contract owners may borrow a minimum of $1,000, unless Nationwide is required by
law to allow a lesser minimum amount. Each loan must individually satisfy the
contract minimum amount.
Nationwide will calculate the maximum nontaxable loan amount based upon
information provided by the participant or the employer. Loans may be taxable if
a participant has additional loans from other plans. The total of all
outstanding loans must not exceed the following limits:
CONTRACT MAXIMUM OUTSTANDING LOAN
VALUES BALANCE ALLOWED
NON-ERISA PLANS up to up to 80% of contract
$20,000 value (not more than
$10,000)
$20,000 up to 50% of contract
and over value (not more than
$50,000*)
ERISA PLANS All up to 50% of contract
value (not more than
$50,000*)
*The $50,000 limits will be reduced by the highest outstanding balance owed
during the previous 12 months.
For salary reduction Tax Sheltered Annuities, loans may be secured only by the
contract value.
LOAN PROCESSING FEE
Nationwide may charge a loan processing fee at the time each new loan is
processed. If assessed it compensates Nationwide for expenses related to
administering and processing loans. Loans are not available in all states. In
addition, some states may not allow Nationwide to assess a loan processing fee.
HOW LOAN REQUESTS ARE PROCESSED
All loans are made from the collateral fixed account. Nationwide transfers
accumulation units in proportion to the assets in each sub-account to the
collateral fixed account until the requested amount is reached. If there are not
enough accumulation units available in the contract to reach the requested loan
amount, Nationwide next transfers contract value from the fixed account. No CDSC
will be deducted on transfers related to loan processing.
INTEREST
The outstanding loan balance in the collateral fixed account is credited with
interest until the loan is repaid in full. The interest rate will be 2.25% less
than the loan interest rate fixed by Nationwide. The interest rate is guaranteed
never to fall below 3.0%.
Specific loan terms are disclosed at the time of loan application or issuance.
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LOAN REPAYMENT
Loans must be repaid in five years. However, if the loan is used to purchase the
contract owner's principal residence, the contract owner has 15 years to repay
the loan.
Contract owners must identify loan repayments as loan repayments or they will be
treated as purchase payments and will not reduce the outstanding loan. Payments
must be substantially level and made at least quarterly.
Loan repayments will consist of principal and interest in amounts set forth in
the loan agreement. Repayments are allocated to the sub-accounts in accordance
with the contract, unless Nationwide and the contract owner have agreed to amend
the contract at a later date on a case by case basis.
DISTRIBUTIONS AND ANNUITY PAYMENTS
Distributions made from the contract while a loan is outstanding will be reduced
by the amount of the outstanding loan plus accrued interest if:
- the contract is surrendered;
- the contract owner/annuitant dies;
- the contract owner who is not the annuitant dies prior to
annuitization; or
- annuity payments begin.
TRANSFERRING THE CONTRACT
Nationwide reserves the right to restrict any transfer of the contract while the
loan is outstanding.
GRACE PERIOD AND LOAN DEFAULT
If a loan payment is not made when due, interest will continue to accrue. A
grace period may be available (please refer to the terms of the loan agreement).
If a loan payment is not made by the end of the applicable grace period, the
entire loan will be treated as a deemed distribution and will be taxable to the
borrower. This deemed distribution may also be subject to an early withdrawal
tax penalty by the Internal Revenue Service.
After default, interest will continue to accrue on the loan. Defaulted amounts,
plus interest, are deducted from the contract value when the participant is
eligible for a distribution of at least that amount. Additional loans are not
available while a previous loan is in default.
ASSIGNMENT
Contract rights are personal to the contract owner and may not be assigned
without Nationwide's written consent. IRAs, Roth IRAs, SEP IRAs, Qualified
Contracts and Tax Sheltered Annuities may not be assigned, pledged or otherwise
transferred except where allowed by law.
A Non-Qualified Contract owner may assign some or all rights under the contract.
An assignment must occur before annuitization while the annuitant is alive. Once
proper notice of assignment is recorded by Nationwide's home office, the
assignment will become effective as of the date the written request was signed.
Nationwide is not responsible for the validity or tax consequences of any
assignment. Nationwide is not liable for any payment or settlement made before
the assignment is recorded. Assignments will not be recorded until Nationwide
receives sufficient direction from the contract owner and the assignee regarding
the proper allocation of contract rights.
Amounts pledged or assigned will be treated as distributions and will be
included in gross income to the extent that the cash value exceeds the
investment in the contract for the taxable year in which it was pledged or
assigned. Amounts assigned may be subject to a tax penalty equal to 10% of the
amount included in gross income.
Assignment of the entire contract value may cause the portion of the contract
value exceeding the total investment in the contract and previously taxed
amounts to be included in gross income for federal income tax purposes each year
that the assignment is in effect.
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CONTRACT OWNER SERVICES
ASSET REBALANCING
Asset rebalancing is the automatic reallocation of contract values to the
sub-accounts on a predetermined percentage basis. Asset rebalancing is not
available for assets held in the fixed account. Requests for asset rebalancing
must be on a Nationwide form.
Asset rebalancing occurs every three months or on another frequency if permitted
by Nationwide. If the last day of the three-month period falls on a Saturday,
Sunday, recognized holiday, or any other day when the New York Stock Exchange is
closed, asset rebalancing will occur on the next business day.
Asset rebalancing may be subject to employer limitations or restrictions for
contracts issued to a Qualified Plan or Tax Sheltered Annuity plan. Contract
owners should consult a financial adviser to discuss the use of asset
rebalancing.
Nationwide reserves the right to stop establishing new asset rebalancing
programs. Nationwide also reserves the right to assess a processing fee for this
service.
DOLLAR COST AVERAGING
Dollar cost averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from certain sub-accounts and the fixed account into other
sub-accounts. Nationwide does not guarantee that this program will result in
profit or protect contract owners from loss.
Contract owners direct Nationwide to automatically transfer specified amounts
from the fixed account, NSAT-Government Bond Fund, or the NSAT-Money Market
Fund, to any other underlying mutual fund.
Dollar Cost Averaging from the Fixed Account
Transfers from the fixed account must be equal to or less than 1/30th of the
fixed account value at the time the program is requested. A dollar cost
averaging program which transfers amounts from the fixed account to the variable
account is not the same as an enhanced rate dollar cost averaging program.
Contract owners that wish to utilize dollar cost averaging from the fixed
account should first inquire as to whether any enhanced rate dollar cost
averaging programs are available.
Enhanced Rate Dollar Cost Averaging Program
Nationwide may, from time to time, offer enhanced rate dollar cost averaging
programs. Dollar cost averaging transfers for this program may only be made from
the fixed account. Such enhanced rate dollar cost averaging programs allow the
contract owner to earn a higher rate of interest on assets in the fixed account
than would normally be credited when not participating in the program. Each
enhanced interest rate is guaranteed for as long as the corresponding program is
in effect. Nationwide will process transfers until either amounts in the
enhanced rate fixed account are exhausted, or the contract owner instructs
Nationwide in writing to stop the transfers. For this program only, when a
written request to discontinue transfers is received, Nationwide will
automatically transfer the remaining amount in the enhanced rate fixed account
to the NSAT Money Market Fund.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the contract owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new dollar cost averaging
programs. Nationwide also reserves the right to assess a processing fee for this
service.
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.
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The withdrawals will be taken from the sub-accounts and the fixed account
proportionately unless Nationwide is instructed otherwise.
Nationwide will withhold federal income taxes from systematic withdrawals unless
otherwise instructed by the contract owner. The Internal Revenue Service may
impose a 10% penalty tax if the contract owner is under age 59 1/2 unless the
contract owner has made an irrevocable election of distributions of
substantially equal payments.
If the contract owner takes systematic withdrawals, the maximum amount that can
be withdrawn annually without a CDSC is the greater of:
(1) 10% of all purchase payments made to the contract as of the withdrawal
date; or
(2) an amount withdrawn to meet minimum distribution requirements under the
Internal Revenue Code.
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.
ANNUITIZING THE CONTRACT
ANNUITIZATION DATE
The annuitization date is the date that annuity payments begin. It will be the
first day of a calendar month unless otherwise agreed, and must be at least 2
years after the contract is issued. If the contract is issued to fund a
Qualified Plan or Tax Sheltered Annuity, annuitization may occur during the
first 2 years subject to Nationwide's approval.
ANNUITIZATION
Annuitization is the period during which annuity payments are received. It is
irrevocable once payments have begun. Upon arrival of the annuitization date,
the annuitant must choose:
(1) an annuity payment option; and
(2) either a fixed payment annuity, variable payment annuity, or an
available combination.
Nationwide guarantees that each payment under a fixed payment annuity will be
the same throughout annuitization. Under a variable payment annuity, the amount
of each payment will vary with the performance of the underlying mutual funds
chosen by the contract owner.
FIXED PAYMENT ANNUITY
A fixed payment annuity is an annuity where the amount of the annuity payment
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.
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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.
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 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.
The assumed investment rate of 3.5% is the percentage rate of return required to
maintain level variable annuity payments. Subsequent variable annuity payments
may be more or less than the first based on whether actual investment
performance is higher or lower than the assumed investment rate of 3.5%.
VALUE OF AN ANNUITY UNIT
Annuity unit values for sub-accounts are determined by multiplying the net
investment factor for the valuation period for which the annuity unit is being
calculated by the immediately preceding valuation period's annuity unit value,
and multiplying the result by an interest factor to neutralize the assumed
investment rate of 3.5% per annum built into the variable payment annuity
purchase rate basis in the contracts.
EXCHANGES AMONG UNDERLYING MUTUAL FUNDS
Exchanges among underlying mutual funds during annuitization must be in writing.
Exchanges will occur on each anniversary of the annuitization date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Payments are made based on the annuity payment option selected, unless:
- the amount to be distributed is less than $500, in which case
Nationwide may make one lump sum payment of the contract value; or
- an annuity payment would be less than $20, in which case Nationwide can
change the frequency of payments to intervals that will result in
payments of at least $20. Payments will be made at least annually.
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
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annually, during the joint lifetimes of the annuitant and a designated
second individual. If one of these parties dies, payments will continue for
the lifetime of the survivor. As is the case under option 1, there is no
guaranteed number of payments. Payments end upon the death of the last
surviving party, regardless of the number of payments received.
(3) LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED - An annuity
payable monthly during the lifetime of the annuitant. If the annuitant dies
before all of the guaranteed payments have been made, payments will
continue to the end of the guaranteed period and will be paid to a designee
chosen by the annuitant at the time the annuity payment option was elected.
The designee may elect to receive the present value of the remaining
guaranteed payments in a lump sum. The present value will be computed as of
the date Nationwide receives the notice of the annuitant's death.
Not all of the annuity payment options may be available in all states. Contract
owners may request other options before the annuitization date. These options
are subject to Nationwide's approval.
No distribution for Non-Qualified Contracts will be made until an annuity
payment option has been elected. Qualified Contracts, IRAs, SEP IRAs and Tax
Sheltered Annuities are subject to the "minimum distribution" requirements set
forth in the plan, contract, and the Internal Revenue Code.
DEATH BENEFITS
DEATH OF CONTRACT OWNER - NON-QUALIFIED CONTRACTS
If the contract owner who is not the annuitant dies before the annuitization
date, the contingent owner or the contract owner's estate becomes the contract
owner, if elected to receive the distribution. If no election was made, the
annuitant becomes the contract owner. The distribution will be made in
accordance with the "Required Distributions for Non-Qualified Contracts"
provision.
If the contract owner and annuitant are the same, and the contract
owner/annuitant dies before the annuitization date, the contingent owner will
not have any rights in the contract unless the contingent owner is also the
beneficiary.
Distributions under Non-Qualified Contracts will be made pursuant to the
"Required Distributions for Non-Qualified Contracts" provision.
DEATH OF ANNUITANT - NON-QUALIFIED CONTRACTS
If the annuitant who is not the contract owner dies before the annuitization
date, a death benefit is payable to the beneficiary unless a contingent
annuitant is named. If a contingent annuitant is named, the contingent annuitant
becomes the annuitant and no death benefit is payable.
If no beneficiaries survive the annuitant, the contingent beneficiary(ies)
receives the death benefit. Contingent beneficiaries will share the death
benefit equally, unless otherwise specified.
If no beneficiaries or contingent beneficiaries survive the annuitant, the
contract owner or the last surviving contract owner's estate will receive the
death benefit.
If the annuitant dies after the annuitization date, any benefit that may be
payable will be paid according to the selected annuity payment option.
DEATH OF CONTRACT OWNER/ANNUITANT
If a contract owner who is also the annuitant dies before the annuitization
date, a death benefit is payable according to the "Death of the Annuitant -
Non-Qualified Contracts" provision.
If the contract owner/annuitant dies after the annuitization date, any benefit
that may be payable will be paid according to the selected annuity payment
option.
HOW THE DEATH BENEFIT VALUE IS DETERMINED
The death benefit value is determined as of the date Nationwide receives:
(1) proper proof of the annuitant's death;
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(2) an election specifying the distribution method; and
(3) any state required form(s).
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.
DEATH BENEFIT PAYMENT
For contracts issued on or after the later of May 1, 1998 or the date on which
state insurance authorities approved applicable contract modifications:
If the annuitant dies prior to the first day of the calendar month after his or
her 75th birthday and prior to the annuitization date, the dollar amount of the
death benefit will be the greater of:
1) the sum of all purchase payments increased at an annual rate of 5%
simple interest from the date of each purchase payment for each year
the payment has been in force, less an adjustment for amounts
previously surrendered; or
2) the contract value.
The adjustment for amounts surrendered will reduce item (1) above in the
same proportion that the contract value was reduced on the date of the
partial surrender.
If the annuitant dies prior to the annuitization date and on or after the first
day of the calendar month after his or her 75th birthday, the death benefit will
equal the contract value.
If the annuitant dies after the annuitization date, any payment that may be
payable will be determined according to the selected annuity payment option.
For contracts issued prior to May 1, 1998 or the date prior to which state
insurance authorities approved applicable contract modifications:
If the annuitant dies prior to the first day of the calendar month after his or
her 75th birthday and prior to the annuitization date, the dollar amount of the
death benefit will be the greater of:
1) the contract value; or
2) the sum of all purchase payments increased at an annual rate of 5%
simple interest from the date of each purchase payment for each year
the payment has been in force, less any amounts surrendered.
If the annuitant dies prior to the annuitization date and on or after the first
day of the calendar month after his or her 75th birthday, the death benefit will
equal the contract value.
If the annuitant dies after the annuitization date, any payment that may be
payable will be determined according to the selected annuity payment option.
DEATH BENEFIT PAYMENT FOR NEW YORK AND NORTH CAROLINA
Insurance regulations in the States of New York and North Carolina do not permit
the death benefit as described above.
For contracts issued in the states of New York and North Carolina on or after
the later of May 1, 1998 or the date on which state insurance authorities
approve applicable contract modifications, the amount of the death benefit will
be the greater of:
- the sum of all purchase payments, less an adjustment for amounts
surrendered; or
- the contract value.
For contracts issued in the states of New York and North Carolina prior to May
1, 1998 or a date on which state insurance authorities approved applicable
contract modifications, the amount of the death benefit will be the greater of:
- the sum of all purchase payments, less any amounts surrendered; or
- the contract value.
If the annuitant dies prior to the annuitization date and on or after the first
day of the calendar
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month after his or her 75th birthday, the death benefit will equal the contract
value.
If the annuitant dies after the annuitization date, any payment that may be
payable will be determined according to the selected annuity payment option.
REQUIRED DISTRIBUTIONS
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
Internal Revenue Code Section 72(s) requires Nationwide to make certain
distributions when a contract owner dies. The following distributions will be
made according to those requirements:
1) If any contract owner dies on or after the annuitization date and
before the entire interest in the contract has been distributed, then
the remaining interest must be distributed at least as rapidly as the
distribution method in effect on the contract owner's death.
2) If any contract owner dies before the annuitization date, then the
entire interest in the contract (consisting of either the death benefit
or the contract value reduced by charges set forth elsewhere in the
contract) will be distributed within 5 years of the contract owner's
death, provided however:
a) any interest payable to or for the benefit of a natural person
(referred to herein as a "designated beneficiary"), may be
distributed over the life of the designated beneficiary or over a
period not longer than the life expectancy of the designated
beneficiary. Payments must begin within one year of the contract
owner's death unless otherwise permitted by federal income tax
regulations; or
b) if the designated beneficiary is the surviving spouse of the
deceased contract owner, the spouse can choose to become the
contract owner instead of receiving a death benefit. Any
distributions required under these distribution rules will be made
upon that spouse's death.
In the event that the contract owner is not a natural person (e.g., a trust or
corporation), then, for purposes of these distribution provisions:
a) the death of the annuitant will be treated as the death of a contract
owner;
b) any change of annuitant will be treated as the death of a contract
owner; and
c) in either case, the appropriate distribution will be made upon the
death or change, as the case may be.
These distribution provisions do not apply to any contract exempt from Section
72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other
law or rule.
The designated beneficiary must elect a method of distribution and notify
Nationwide of this election within 60 days of the contract owner's death.
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS OR TAX SHELTERED ANNUITIES
Distributions from Qualified Contracts or Tax Sheltered Annuities will be made
according to the Minimum Distribution and Incidental Benefit ("MDIB") provisions
of Section 401(a)(9) of the Internal Revenue Code. Distributions will be made to
the annuitant according to the selected annuity payment option over a period not
longer than:
a) the life of the annuitant or the joint lives of the annuitant and the
annuitant's designated beneficiary; or
b) a period not longer than the life expectancy of the annuitant or the
joint life expectancies of the annuitant and the annuitant's designated
beneficiary.
Required distributions do not have to be withdrawn from this contract if they
are being withdrawn from another Tax Sheltered Annuity of the annuitant.
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If the annuitant's entire interest in a Qualified Plan or Tax Sheltered Annuity
will be distributed in equal or substantially equal payments over a period
described in a) or b), the payments will begin on the required beginning date.
The required beginning date is the later of:
a) April 1 of the calendar year following the calendar year in which the
annuitant reaches age 70 1/2; or
b) the annuitant's retirement date.
Provision b) does not apply to any employee who is a 5% owner (as defined in
Section 416 of the Internal Revenue Code) with respect to the plan year ending
in the calendar year when the employee attains the age of 70 1/2.
Distributions commencing on the required distribution date must satisfy MDIB
provisions set forth in the Internal Revenue Code. Those provisions require that
distribution cannot be less than the amount determined by dividing the
annuitant's interest in the Tax Sheltered Annuity by the end of the previous
calendar year by: a) the annuitant's life expectancy, or if applicable; b) the
joint and survivor life expectancy of the annuitant and the annuitant's
beneficiary.
The life expectancies and joint life expectancies are determined by reference to
Treasury Regulation 1.72-9.
If the annuitant dies before distributions begin, the interest in the Qualified
Contract or Tax Sheltered Annuity must be distributed by December 31 of the
calendar year in which the fifth anniversary of the annuitant's death occurs
unless:
a) the annuitant names his or her surviving spouse as the beneficiary and
the spouse chooses to receive distribution of the contract in
substantially equal payments over his or her life (or a period not
longer than his or her life expectancy) and beginning no later than
December 31 of the year in which the annuitant would have attained age
70 1/2; or
b) the annuitant names a beneficiary other than his or her surviving
spouse and the beneficiary elects to receive distribution of the
contract in substantially equal payments over his or her life (or a
period not longer than his or her life expectancy) beginning no later
than December 31 of the year following the year in which the annuitant
dies.
If the annuitant dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule used before the annuitant's
death.
If distribution requirements are not met, a penalty tax of 50% is levied on the
difference between the amount that should have been distributed for that year
and the amount that actually was distributed for that year.
REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES OR SEP IRAS
Distributions from an IRAs or SEP IRA must begin no later than April 1 of the
calendar year following the calendar year in which the contract owner reaches
age 70 1/2. Distribution may be paid in a lump sum or in substantially equal
payments over:
a) the contract owner's life or the lives of the contract owner and his or
her spouse or designated beneficiary; or
b) a period not longer than the life expectancy of the contract owner or
the joint life expectancy of the contract owner and the contract
owner's designated beneficiary.
If the contract owner dies before distributions begin, the interest in the IRAs
or SEP IRA 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:
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1) treat the contract as an IRA or SEP 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 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 IRA, SEP IRA or Individual Retirement Account
of the contract owner.
If the contract owner dies after distributions have begun, distributions must
continue at least as rapidly as under the schedule being used before the
contract owner's death. However, a surviving spouse who is the beneficiary under
the annuity payment option may treat the contract as his or her own, in the same
manner as is described in section (a)(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 owner of an IRA or SEP IRA must
annually report the amount of non-deductible purchase payments, the amount of
any distribution, the amount by which non-deductible purchase payments for all
years exceed non-taxable distributions for all years, and the total balance of
all Individual Retirement Annuities.
IRA or SEP IRA distributions will not receive the favorable tax treatment of a
lump sum distribution from a Qualified Plan. If the contract owner dies before
the entire interest in the contract has been distributed, the balance will also
be included in his or her gross estate.
Simplified Employee Pensions (SEPS) and Salary Reduction Simplified Employee
Pensions (SAR SEPS), described in Internal Revenue Code Section 408(k) are taxed
in a manner similar to IRAs, and are subject to similar distribution
requirements as IRAs. SAR SEPs cannot be established after 1996.
REQUIRED DISTRIBUTIONS FOR ROTH IRAS
The rules for Roth IRAs do not require distributions to begin during the
contract owner's lifetime.
When the contract owner dies, the interest in the Roth IRA must be distributed
by December 31 of the calendar year in which the fifth anniversary of his or her
death occurs, unless:
a) the contract owner names his or her surviving spouse as the beneficiary
and the spouse chooses to:
1) treat the contract as a Roth IRA established for his or her benefit;
or
2) receive distribution of the contract in substantially equal payments
over his or her life (or a period not longer than his or her life
expectancy) and beginning no later than December 31 of the year
following the year in which the contract owner would have reached
age 70 1/2; or
b) the contract owner names a beneficiary other than his or her surviving
spouse and the beneficiary chooses to receive
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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
Tax advantages that may be associated with the contracts 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:
- IRAs;
- SEP IRAs
- Roth IRAs;
- Tax Sheltered Annuities; and
- "Non-Qualified Annuities."
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.
IRAs and SEP IRAs
Distributions from IRAs and SEP IRAs 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.
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;
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- 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 an 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.
Tax Sheltered Annuities
Distributions from Tax Sheltered Annuities are generally taxed when received. A
portion of each distribution is excludable from income based on a formula
established pursuant to the Internal Revenue Code. The formula excludes from
income the amount invested in the contract divided by the number of anticipated
payments until the full investment in the contract is recovered. Thereafter all
distributions are fully taxable.
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If a distribution of income is made from a Tax Sheltered Annuity 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;
- used for expenses attributable to the purchase of a home for a
qualified first-time buyer; or
- made to the owner after separation from service with his or her
employer after age 55.
Non-Qualified Contracts - Natural Persons as Contract Owners
Generally, the income earned inside a Non-Qualified Annuity Contract that is
owned by a natural person is not taxable until it is distributed from the
contract.
Distributions before the annuitization date are taxable to the contract owner to
the extent that the cash value of the contract exceeds the contract owner's
investment at the time of the distribution. Distributions, for this purpose,
include partial surrenders, any portion of the contract that is assigned or
pledged, or any portion of the contract that is transferred by gift. For these
purposes, a transfer by gift may occur upon annuitization if the contract owner
and the annuitant are not the same individual.
With respect to annuity distributions on or after the annuitization date, a
portion of each annuity payment is excludable from taxable income. The amount
excludable is based on the ratio between the contract owner's investment in the
contract and the expected return on the contract. Once the entire investment in
the contract is recovered, all distributions are fully includable in income. The
maximum amount excludable from income is the investment in the contract. If the
annuitant dies before the entire investment in the contract has been excluded
from income, and as a result of the annuitant's death no more payments are due
under the contract, then the unrecovered investment in the contract may be
deducted on his or her final tax return.
In determining the taxable amount of a distribution, all annuity contracts
issued after October 21, 1988 by the same company to the same contract owner
during the same calendar year will be treated as one annuity contract.
A special rule applies to distributions from contracts that have investments
that were made prior to August 14, 1982. For those contracts, distributions that
are made prior to the annuitization date are treated first as a recovery of the
investment in the contract as of that date. A distribution in excess of the
amount of the investment in the contract as of August 14, 1982, will be treated
as taxable income.
The Internal Revenue Code imposes a penalty tax if a distribution is made before
the contract owner reaches age 59 1/2. The amount of the penalty is 10% of the
portion of any distribution that is includible in gross income. The penalty tax
does not apply if the distribution is:
- the result of a contract owner's death;
- the result of a contract owner's disability, as defined in the Internal
Revenue Code;
- one of a series of substantially equal periodic payments made over the
life (or life expectancy) of the contract owner or the joint lives (or
joint life expectancies) of the contract owner and the beneficiary
selected by the contract owner to receive payment under the annuity
payment option selected by the contract owner; or
- is allocable to an investment in the contract before August 14, 1982.
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<PAGE> 35
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned
by individuals. Different rules (the so-called "non-natural persons" rules)
apply if the contract owner is not a natural person.
Generally, contracts owned by corporations, partnerships, trusts, and similar
entities are not treated as annuity contracts under the Internal Revenue Code.
Therefore, income earned under a Non-Qualified Contract that is owned by a
non-natural person is taxed as ordinary income during the taxable year that it
is earned. Taxation is not deferred, even if the income is not distributed out
of the contract. The income is taxable as ordinary income, not capital gain.
The non-natural persons rules do not apply to all entity-owned contracts. A
contract that is owned by a non-natural person as an agent of an individual is
treated as owned by the individual. This would cause the contract to be treated
as an annuity under the Internal Revenue Code, allowing tax deferral. However,
this exception does not apply when the non-natural person is an employer that
holds the contract under a non-qualified deferred compensation arrangement for
one or more employees.
The non-natural persons rules also do not apply to contracts that are:
- acquired by the estate of a decedent by reason of the death of the
decedent;
- issued in connection with certain qualified retirement plans and
individual retirement plans;
- purchased by an employer upon the termination of certain qualified
retirement plans.
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. If the distribution is from a Tax Sheltered Annuity,
it will be subject to mandatory 20% withholding that cannot be waived, unless:
- the distribution is made directly to another Tax Sheltered Annuity or
an IRA; or
- the distribution satisfies the minimum distribution requirements
imposed by the Internal Revenue Code.
In addition, contract owners may not waive withholding if the distribution is
subject to mandatory back-up withholding (if no taxpayer identification number
is given or if the Internal Revenue Service notifies Nationwide that mandatory
back-up withholding is required). Mandatory back-up withholding rates are 31% of
income that is distributed.
NON-RESIDENT ALIENS
Generally, a pre-death distribution from a contract to a non-resident alien is
subject to federal income tax at a rate of 30% of the amount of income that is
distributed. Nationwide is required to withhold this amount and send it to the
Internal Revenue Service. Some distributions to non-resident aliens may be
subject to a lower (or no) tax if a treaty applies. In order to obtain the
benefits of such a treaty, the non-resident alien must:
1) provide Nationwide with proof of residency and citizenship (in
accordance with Internal Revenue Service requirements); and
2) provide Nationwide with an individual taxpayer identification number.
If the non-resident alien does not meet the above conditions, Nationwide will
withhold 30% of income from the distribution.
Another way to avoid the 30% withholding is for the non-resident alien to
provide Nationwide with sufficient evidence that:
1) the distribution is connected to the non-resident alien's conduct of
business in the United States; and
2) the distribution is includible in the non-resident alien's gross income
for United States federal income tax purposes.
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<PAGE> 36
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.
CHARGE FOR TAX
Nationwide is not required to maintain a capital gain reserve liability on
Non-Qualified Contracts. If tax laws change requiring a reserve, Nationwide may
implement and adjust a tax charge.
DIVERSIFICATION
Internal Revenue Code Section 817(h) contains rules on diversification
requirements for variable annuity contracts. A variable annuity contract that
does not meet these diversification requirements will not be treated as an
annuity, unless:
- the failure to diversify was accidental;
- 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
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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 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
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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 AND SUB-ACCOUNT PERFORMANCE SUMMARY
ADVERTISING
A "yield" and "effective yield" may be advertised for the NSAT-Money Market
Fund. "Yield" is a measure of the net dividend and interest income earned over a
specific seven-day period (which period will be stated in the advertisement)
expressed as a percentage of the offering price of the NSAT-Money Market Fund's
units. Yield is an annualized figure, which means that it is assumed that the
NSAT-Money Market Fund generates the same level of net income over a 52-week
period. The "effective yield" is calculated similarly but includes the effect of
assumed compounding, calculated under rules prescribed by the SEC. The effective
yield will be slightly higher than yield due to this compounding effect.
Nationwide may advertise the performance of a sub-account in relation to the
performance of other variable annuity sub-accounts, underlying mutual fund
options with similar or different objectives, or the investment industry as a
whole. Other investments to which the sub-accounts may be compared include, but
are not limited to:
- 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;
- 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;
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<PAGE> 39
- 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.
Some Nationwide advertisements and endorsements may include lists of
organizations, individuals or other parties that recommend Nationwide or the
contract. Furthermore, Nationwide may occasionally advertise comparisons of
currently taxable and tax deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles and general economic
conditions.
Historical Performance of the Sub-Accounts
Nationwide will advertise historical performance of the sub-accounts. Nationwide
may advertise for the sub-account's standardized "average annual total return,"
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 standard 7-year CDSC
schedule and the deduction of all charges that could be made to the contracts,
except for premium taxes, which may be imposed by certain states.
Nonstandardized "total return," calculated similar to standardized "average
annual total return," shows the percentage rate of return of a hypothetical
initial investment of $10,000 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 except the CDSC) had they been available
in the variable account for one of the periods. The CDSC is not reflected
because the contracts are designed for long term investment. The CDSC, if
reflected, would decrease the level of performance shown. An initial investment
of $10,000 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.
The standardized average annual total return and nonstandardized total return
quotations are calculated using data for the period ended December 31, 1999.
However, Nationwide generally provides performance information more frequently.
If the underlying mutual fund has been available in the variable account for
less than one year (or if the underlying mutual fund has been effective for less
than one year), standardized and non-standardized return is not annualized.
Information relating to performance of the sub-accounts is based on historical
earnings and does not represent or guarantee future results.
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UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 YEARS OR DATE DATE FUND ADDED
FUND AVAILABLE IN TO VARIABLE
1 YEAR TO 5 YEARS TO VARIABLE ACCOUNT TO ACCOUNT
SUB-ACCOUNT OPTIONS 12/31/99 03/31/99 12/31/99
<S> <C> <C> <C> <C>
American Century VP Advantage 3.27% 9.74% 8.01% 05/02/94
American Century VP Capital Appreciation 52.39% 9.71% 7.65% 05/02/94
Dreyfus Stock Index Fund 9.04% 24.23% 20.99% 05/02/94
Fidelity VIP Equity-Income Portfolio -5.05% 14.67% 13.30% 05/02/94
NSAT Govt. Bond Fund -13.15% 2.97% 2.13% 05/02/94
NSAT Money Market Fund -6.51% 0.40% 0.29% 05/02/94
NSAT Total Return Fund -4.45% 16.85% 14.23% 05/02/94
Neuberger Berman AMT Balanced Portfolio 21.83% 14.54% 11.66% 05/02/94
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YEAR TO 5 YEARS TO 10 YEARS TO 12/31/99 DATE FUND
SUB-ACCOUNT OPTIONS 12/31/99 03/31/99 OR LIFE OF FUND EFFECTIVE
<S> <C> <C> <C> <C>
American Century VP Advantage 12.97% 12.39% 8.64% 08/01/91
American Century VP Capital Appreciation 62.09% 12.58% 9.73% 11/20/87
Dreyfus Stock Index Fund 18.74% 26.22% 15.96% 09/29/89
Fidelity VIP Equity-Income Portfolio 4.65% 16.87% 12.79% 10/09/86
NSAT Govt. Bond Fund -3.92% 5.82% 6.05% 11/08/82
NSAT Money Market Fund 3.19% 3.58% 3.38% 11/10/81
NSAT Total Return Fund 5.25% 19.01% 13.09% 11/08/82
Neuberger Berman AMT Balanced Portfolio 31.53% 17.03% 10.97% 02/28/89
</TABLE>
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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
Calculation 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 VARIABLE PORTFOLIOS, INC., MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end management investment
company, which offers its shares only as investment vehicles for variable
annuity and variable life insurance products of insurance companies. American
Century Variable Portfolios, Inc. is managed by American Century Investment
Management, Inc.
AMERICAN CENTURY VP ADVANTAGE
Investment Objective: Current income and capital growth. The Fund will seek
to achieve its objective by investing in three types of securities. The
Fund's investment manager intends to invest approximately (i) 20% of the
Fund's assets in securities of the United States government and its agencies
and instrumentalities and repurchase agreements collateralized by such
securities with a weighted average maturity of six months or less, i.e., cash
or cash equivalents; (ii) 40% of the Fund's assets in fixed income securities
of the United States government and its agencies and instrumentalities with a
weighted average maturity of three to ten years; and (iii) 40% of the Fund's
assets in equity securities that are considered by management to have
better-than-average prospects for appreciation. Assets will be purchased or
sold, as the case may be, as is necessary in response to changes in market
value to maintain the asset mix of the Fund's portfolio at approximately 60%
cash, cash equivalents and fixed income securities and 40% equity securities.
There can be no assurance that the Fund will achieve its investment
objective.
AMERICAN CENTURY VP BALANCED
Investment Objective: Capital growth and current income. The Fund will seek
to achieve its objective by maintaining approximately 60% of the assets of
the Fund in common stocks (including securities convertible into common
stocks and other equity equivalents) that are considered by management to
have better-than-average prospects for appreciation and approximately 40% in
fixed income securities. A minimum of 25% of the fixed income portion of the
Fund will be invested in fixed income senior securities. There can be no
assurance that the Fund will achieve its investment objective.
AMERICAN CENTURY VP CAPITAL APPRECIATION
Investment Objective: Capital growth. The Fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion of
the Fund's investment manager, better than average potential for
appreciation. The Fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The Fund may invest in cash and cash equivalents temporarily or when it is
unable to find common stocks meeting its criteria of selection. It may
purchase securities only of companies that have a record of at least three
years continuous operation. There can be no assurance that the Fund will
achieve its investment objectives.
(Although the Statement of Additional Information concerning American Century
Variable Portfolios, Inc. refers to redemptions of securities in kind under
certain conditions, all surrendering or redeeming Contract Owners will
receive cash from the Company.)
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DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund is an open-end, non-diversified, management
investment company. It was incorporated under Maryland law on January 24, 1989,
and commenced operations on September 29, 1989. The Dreyfus Corporation
("Dreyfus") serves as the Fund's manager. Dreyfus is a wholly-owned subsidiary
of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation.
Investment Objective: To provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund
is neither sponsored by nor affiliated with Standard & Poor's Corporation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund ("VIP") is an open-end,
diversified, management investment company, organized as a Massachusetts
business trust on November 13, 1981. Shares of the VIP are purchased by
insurance companies to fund benefits under variable insurance and annuity
policies. Fidelity Management & Research Company ("FMR") is the manager for the
VIP Fund and its portfolios.
VIP EQUITY-INCOME PORTFOLIO
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, FMR also
will consider the potential for capital appreciation. The Portfolio's goal is
to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end
management investment company created under the laws of Massachusetts. NSAT
offers shares in the mutual funds listed below, each with its own investment
objectives. Shares of NSAT will be sold primarily to separate accounts to
fund the benefits under variable life insurance policies and variable annuity
contracts issued by life insurance companies. Villanova Mutual Fund Capital
Trust ("VMF"), an indirect subsidiary of Nationwide Financial Services Inc.,
is the investment adviser.
NSAT - GOVERNMENT BOND FUND
Investment Objective: As high a level of income as is consistent with the
preservation of capital by investing in a diversified portfolio of securities
issued or backed by the U.S. government, its agencies or instrumentalities.
NSAT - MONEY MARKET FUND
Investment Objective: The Fund seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity.
NSAT - TOTAL RETURN FUND
Investment Objective: The investment objective of the Fund is to obtain a
reasonable, long-term total return on invested capital.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust ("NB AMT") is an open-end diversified
management investment company. Shares of the series of NB AMT are offered in
connection with certain variable annuity contracts and variable life insurance
policies issued through life insurance company separate accounts and are also
offered directly to qualified pension and retirement plans outside of the
separate account context. The investment adviser is Neuberger Berman Management
Incorporated.
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<PAGE> 44
AMT BALANCED PORTFOLIO
Investment Objective: To provide long-term capital growth and reasonable
current income without undue risk to principal. The Balanced Portfolio will
seek to achieve its objective through investment of a portion of its assets
in common stocks and a portion of its assets in debt securities. The
investment adviser anticipates that the Balanced Portfolio's investments will
normally be managed so that approximately 60% of the Portfolio's total assets
will be invested in common stocks and the remaining assets will be invested
in debt securities. However, depending on the investment adviser's views
regarding current market trends, the common stock portion of the Portfolio's
investments may be adjusted downward to as low as 50% or upward to as high as
70%. At least 25% of the Portfolio's assets will be invested in fixed income
senior securities.
44
<PAGE> 45
APPENDIX B: CONDENSED FINANCIAL INFORMATION
Accumulation units values for an accumulation unit outstanding throughout the
period.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE PERCENT CHANGE IN ACCUMULATION
UNDERLYING AT BEGINNING AT END ACCUMULATION UNIT UNITS AT END OF
MUTUAL FUND OF PERIOD OF PERIOD VALUE THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
American Century 18.104123 20.506237 13.27% 17,347 1999
Variable Portfolios, 15.651770 18.104123 15.67% 14,879 1998
Inc.- American Century 14.055040 15.651770 11.36% 11,122 1997
VP Advantage-Q 13.035463 14.055040 7.82% 9,351 1996
11.312248 13.035463 15.23% 8,377 1995
11.343435 11.312248 -0.27% 3,882 1994
American Century 18.104123 20.506237 13.27% 7,659 1999
Variable Portfolios, 15.651770 18.104123 15.67% 7,744 1998
Inc.- American Century 14.055040 15.651770 11.36% 7,682 1997
VP Advantage-NQ 13.035463 14.055040 7.82% 8,099 1996
11.312248 13.035463 15.23% 8,353 1995
11.343435 11.312248 -0.27% 6,887 1994
American Century 10.000000 10.579044 5.79% 212 1999
Variable Portfolios,
Inc.-American Century
VP Balanced-Q
American Century 10.000000 10.579044 5.79% 0 1999
Variable Portfolios,
Inc.-American Century
VP Balanced-NQ
American Century 14.321327 23.256156 62.39% 53,128 1999
Variable Portfolios, 14.829811 14.321327 -3.43% 62,745 1998
Inc.- American Century 15.531281 14.829811 -4.52% 80,973 1997
VP Capital 16.447846 15.531281 -5.57% 77,626 1996
Appreciation-Q 12.711014 16.447846 29.40% 62,673 1995
13.030369 12.711014 -2.45% 42,410 1994
American Century 14.321327 23.256156 62.39% 6,988 1999
Variable Portfolios, 14.829811 14.321327 -3.43% 7,654 1998
Inc.- American Century 15.531281 14.829811 -4.52% 10,383 1997
VP Capital 16.447846 15.531281 -5.57% 14,026 1996
Appreciation-NQ 12.711014 16.447846 29.40% 12,894 1995
13.030369 12.711014 -2.45% 10,991 1994
Dreyfus Stock Index 27.730490 33.009632 19.04% 79,884 1999
Fund, Inc.- Q 21.913276 27.730490 26.55% 72,241 1998
16.698256 21.913276 31.23% 76,005 1997
13.807559 16.698256 20.94% 48,939 1996
10.227308 13.807559 35.01% 31,487 1995
10.271065 10.227308 -0.43% 17,446 1994
Dreyfus Stock Index 27.730490 33.009632 19.04% 15,464 1999
Fund, Inc. - NQ 21.913276 27.730490 26.55% 15,646 1998
16.698256 21.913276 31.23% 14,986 1997
13.807559 16.698256 20.94% 13,798 1996
10.227308 13.807559 35.01% 12,941 1995
10.271065 10.227308 -0.43% 13,074 1994
</TABLE>
45
<PAGE> 46
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE PERCENT CHANGE IN ACCUMULATION
UNDERLYING AT BEGINNING AT END ACCUMULATION UNIT UNITS AT END OF
MUTUAL FUND OF PERIOD OF PERIOD VALUE THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Fidelity VIP 22.645632 23.766053 4.95% 169,371 1999
Equity Income 20.553936 22.645632 10.18% 191,664 1998
Portfolio - Q 16.255386 20.553936 26.44% 217,475 1997
14.412060 16.255386 12.79% 193,347 1996
10.808255 14.412060 33.34% 150,246 1995
10.227513 10.808255 5.68% 108,754 1994
Fidelity VIP 22.645632 23.766053 4.95% 27,282 1999
Equity Income 20.553936 22.645632 10.18% 29,994 1998
Portfolio - NQ 16.255386 20.553936 26.44% 36,442 1997
14.412060 16.255386 12.79% 39,032 1996
10.808255 14.412060 33.34% 36,522 1995
10.227513 10.808255 5.68% 30,785 1994
NSAT - Government 35.013105 33.746688 -3.62% 81,945 1999
Bond Fund - Q 32.572519 35.013105 7.49% 10,242 1998
30.092479 32.572519 8.24% 15,010 1997
29.463573 30.092479 2.13% 13,708 1996
25.138302 29.463573 17.21% 12,624 1995
26.318797 25.138302 -4.49% 9,598 1994
NSAT - Government 35.026017 33.759140 -3.62% 9,730 1999
Bond Fund - NQ 32.584532 35.026017 7.49% 9,698 1998
30.103580 32.584532 8.24% 9,788 1997
29.474435 30.103580 2.13% 9,816 1996
25.147577 29.474435 17.21% 9,712 1995
26.328516 25.147577 -4.49% 13,286 1994
NSAT - Money Market 21.944976 22.709765 3.49% 22,769 1999
Fund - Q* 21.120495 21.944976 3.90% 22,515 1998
20.329483 21.120495 3.89% 25,727 1997
19.595876 20.329483 3.74% 18,943 1996
18.790546 19.595876 4.29% 15,599 1995
18.325918 18.790546 2.54% 10,092 1994
NSAT - Money Market 23.843612 24.674569 3.49% 0 1999
Fund - NQ* 22.947799 23.843612 3.90% 0 1998
22.088348 22.947799 3.89% 0 1997
21.291272 22.088348 3.74% 300 1996
20.416267 21.291272 4.29% 300 1995
19.911440 20.416267 2.54% 0 1994
NSAT - Total Return 92.558757 97.698445 5.55% 22,633 1999
Fund - Q 79.422176 92.558757 16.54% 23,578 1998
62.170693 79.422176 27.75% 28,700 1997
51.701438 62.170693 20.25% 25,126 1996
40.575816 51.701438 27.42% 20,057 1995
40.671816 40.575816 -0.24% 13,191 1994
NSAT - Total Return 89.896489 94.888344 5.55% 5,137 1999
Fund - NQ 77.137765 89.896489 16.54% 5,297 1998
60.382482 77.137765 27.75% 5,568 1997
50.214359 60.382482 20.25% 5,547 1996
39.408735 50.214359 27.42% 5,365 1995
39.501981 39.408735 -0.24% 3,179 1994
</TABLE>
*The 7-day yield on the NSAT - Money Market Fund as of December 31, 1999 was
4.08%.
46
<PAGE> 47
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE PERCENT CHANGE IN ACCUMULATION
UNDERLYING AT BEGINNING AT END ACCUMULATION UNIT UNITS AT END OF
MUTUAL FUND OF PERIOD OF PERIOD VALUE THE PERIOD YEAR
<S> <C> <C> <C> <C> <C>
Neuberger Berman 20.316082 26.782503 31.83% 35,005 1999
Advisers Management 18.349145 20.316082 10.72% 43,424 1998
Trust-Balanced 15.563120 18.349145 17.90% 50,098 1997
Portfolio - Q 14.753402 15.563120 5.49% 47,651 1996
12.077573 14.753402 22.16% 40,040 1995
12.661508 12.077573 -4.61% 28,865 1994
Neuberger Berman 20.316082 26.782503 31.83% 2,866 1999
Advisers Management 18.349145 20.316082 10.72% 2,916 1998
Trust-Balanced 15.563120 18.349145 17.90% 3,132 1997
Portfolio - NQ 14.753402 15.563120 5.49% 5,995 1996
12.077573 14.753402 22.16% 6,434 1995
12.661508 12.077573 -4.61% 7,065 1994
</TABLE>
47
