-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QlnyRlQ9yVmYhjpG2MneHLpy/QJ9SKoRAN0OLh3rh3pMHqHa8VqpgzmLbwwH9+qA 4Ulkyntcb3GIsZC/5LTmdw== 0000950152-98-005097.txt : 19980605 0000950152-98-005097.hdr.sgml : 19980605 ACCESSION NUMBER: 0000950152-98-005097 CONFORMED SUBMISSION TYPE: N-4 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19980604 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VARIABLE ACCOUNT 9 CENTRAL INDEX KEY: 0001040376 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-4 SEC ACT: SEC FILE NUMBER: 333-56073 FILM NUMBER: 98642629 BUSINESS ADDRESS: STREET 1: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 8008603946 MAIL ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43215 N-4 1 NATIONWIDE VARIABLE ACCOUNT-9 FORM N-4 1 As filed with the Securities and Exchange Commission. `33 Act File No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 NATIONWIDE VARIABLE ACCOUNT-9 (EXACT NAME OF REGISTRANT) NATIONWIDE LIFE INSURANCE COMPANY (NAME OF DEPOSITOR) ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215 (Address of Depositor's Principal Executive Offices) (Zip Code) Depositor's Telephone Number, including Area Code: (614) 249-7111 DENNIS W. CLICK, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215 (Name and Address of Agent for Service) The Registrant elects to register and indefinite number of securities in accordance with Rule 24f-2 under the Investment Company Act of 1940. Approximate date of proposed public offering: (Upon the effective date of this Registration Statement. September 1, 1998 requested). The Registrant hereby agrees to amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall therefore become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 1 of 126 REDLINED 2 NATIONWIDE VARIABLE ACCOUNT-9 REFERENCE TO ITEMS REQUIRED BY FORM N-4 Caption in Prospectus and Statement of Additional Information and Other Information
N-4 ITEM PAGE Part A INFORMATION REQUIRED IN A PROSPECTUS Item 1. Cover page..................................................................................4 Item 2. Definitions.................................................................................6 Item 3. Synopsis or Highlights.....................................................................17 Item 4. Condensed Financial Information...........................................................N/A Item 5. General Description of Registrant, Depositor, and Portfolio Companies......................18 Item 6. Deductions and Expenses....................................................................20 Item 7. General Description of Variable Annuity Contracts..........................................23 Item 8. Annuity Period.............................................................................31 Item 9. Death Benefit and Distributions............................................................33 Item 10. Purchases and Contract Value...............................................................23 Item 11. Redemptions................................................................................27 Item 12. Taxes......................................................................................38 Item 13. Legal Proceedings..........................................................................45 Item 14. Table of Contents of the Statement of Additional Information...............................45 Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION Item 15. Cover Page................................................................................56 Item 16. Table of Contents.........................................................................56 Item 17. General Information and History...........................................................56 Item 18. Services..................................................................................56 Item 19. Purchase of Securities Being Offered......................................................56 Item 20. Underwriters..............................................................................57 Item 21. Calculation of Performance Information....................................................57 Item 22. Annuity Payments..........................................................................58 Item 23. Financial Statements......................................................................59 Part C OTHER INFORMATION Item 24. Financial Statements and Exhibits........................................................108 Item 25. Directors and Officers of the Depositor..................................................110 Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant...............................................................................112 Item 27. Number of Contract Owners................................................................122 Item 28. Indemnification..........................................................................122 Item 29. Principal Underwriter....................................................................122 Item 30. Location of Accounts and Records.........................................................124 Item 31. Management Services......................................................................124 Item 32. Undertakings.............................................................................124
2 of 126 3 SUBJECT TO COMPLETION - JUNE __, 1998 Offered by Nationwide Life Insurance Company NATIONWIDE LIFE INSURANCE COMPANY NATIONWIDE VARIABLE ACCOUNT - 9 DEFERRED VARIABLE ANNUITY CONTRACT PROSPECTUS Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any state. 1 3 of 126 4 NATIONWIDE LIFE INSURANCE COMPANY Home Office P.O. Box 16609 Columbus, Ohio 43216-6609, 1-800-848-6331 TDD 1-800-238-3035 DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-9 The Contracts described in this prospectus are Flexible Purchase Payment Contracts and such Contracts may be issued as either individual or group Contracts. In those states where Contracts are issued as group contracts, references throughout this prospectus to "Contract(s)" will also mean "Certificate(s)." The Contracts are sold for use in retirement plans which may qualify for special federal tax-treatment under the Internal Revenue Code of 1986, as amended (the "Code"). The Contracts are sold as either: Non-Qualified Contracts; IRAs; Roth IRAs; Simple IRAs; SEP IRAs; Tax-Sheltered Annuities (Non-ERISA); and Charitable Remainder Trusts ("CRTs"). Annuity payments under the Contracts are deferred until a selected later date. Purchase Payments are allocated to the Nationwide Variable Account-9 ("Variable Account"), a separate account of Nationwide Life Insurance Company (the "Company"). The Underlying Mutual Funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies, or in some cases, through participation in certain qualified pension or retirement plans. The Underlying Mutual Funds may be sold directly to purchase shares at Net Asset Value in one or more of the following Underlying Mutual Fund options:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS American Century VP Income & Growth American Century VP International American Century VP Value DREYFUS The Dreyfus Socially Responsible Growth Fund, Inc. Dreyfus Stock Index Fund, Inc. Dreyfus Variable Investment Fund - Capital Appreciation Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND VIP Equity-Income Portfolio: Service Class VIP Growth Portfolio: Service Class VIP High Income Portfolio: Service Class* VIP Overseas Portfolio: Service Class FIDELITY VARIABLE INSURANCE PRODUCTS FUND II VIP II Contrafund Portfolio: Service Class FIDELITY VARIABLE INSURANCE PRODUCTS FUND III VIP III Growth Opportunities Portfolio: Service Class MORGAN STANLEY Morgan Stanley Universal Funds, Inc. - Emerging Markets Debt Portfolio Van Kampen American Capital Life Investment Trust - Morgan Stanley Real Estate Securities Portfolio NATIONWIDE SEPARATE ACCOUNT TRUST Capital Appreciation Fund Government Bond Fund Money Market Fund Total Return Fund Nationwide Balanced Fund Nationwide Equity Income Fund Nationwide Global Equity Fund Nationwide High Income Bond Fund*
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Nationwide Multi Sector Bond Fund* Nationwide Select Advisers Mid Cap Fund Nationwide Small Cap Value Fund Nationwide Small Company Fund Nationwide Strategic Growth Fund Nationwide Strategic Value Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST AMT Guardian Portfolio AMT Mid-Cap Growth Portfolio AMT Partners Portfolio OPPENHEIMER VARIABLE ACCOUNT FUNDS Oppenheimer Aggressive Growth Fund Oppenheimer Growth Fund Oppenheimer Growth & Income Fund VAN ECK WORLDWIDE INSURANCE TRUST Worldwide Emerging Markets Fund Worldwide Hard Assets Fund WARBURG PINCUS TRUST Growth & Income Portfolio International Equity Portfolio Post-Venture Capital Portfolio
*These Underlying Mutual Funds may invest in lower quality debt securities commonly referred to as junk bonds. This prospectus provides you with the basic information you should know about the Contracts issued by the Variable Account before investing. You should read it and keep it for future reference. A Statement of Additional Information dated _______ __, 1998 containing further information about the Contracts and the Variable Account has been filed with the Securities and Exchange Commission ("SEC"). You can obtain a copy without charge from the Company by calling 1-800-848-6331, or by writing P.O. Box 16609, Columbus, Ohio 43216-6609. Purchase Payments not allocated to the Variable Account may be allocated to either the Fixed Account or to the Guaranteed Term Options ("GTOs"). GTOs are available under the Contracts described in this prospectus and provide for the crediting of a guaranteed interest rate over a selected period (three, five, seven or ten years), so long as no Distributions occur prior to the end of the period. Prospectuses for the GTOs, as well as for each of the Underlying Mutual Fund options identified above, can be obtained without charge by calling 1-800-848-6331, TDD 1-800-238-3035, or by writing to P.O. Box 16609, Columbus, Ohio, 43216-6609. PLEASE NOTE THAT GTOS AND OTHER BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN EVERY JURISDICTION. PLEASE REFER TO YOUR CONTRACT FOR SPECIFIC BENEFIT INFORMATION. INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT GUARANTEED OR ENDORSED BY, ANY ADVISER OF THE UNDERLYING MUTUAL FUNDS IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISKS WHICH MAY INCLUDE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SEC MAINTAINS A WEB SITE, WWW.SEC.GOV, THAT CONTAINS THE STATEMENT OF ADDITIONAL INFORMATION AS WELL AS ANY MATERIAL INCORPORATED BY REFERENCE RELATING TO THIS PROSPECTUS. INFORMATION ABOUT THIS PRODUCT AND OTHER BEST OF AMERICA PRODUCTS CAN BE OBTAINED ON THE WORLD-WIDE WEB AT WWW.BESTOFAMERICA.COM. THE STATEMENT OF ADDITIONAL INFORMATION, DATED _______ __, 1998, IS INCORPORATED HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION APPEARS ON PAGE 43 OF THE PROSPECTUS. THE DATE OF THIS PROSPECTUS IS ________ __, 1998. 3 5 of 126 6 GLOSSARY OF SPECIAL TERMS ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable Account Contract Value prior to the Annuitization Date. ANNUITANT- The person designated to receive annuity payments at Annuitization and upon whose continuation of life any annuity payments involving life contingencies depends. This person must be age 85 or younger at the time of Contract issuance unless the Company has approved a request for an Annuitant of greater age. The Annuitant may be changed prior to the Annuitization Date with the consent of the Company. ANNUITIZATION- The period during which annuity payments are received. ANNUITIZATION DATE- The date on which annuity payments commence. ANNUITY COMMENCEMENT DATE- The date on which annuity payments are scheduled to commence. The Annuity Commencement Date is shown on the Data Page of the Contract. The Annuity Commencement Date may be changed by the Contract Owner with the consent of the Company. ANNUITY PAYMENT OPTION- The chosen form of annuity payments. Several options are available under the Contract. ANNUITY UNIT- An accounting unit of measure used to calculate the value of Variable Annuity payments. BENEFICIARY- The person or entity who may receive certain benefits under the Contract when the Annuitant dies prior to the Annuitization Date. The Beneficiary can be changed by the Contract Owner as set forth in the Contract. CODE- The Internal Revenue Code of 1986, as amended. COMPANY- Nationwide Life Insurance Company. CONTINGENT ANNUITANT- The person who may be the recipient of certain rights or benefits under this Contract when the Annuitant dies before the Annuitization Date. If a Contingent Annuitant is designated and the Annuitant dies before the Annuitization Date, the Contingent Annuitant becomes the Annuitant. A Contingent Annuitant may not be named for Contracts issued as IRAs, Roth IRAs, SEP IRAs, Simple IRAs or Tax Sheltered Annuities. CONTINGENT BENEFICIARY- The person or entity designated to be the Beneficiary if the named Beneficiary is not living at the time of the death of the Annuitant. CONTINGENT OWNER- A Contingent Owner succeeds to the rights of the Contract Owner upon the Contract Owner's death before Annuitization. For Contracts issued in the State of New York, references throughout this prospectus to "Contingent Owner" will mean "Owner's Beneficiary." A Contingent Owner may not be named for Contracts issued as IRAs, Roth IRAs, SEP IRAs, Simple IRAs or Tax Sheltered Annuities. CONTRACT- The Deferred Variable Annuity Contract described in this prospectus. CONTRACT ANNIVERSARY- An anniversary of the Date of Issue of the Contract. CONTRACT OWNER- The person or entity who possesses all rights under the Contract, including the right to designate and change any designations of the Contract Owner, Contingent Owner, Annuitant, Contingent Annuitant, Beneficiary, Contingent Beneficiary, Annuity Payment Option, and the Annuity Commencement Date. The Contract Owner is the person or entity named as Owner on the Data Page, unless changed. CONTRACT VALUE- The sum of the value of all Accumulation Units attributable to the Contract, plus any amount held in the Fixed Account, plus any amount held under GTOs, which may be subject to a Market Value Adjustment. CONTRACT YEAR- Each year the Contract remains in force commencing with the Date of Issue. DATE OF ISSUE- The date shown as the Date of Issue on the Data Page of the Contract. DEATH BENEFIT- The benefit which is payable upon the death of the Annuitant or the Contingent Annuitant, if applicable. This benefit does not apply upon the death of the Contract Owner when the Contract Owner and Annuitant are not the same person. If the Annuitant dies after the Annuitization Date, any benefit that may be payable will be as specified in the Annuity Payment Option elected. 4 6 of 126 7 DISABILITY/ DISABLED- An individual is considered to have a Disability (to be Disabled) if he or she is unable to engage in any substantial gainful activity by reason of a medically determined physical or mental impairment which can be expected to result in death or to be of long - continued and indefinite duration. The Contract Owner may be required to provide proof of Disability which is satisfactory to the Company. DISTRIBUTION- Any payment of part or all of the Contract Value. ERISA- The Employee Retirement Income Security Act of 1974, as amended. FIXED ACCOUNT- An investment option which is funded by the General Account of the Company. FIXED PAYMENT ANNUITY- An annuity providing for payments which are guaranteed by the Company as to dollar amount during Annuitization. GENERAL ACCOUNT- All assets of the Company other than those of the Variable Account or in other separate accounts that have been or may be established by the Company. GUARANTEED TERM OPTION ("GTO")- An investment option offered under the Contract which provide a guaranteed interest rate over certain maturity durations (three, five, seven and ten years) so long as certain conditions are met. Amounts allocated to a GTO may be subject to a Market Value Adjustment ("MVA") if distributed for any reason prior to the end of the selected term, resulting in an upward or downward adjustment in the Distribution proceeds. GTOs are not part of the Variable Account (or the Fixed Account) and are not subject to Variable Account charges but may be subject to CDSC if otherwise applicable. GTOs are not available during the Annuitization phase of the Contracts and may not be available in every jurisdiction. The minimum amount which may be allocated to a GTO is $1,000. HOME OFFICE- The main office of the Company located in Columbus, Ohio. HOSPITAL- A state licensed facility which is operated as a Hospital according to the laws of the jurisdiction in which it is located. INDIVIDUAL RETIREMENT ACCOUNT- An account that qualifies for favorable tax treatment under Section 408 of the Code, but does not include Roth Individual Retirement Accounts which qualify for favorable tax treatment under Section 408A of the Code. INDIVIDUAL RETIREMENT ANNUITY ("IRA")- An annuity contract which qualifies for favorable tax treatment under Section 408 of the Code, but does not include Roth IRAs which qualify for favorable tax treatment under Section 408A of the Code or Simple IRAs which qualify for favorable tax treatment under Section 408(p) of the Code. INTEREST RATE GUARANTEE PERIOD- The interval of time during which an interest rate credited to the Fixed Account is guaranteed to remain the same. For new Purchase Payments allocated to the Fixed Account or transfers from the Variable Account or a GTO, this period begins upon the date of deposit or transfer and ends at the end of the calendar quarter at least one year (but not more than 15 months) from deposit or transfer. At the end of an Interest Rate Guarantee Period, a new interest rate is declared with an Interest Rate Guarantee Period starting at the end of the prior period and ending at the end of the calendar quarter one year later. The Interest Rate Guarantee Period does not in any way refer to interest rate crediting practices employed by the Company with respect to GTOs. JOINT OWNER- The Joint Owner, if any, possesses an undivided interest in the entire Contract in conjunction with the Contract Owner. If a Joint Owner is named, references to "Contract Owner" or "Joint Owner" will apply to both the Contract Owner and Joint Owner or either of them. Joint Owners must be spouses at the time joint ownership is requested, unless otherwise required by state law. Joint Ownership may be selected only for Non-Qualified Contracts. LONG TERM CARE FACILITY- A state licensed skilled nursing facility or intermediate care facility. MARKET VALUE ADJUSTMENT ("MVA")- The upward or downward adjustment in value of amounts allocated to a GTO, which are distributed prior to maturity for any reason. NET ASSET VALUE- The value of one share of an Underlying Mutual Fund at the end of a market day or at the close of the New York Stock Exchange. Net Asset Value is computed by adding the value of all portfolio holding plus other assets, deducting liabilities and then dividing the result by the number of shares outstanding. 5 7 of 126 8 NON-QUALIFIED CONTRACT- A contract which does not qualify for favorable tax treatment under the provisions of Sections 401 and 403(a) (Qualified Plans), 408 (IRAs), 408A (Roth IRAs), 408(k) (SEP IRAs), 408(p) (Simple IRAs) or 403(b) (Tax-Sheltered Annuities) of the Code. PHYSICIAN- A person who is a state licensed Medical Doctor or Doctor of Osteopathic Medicine providing medical care or treatment within the scope of that license. PURCHASE PAYMENT- A deposit of new value into the Contract. The term "Purchase Payment" does not include transfers among the Variable Account, Fixed Account, or GTO, or among the Sub-Accounts. QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under Section 401 or 403(a) of the Code. ROTH IRA- An annuity contract which qualifies for favorable tax treatment under Section 408A of the Code. SEP IRA- An annuity contract which qualifies for favorable tax treatment under Section 408(k) of the Code. SIMPLE IRA- An annuity contract which qualifies for favorable tax treatment under Section 408(p) of the Code. STANDARD CONTRACTUAL DEATH BENEFIT- The Death Benefit provided under the Contract when neither of the optional Death Benefit Riders is chosen. The Standard Contractual Death Benefit is the Five-Year Reset Death Benefit. This Death Benefit does NOT include any Long Term Care Facility benefits. SUB-ACCOUNTS- Separate and distinct divisions of the Variable Account, to which specific Underlying Mutual Fund shares are allocated and for which Accumulation Units and Annuity Units are separately maintained. TAX SHELTERED ANNUITY- An annuity which qualifies for favorable tax treatment under Section 403(b) of the Code. TERMINAL ILLNESS- A diagnosis of an illness by a Physician which is expected to result in a death within 12 months of diagnosis. The diagnosis of "Terminal Illness" must occur after the Contract has been issued. UNDERLYING MUTUAL FUND- A registered open-end management investment company in which the assets of the Sub-Accounts will be invested. VALUATION DATE- Each day the New York Stock Exchange and the Home Office are open for business or any other day during which there is a sufficient degree of trading of the Variable Account's Underlying Mutual Fund shares that the current Variable Account Contract Value might be materially affected. VALUATION PERIOD- The period of time commencing at the close of a Valuation Date and ending at the close of business for the next succeeding Valuation Date. VARIABLE ACCOUNT- Nationwide Variable Account-9, a separate investment account of the Company into which Variable Account Purchase Payments are allocated. The Variable Account is divided into Sub-Accounts, each of which invests in the shares of a separate Underlying Mutual Fund. VARIABLE PAYMENT ANNUITY- An annuity providing for payments which are not predetermined or guaranteed as to dollar amount and which vary in amount with the investment experience of the Variable Account. 6 8 of 126 9 TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS.............................................................................................4 SUMMARY OF STANDARD CONTRACT EXPENSES.................................................................................9 ADDITIONAL CONTRACT OPTIONS..........................................................................................10 UNDERLYING MUTUAL FUND ANNUAL EXPENSES...............................................................................11 EXAMPLE..............................................................................................................13 SYNOPSIS.............................................................................................................15 NATIONWIDE LIFE INSURANCE COMPANY....................................................................................16 NATIONWIDE ADVISORY SERVICES, INC....................................................................................16 THE VARIABLE ACCOUNT.................................................................................................16 Underlying Mutual Fund Options..............................................................................16 Voting Rights...............................................................................................17 Substitution of Securities..................................................................................17 GTO ALLOCATIONS......................................................................................................17 VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS........................................................................18 Annual Variable Account Charge..............................................................................18 Contract Maintenance Charge.................................................................................18 Contingent Deferred Sales Charge ("CDSC")...................................................................18 Waiver of CDSC (Available for all Contracts)................................................................19 Waiver of CDSC Options......................................................................................20 -Additional Withdrawal Without Charge and Disability Waiver...............................................20 -10 Year and Disability Waiver (Available only for Contracts issued as Tax Sheltered Annuity Contracts)...........................................................20 -Hardship Waiver (Available only for Contracts issued as Tax Sheltered Annuity Contracts).................20 -Optional Long Term Care Facility and Death Benefit Charges...............................................20 Premium Taxes...............................................................................................21 OPERATION OF THE CONTRACT............................................................................................21 Investments of the Variable Account.........................................................................21 Allocation of Purchase Payments and Contract Value..........................................................21 Value of an Accumulation Unit...............................................................................22 Net Investment Factor.......................................................................................22 Determining the Contract Value..............................................................................22 Right to Revoke.............................................................................................22 Transfers...................................................................................................23 Contract Ownership..........................................................................................24 Joint Ownership.............................................................................................24 Contingent Ownership........................................................................................24 Beneficiary.................................................................................................25 Surrender (Redemption)......................................................................................25 Surrenders Under a Tax Sheltered Annuity Contract...........................................................25 Loan Privilege..............................................................................................26 Assignment..................................................................................................27 CONTRACT OWNER SERVICES..............................................................................................28 Asset Rebalancing...........................................................................................28 Dollar Cost Averaging.......................................................................................28 Systematic Withdrawals......................................................................................28 ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS.......................................................29 Annuity Commencement Date...................................................................................29 Annuitization ..............................................................................................29 Fixed Payment Annuity- First and Subsequent Payments........................................................29 Variable Payment Annuity - First and Subsequent Payments....................................................30 Variable Payment Annuity - Assumed Investment Rate..........................................................30 Variable Payment Annuity - Value of an Annuity Unit.........................................................30 Variable Payment Annuity - Exchanges Among Underlying Mutual Fund Options...................................30 Frequency and Amount of Annuity Payments....................................................................30
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Annuity Payment Options.....................................................................................30 Death of Contract Owner -Non-Qualified Contracts............................................................31 Death of Annuitant - Non-Qualified Contracts................................................................31 Death of the Contract Owner/Annuitant.......................................................................31 Death Benefit Payment.......................................................................................31 Five-Year Reset Death Benefit (Standard Contractual Death Benefit)........................................32 One-Year Step Up Death Benefit (Option 1).................................................................32 5% Enhanced Death Benefit (Option 2)......................................................................32 Required Distributions for Non-Qualified Contracts..........................................................33 Required Distributions for Tax Sheltered Annuities..........................................................33 Required Distributions for IRAs.............................................................................34 Required Distributions for Roth IRAs........................................................................35 FEDERAL TAX CONSIDERATIONS...........................................................................................36 Federal Income Taxes........................................................................................36 Puerto Rico.................................................................................................36 Non-Qualified Contracts - Natural Persons as Contract Owners................................................37 Non-Qualified Contracts - Non-Natural Persons as Contract Owners............................................38 IRAs and Tax Sheltered Annuities............................................................................38 Roth IRAs...................................................................................................39 Withholding.................................................................................................39 Non-Resident Aliens.........................................................................................39 Federal Estate, Gift, and Generation Skipping Transfer Taxes................................................39 Charge for Tax..............................................................................................40 Diversification.............................................................................................40 Tax Changes.................................................................................................40 GENERAL INFORMATION..................................................................................................41 Contract Owner Inquiries....................................................................................41 Statements and Reports......................................................................................41 Advertising.................................................................................................41 YEAR 2000 COMPLIANCE ISSUES..........................................................................................42 LEGAL PROCEEDINGS....................................................................................................43 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.............................................................43 APPENDIX A...........................................................................................................44 APPENDIX B...........................................................................................................45
8 10 of 126 11 SUMMARY OF STANDARD CONTRACT EXPENSES The Standard Contractual Expenses listed below are base expenses assessed to all Contract Owners unless Contract Owners meet certain available exceptions, or a Contract Owner has replaced a standard benefit with an available option for an additional charge. MAXIMUM ANNUAL CONTRACT MAINTENANCE CHARGE..............................$15(1) LOAN PROCESSING CHARGE..................................................$25(2) ANNUAL VARIABLE ACCOUNT CHARGE........................................1.10%(3) CONTRACT OWNER TRANSACTION EXPENSES Maximum Contingent Deferred Sales Charge ("CDSC")...................7%(4) - -------------------------------------------------------------------------------- Range of CDSC Over Time Number of Completed Years from Date of CDSC Purchase Payment Percentage ---------------- ---------- 0 7% 1 7% 2 6% 3 5% 4 4% 5 3% 6 2% 7 0% - -------------------------------------------------------------------------------- (1)The Contract Maintenance Charge is assessed annually to all Contracts which have a value of less than $25,000 on each Contract Anniversary. The Contract Maintenance Charge is waived for any Contract which has a value of $25,000 or more on any Contract Anniversary. (2)This charge is assessed for each loan processed. (3)The Annual Variable Account Charge is assessed to all Contracts, regardless of Contract Value or which Contract Options have been elected at the time of application. The Annual Variable Account Charge applies exclusively to allocations made to the Sub-Account(s). Such charge does not apply to, and will not be assessed against, allocations made to the Fixed Account or to the GTOs. The Annual Variable Account Charge includes the Five-Year Reset Death Benefit ("Standard Contractual Death Benefit") (see "Death Benefit Payment" provision). (4)Each Contract Year, the Contract Owner may withdraw without a CDSC, the greater of: (a) an amount equal to 10% of the total of all Purchase Payments made to this Contract; or (b) any amount withdrawn in order for this Contract to meet minimum distribution requirements under the Code. A Contract Owner may have additional free withdrawal privileges if a Withdrawal Waiver was chosen by the Contract Owner at the time of application (see "Additional Contract Options" and "Waiver of CDSC Options" for additional information). Withdrawals may be restricted for Contracts issued pursuant to the terms of a Tax Sheltered Annuity Plan. The standard CDSC-free withdrawal privileges are non-cumulative. Free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year (see "Waiver of CDSC" Available for all Contracts). 9 11 of 126 12 ADDITIONAL CONTRACT OPTIONS The following options are available to Contract Owners at the time of application in lieu of receiving the corresponding standard contract benefits for an additional charge. Should the Contract Owner choose an additional benefit(s), such charges as listed below, will be applied in addition to the Variable Account Charge and such charges will apply exclusively to allocations made to the Sub-Accounts. CDSC OPTION An applicant may choose a five year CDSC in lieu of receiving the standard seven year CDSC for additional 0.15% of the daily net assets of the Variable Account.
- -OPTIONAL FIVE YEAR CDSC (AVAILABLE ONLY FOR CONTRACTS ISSUED AS ROTH IRAS).......................................0.15% TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES (INCLUDING 5 YEAR CDSC) .............................................1.25%
- -------------------------------------------------------------------------------- Range of Five Year CDSC Over Time Number of Completed Years from Date of CDSC Purchase Payment Percentage ---------------- ---------- 0 7% 1 7% 2 6% 3 4% 4 2% 5 0% - -------------------------------------------------------------------------------- CDSC WAIVER OPTIONS In addition to the standard 10% free withdrawal without CDSC, an applicant may elect an additional 5% withdrawal without CDSC, which includes a Disability Waiver, in lieu of receiving the standard contract benefits for an additional 0.10% of the daily net assets of the Variable Account (see "Additional Withdrawal Without Charge and Disability Waiver").
- -ADDITIONAL WITHDRAWAL WITHOUT CHARGE AND DISABILITY WAIVER.......................................................0.10% TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES (INCLUDING ADDITIONAL WITHDRAWAL WITHOUT CHARGE AND DISABILITY WAIVER) .......................................1.20%
An applicant of a Tax Sheltered Annuity Contract may elect a 10 Year and Disability Waiver for an additional 0.05% of the daily net assets of the Variable Account (see "10 Year and Disability Waiver").
- -10 YEAR AND DISABILITY WAIVER (AVAILABLE ONLY FOR CONTRACTS ISSUED AS TAX SHELTERED ANNUITY CONTRACTS)......................................0.05% TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES (INCLUDING 10 YEAR AND DISABILITY WAIVER) .............................1.15%
An applicant of a Tax Sheltered Annuity Contract may elect a Hardship Waiver for an additional 0.15% of the daily net assets of the Variable Account (see "Hardship Waiver").
- -HARDSHIP WAIVER (AVAILABLE ONLY FOR CONTRACTS ISSUED AS TAX SHELTERED ANNUITY CONTRACTS).........................0.15% TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES (INCLUDING HARDSHIP WAIVER)............................................1.25%
DEATH BENEFIT OPTIONS An applicant may choose one of two Long Term Care Facility and Death Benefits in lieu of receiving the Standard Five-Year Reset Death Benefit. The Optional Long Term Care Facility and Death Benefits are as follows:
- -OPTIONAL LONG TERM CARE FACILITY AND ONE YEAR STEPPED UP DEATH BENEFIT (OPTION 1)................................0.05% TOTAL VARIABLE ACCOUNT CHARGES (INCLUDING OPTION1)............................................................1.15% - -OPTIONAL LONG TERM CARE FACILITY AND 5% ENHANCED DEATH BENEFIT (OPTION 2)........................................0.10% TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES (INCLUDING OPTION 2)...................................................1.20%
10 12 of 126 13 UNDERLYING MUTUAL FUND ANNUAL EXPENSES (AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
- ----------------------------------------------------------------------------------------------------------------------------------- Management Other Expenses 12b-1 Fees Total Mutual Fees Fund Expenses - ----------------------------------------------------------------------------------------------------------------------------------- American Century Variable Portfolios, Inc. - 0.70% 0.00% 0.00% 0.70% American Century VP Income & Growth - ----------------------------------------------------------------------------------------------------------------------------------- American Century Variable Portfolios, Inc. - 1.50% 0.00% 0.00% 1.50% American Century VP International - ----------------------------------------------------------------------------------------------------------------------------------- American Century Variable Portfolios, Inc. - 1.00% 0.00% 0.00% 1.00% American Century VP Value - ----------------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth 0.75% 0.01% 0.00% 0.76% Fund, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Dreyfus Stock Index Fund, Inc. 0.25% 0.03% 0.00% 0.28% - ----------------------------------------------------------------------------------------------------------------------------------- Dreyfus Variable Investment Fund - Capital 0.75% 0.05% 0.00% 0.80% Appreciation Portfolio - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio: 0.50% 0.05% 0.10% 0.65% Service Class(1) - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio: Service 0.60% 0.07% 0.10% 0.77% Class(1) - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio: 0.59% 0.11% 0.10% 0.80% Service Class - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio: Service 0.75% 0.16% 0.10% 1.01% Class(1) - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund Portfolio: 0.60% 0.08% 0.10% 0.78% Service Class(1) - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP III Growth Opportunities 0.60% 0.13% 0.10% 0.83% Portfolio: Service Class(1) - ----------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Universal Funds, Inc. - 0.04% 1.26% 0.00% 1.30% Emerging Markets Debt Portfolio(1) - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Capital Appreciation Fund 0.60% 0.09% 0.00% 0.69% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Government Bond Fund 0.50% 0.08% 0.00% 0.58% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Money Market Fund 0.40% 0.08% 0.00% 0.48% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Total Return Fund 0.60% 0.07% 0.00% 0.67% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Balanced Fund(1) 0.75% 0.15% 0.00% 0.90% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide Equity Income Fund(1) 0.80% 0.15% 0.00% 0.95% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide Global Equity Fund(1) 1.00% 0.20% 0.00% 1.20% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide High Income Bond Fund(1) 0.80% 0.15% 0.00% 0.95% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide Multi-Sector Bond Fund(1) 0.75% 0.15% 0.00% 0.90% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide Select Advisers Mid Cap 1.05% 0.15% 0.00% 1.20% Fund(1) - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide Small Cap Value Fund(1) 0.90% 0.15% 0.00% 1.05% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide Small Company Fund 1.00% 0.11% 0.00% 1.11% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide Strategic Growth Fund(1) 0.90% 0.10% 0.00% 1.00% - ----------------------------------------------------------------------------------------------------------------------------------- NSAT- Nationwide Strategic Value Fund(1) 0.90% 0.10% 0.00% 1.00% - ----------------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman AMT Guardian Portfolio 0.60% 0.40% 0.00% 1.00% - ----------------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman AMT Mid-Cap Growth 0.60% 0.40% 0.00% 1.00% Portfolio - ----------------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman AMT Partners Portfolio 0.80% 0.06% 0.00% 0.86% - ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds - 0.71% 0.02% 0.00% 0.73% Oppenheimer Aggressive Growth Fund - ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds - 0.73% 0.02% 0.00% 0.75% Oppenheimer Growth Fund - ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds - 0.75% 0.08% 0.00% 0.83% Oppenheimer Growth & Income Fund - ----------------------------------------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust - 0.80% 0.00% 0.00% 0.80% Worldwide Emerging Markets Fund(1) - ----------------------------------------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust - 1.00% 0.17% 0.00% 1.17% Worldwide Hard Assets Fund(1) - -----------------------------------------------------------------------------------------------------------------------------------
11 13 of 126 14 UNDERLYING MUTUAL FUND ANNUAL EXPENSES (AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS, AFTER EXPENSE REIMBURSEMENT)
- ----------------------------------------------------------------------------------------------------------------------------------- Management Other Expenses 12b-1 Fees Total Mutual Fees Fund Expenses - ----------------------------------------------------------------------------------------------------------------------------------- Van Kampen American Capital Life Investment 1.00% 0.07% 0.00% 1.07% Trust - Morgan Stanley Real Estate Securities Portfolio - ----------------------------------------------------------------------------------------------------------------------------------- Warburg Pincus Trust - Growth & Income 0.65% 0.35% 0.00% 1.00% Portfolio(1) - ----------------------------------------------------------------------------------------------------------------------------------- Warburg Pincus Trust - International Equity 1.00% 0.35% 0.00% 1.35% Portfolio(1) - ----------------------------------------------------------------------------------------------------------------------------------- Warburg Pincus Trust - Post-Venture Capital 1.07% 0.33% 0.00% 1.40% Portfolio(1) - -----------------------------------------------------------------------------------------------------------------------------------
The Mutual Fund expenses shown above are assessed at the Underlying Mutual Fund level and are not direct charges against Variable Account assets or reductions from Contract Values. These Underlying Mutual Fund expenses are taken into consideration in computing each Underlying Mutual Fund's Net Asset Value, which is the share price used to calculate the unit values of the Variable Account. The management fees and other expenses are more fully described in the prospectus for each Underlying Mutual Fund. The information relating to the Underlying Mutual Fund expenses was provided by the Underlying Mutual Fund and was not independently verified by the Company. Except as otherwise noted below, the Management Fees and Other Expenses are not currently subject to fee waivers or expense reimbursements. (1) The investment advisers for the indicated Underlying Mutual Funds have voluntarily agreed to reimburse a portion of the management fees and/or other expenses resulting in a reduction of total expenses. Absent any partial reimbursement, "Management Fees" and "Other Expenses" would have been 0.50% and 0.18% for Fidelity VIP Equity-Income Portfolio, 0.60% and 0.19% for Fidelity VIP Growth Portfolio, 0.75% and 0.27% for Fidelity VIP Overseas Portfolio, 0.60% and 0.21% for Fidelity VIP II Contrafund Portfolio, 0.60% and 0.24% for Fidelity VIP III Growth Opportunities Portfolio, 0.80% and 1.26% for Morgan Stanley Universal Funds, Inc.- Emerging Markets Debt Portfolio, 0.75% and 4.15% for NSAT-Nationwide Balanced Fund, 0.80% and 4.83% for NSAT-Nationwide Equity Income Fund, 1.00% and 1.84% for NSAT-Nationwide Global Equity Fund, 0.80% and 1.38% for NSAT-Nationwide High Income Bond Fund, 0.75% and 3.66% for NSAT-Nationwide Multi-Sector Bond Fund, 1.05% and 2.26% for NSAT-Nationwide Select Advisers Mid Cap Fund, 0.90% and 5.41% for NSAT-Nationwide Small Cap Value Fund, 0.90% and 5.43% for NSAT- Nationwide Strategic Growth Fund, 0.90% and 4.64% for NSAT-Nationwide Strategic Value Fund, 1.00% and 0.34% for Van Eck Worldwide Insurance Trust-Worldwide Emerging Markets Fund, 1.00% and 0.18% for Van Eck Worldwide Insurance Trust-Worldwide Hard Assets Fund, 0.75% and 0.45% for Warburg Pincus Trust-Growth & Income Portfolio, 1.00% and 0.36% for Warburg Pincus Trust-International Equity Portfolio, 1.25% and 0.33% for Warburg Pincus Trust-Post-Venture Capital Portfolio. 12 14 of 126 15 EXAMPLE The following chart depicts the dollar amount of expenses that would be incurred under this Contract assuming a $1000 investment and 5% annual return. These dollar figures are illustrative only and should not be considered a representation of past or future expenses. Actual expenses may be greater or lesser than those shown below. The expense amounts presented are derived from a formula which allows the maximum $15 Contract Maintenance Charge to be expressed as a percentage of the average account size for existing Contracts. Since the average Contract account size for Contracts issued under this prospectus is greater than $1,000, the expense effect of the Contract Maintenance Charge is reduced accordingly.
- -------------------------------------------------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------------------------------------------------- American Century Variable 100 166 224 384 37 112 188 384 * 112 188 384 Portfolios, Inc. - American Century VP Income & Growth - -------------------------------------------------------------------------------------------------------------------------- American Century Variable 108 191 265 461 45 137 229 461 * 137 229 461 Portfolios, Inc. - American Century VP International - -------------------------------------------------------------------------------------------------------------------------- American Century Variable 103 175 240 414 40 121 204 414 * 121 204 414 Portfolios, Inc. - American Century VP Value - -------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially 101 168 227 390 38 114 191 390 * 114 191 390 Responsible Growth Fund, Inc. - -------------------------------------------------------------------------------------------------------------------------- Dreyfus Stock Index Fund, 96 153 202 341 33 99 166 341 * 99 166 341 Inc. - -------------------------------------------------------------------------------------------------------------------------- Dreyfus Variable Investment 101 169 229 394 38 115 193 394 * 115 193 394 Fund - Capital Appreciation Portfolio - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income 100 164 222 379 37 110 186 379 * 110 186 379 Portfolio: Service Class - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth 101 168 228 391 38 114 192 391 * 114 192 391 Portfolio: Service Class - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP High Income 101 169 229 394 38 115 193 394 * 115 193 394 Portfolio: Service Class - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas 103 176 240 415 40 122 204 415 * 122 204 415 Portfolio: Service Class - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund 101 169 228 392 38 115 192 392 * 115 192 392 Portfolio: Service Class - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP III Growth 101 170 231 397 38 116 195 397 * 116 195 397 Opportunities Portfolio: Service Class - -------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Universal 106 185 255 442 43 131 219 442 * 131 219 442 Funds, Inc. - Emerging Markets Debt Portfolio - -------------------------------------------------------------------------------------------------------------------------- NSAT-Capital Appreciation 100 166 224 383 37 112 188 383 * 112 188 383 Fund - -------------------------------------------------------------------------------------------------------------------------- NSAT-Government Bond Fund 99 162 218 372 36 108 182 372 * 108 182 372 - -------------------------------------------------------------------------------------------------------------------------- NSAT-Money Market Fund 98 159 213 362 35 105 177 362 * 105 177 362 - -------------------------------------------------------------------------------------------------------------------------- NSAT-Total Return Fund 100 165 223 381 37 111 187 381 * 111 187 381 - -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Balanced Fund 102 172 234 404 39 118 198 404 * 118 198 404 - -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Equity 103 174 237 409 40 120 201 409 * 120 201 409 Income Fund - -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Global 105 182 250 433 42 128 214 433 * 128 214 433 Equity Fund - -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide High Income 103 174 237 409 40 120 201 409 * 120 201 409 Bond Fund - -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Multi-Sector 102 172 234 404 39 118 198 404 * 118 198 404 Bond Fund - --------------------------------------------------------------------------------------------------------------------------
13 15 of 126 16
- -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Select 105 182 250 433 42 128 214 433 * 128 214 433 Advisers Mid-Cap Fund - -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Small Cap 104 177 242 419 41 123 206 419 * 123 206 419 Value Fund - -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Small 104 179 245 424 41 125 209 424 * 125 209 424 Company Fund - -------------------------------------------------------------------------------------------------------------------------- NSAT-Nationwide Strategic 103 175 240 414 40 121 204 414 * 121 204 414 Growth Fund - -------------------------------------------------------------------------------------------------------------------------- NSAT Nationwide Strategic 103 175 240 414 40 121 204 414 * 121 204 414 Value Fund - -------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman AMT- 103 175 240 414 40 121 204 414 * 121 204 414 Guardian Portfolio - -------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman AMT- 103 175 240 414 40 121 204 414 * 121 204 414 Mid-Cap Growth Portfolio - -------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman AMT- 102 171 232 400 39 117 196 400 * 117 196 400 Partners Portfolio - -------------------------------------------------------------------------------------------------------------------------- Oppenheimer Variable Account 100 167 226 387 37 113 190 387 * 113 190 387 Funds - Oppenheimer Aggressive Growth Fund - -------------------------------------------------------------------------------------------------------------------------- Oppenheimer Variable Account 101 168 227 389 38 114 191 389 * 114 191 389 Funds - Oppenheimer Growth Fund - -------------------------------------------------------------------------------------------------------------------------- Oppenheimer Variable Account 101 170 231 397 38 116 195 397 * 116 195 397 Funds - Oppenheimer Growth & Income Fund - -------------------------------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance 101 169 229 394 38 115 193 394 * 115 193 394 Trust - Worldwide Emerging Markets Fund - -------------------------------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance 105 181 248 430 42 127 212 430 * 127 212 430 Trust - Worldwide Hard Assets Fund - -------------------------------------------------------------------------------------------------------------------------- Van Kampen American Capital 104 178 243 421 41 124 207 421 * 124 207 421 Life Investment Trust - Morgan Stanley Real Estate Securities Portfolio - -------------------------------------------------------------------------------------------------------------------------- Warburg Pincus Trust - 103 175 240 414 40 121 204 414 * 121 204 414 Growth & Income Portfolio - -------------------------------------------------------------------------------------------------------------------------- Warburg Pincus Trust - 107 186 257 447 44 132 221 447 * 132 221 447 International Equity Portfolio - -------------------------------------------------------------------------------------------------------------------------- Warburg Pincus Trust - 107 188 260 452 44 134 224 452 * 134 224 452 Post-Venture Capital Portfolio - --------------------------------------------------------------------------------------------------------------------------
* The Contracts sold under this prospectus do not permit Annuitizations during the first two Contract Years. The Example takes into consideration the maximum amount which could be assessed to a Contract (1.40%), with the election of the Optional Long Term Care Facility and 5% Enhanced Death Benefit (Death Benefit Option 2), Additional Withdrawal Without Charge and Disability Waiver, and Hardship Waiver (see "Additional Charges Which may be Assessed to the Contract" for additional details on the charges assessed). For those Contracts under which the maximum number of options have not been elected, the expenses in the Example will be reduced accordingly. The purpose of the Summary of Contract Expenses and Example is to assist the Contract Owner in understanding the various costs and expenses that will be borne directly or indirectly when investing in the Contract. The expenses of the Variable Account as well as those of the Underlying Mutual Fund options are reflected in the Example. For more complete descriptions of the expenses of the Variable Account, see "Variable Account Charges and Other Deductions." For more complete information regarding expenses paid out of the assets of the Underlying Mutual Fund options, see the prospectus for each Underlying Mutual Fund. Deductions for premium taxes may also apply but are not reflected in the Example shown above (see "Premium Taxes"). 14 16 of 126 17 SYNOPSIS The Contracts can be categorized as follows: (1) Non-Qualified; (2) IRAs, (3) Roth IRAs; (4) SEP IRAs; (5) Simple IRAs and (6) Tax Sheltered Annuities The minimum annual Purchase Payments for Contracts issued as Non-Qualified Contracts or IRAs must be at least $1,000. There are no minimum Purchase Payment requirements for Contracts issued as Tax Sheltered Annuities, however, subsequent Purchase Payments for Tax Sheltered Annuity Contracts, if any, must be at least $25. In addition, any amounts allocated to the GTO(s) must be at least $1,000. Please refer to the prospectus for the GTO(s) for additional details regarding Purchase Payments made to the GTO(s). The cumulative total of all purchase payments under contracts issued by the Company on the life of any one Annuitant may not exceed $1,000,000 without the prior consent of the Company (see "Allocation of Purchase Payments and Contract Value"). The Company does not deduct a sales charge from Purchase Payments made for these Contracts. However, if any part of the Contract Value is surrendered, the Company will, with certain exceptions, deduct from the Contract Value a CDSC. The standard contractual CDSC will not exceed the lesser of: (1) 7% of the amount surrendered; or (2) 7% of the total of all Purchase Payments made within 84 months prior to the date of the surrender request. If the Contract Owner of a Roth IRA has elected Optional Five Year CDSC at the time of application, if any part of the Contract is surrendered, the Company will, with certain exceptions, deduct from the Contract Value a CDSC which will not exceed the lesser of: (1) 7% of the amount surrendered; or (2) 7% of the total of all Purchase Payments made within 60 months prior to the date of the surrender request. There is an additional annual charge equal to 0.15% of the daily net assets of the Variable Account assessed for the election of the Optional Five Year CDSC. These charges, when applicable, are imposed to permit the Company to recover sales expenses which have been advanced by the Company (see "Contingent Deferred Sales Charge"). For Contracts which have a Contract Value of less than $25,000 on each Contract Anniversary Date, the Company will deduct a Contract Maintenance Charge of $15 form the Contract Value. The Contract Maintenance Charge is waived for Contracts which have a Contract Value of $25,000 or more on each Contract Anniversary Date (see "Contract Maintenance Charge"). The Company will assess a Loan Processing Fee of $25 for each new loan processed (see "Loan Privilege"). The Company deducts Variable Account Charges equal to an annual rate of 1.10% of the daily net assets of the Variable Account (see "Charges of the Variable Account and Other Deductions"). This charge compensates the Company for administrative expenses incurred and risks assumed in supporting the Company's obligations under the Contracts. If at the time of application, the Contract Owner has elected a Death Benefit Option, the Company will deduct either: (1) an Optional Long Term Care Facility and One-Year Step Up Death Benefit (Option 1) charge equal to an annual rate of 0.05% of the daily net assets of the Variable Account; or (2) an Optional Long Term Care Facility and 5% Enhanced Death Benefit (Option 2) charge equal to an annual rate of 0.10% of the daily net assets of the Variable Account depending upon which Death Benefit Option was chosen (see "Optional Long Term Care Facility and Death Benefit Charges," "Long Term Care Facility Provisions" and "Death Benefit Payment" for additional information). If at the time of application, the Contract Owner has elected an Additional Withdrawal Without Charge and Disability Waiver, the Company will deduct a charge equal to an annual rate of 0.10% of the daily net assets of the Variable Account (see "Waiver of CDSC Options") The Contract Owner of a Tax Sheltered Annuity Contract may, at the time of application, elect a 10 Year and Disability Waiver and/or a Hardship Waiver. For Contract Owners which have made such an election, the Company deducts a charge equal to an annual rate of 0.05% and/or 0.15% respectively, of the daily net assets of the Variable Account (see "Waiver of CDSC Options"). Upon Annuitization, the selected Annuity Payment Option will begin (see "Annuity Payment Option"). However, if the net amount to be applied to any Annuity Payment Option on the Annuitization Date is less than $500, the Contract Value may be distributed in lump sum in lieu of annuity payments. If any annuity payment would be less than $20, the Company will have the right to change the frequency of payments to such intervals as will 15 17 of 126 18 result in payments of at least $20. In no event, however, will annuity payments be made less frequently than annually (see "Frequency and Amount of Annuity Payments"). Taxation of the Contracts will depend on the type of Contract issued (see "FEDERAL TAX CONSIDERATIONS"). In addition, the Company will charge against the Purchase Payments or the Contract Value, the amount of any premium taxes levied by a state or any other governmental entity (see "Premium Taxes"). The Contract Owner has a ten day free look to examine the Contract. Within ten days of the date the Contract is received, it may be returned for any reason to the Home Office at the address shown on page 1 of this prospectus. If the Contract is returned to the Company in a timely manner, the Company will void the Contract and refund the Contract Value in full unless otherwise required by law. State and/or federal law may provide additional free look privileges. All IRA, Roth IRA, SEP IRA and Simple IRA refunds will be return of Purchase Payments (see "Right to Revoke"). NATIONWIDE LIFE INSURANCE COMPANY The Company is a stock life insurance company organized under the laws of the State of Ohio in March, 1929. The Company is a member of the "Nationwide Insurance Enterprise" with its Home Office at One Nationwide Plaza, Columbus, Ohio 43215. The Company is a provider of life insurance, annuities and retirement products. It is admitted to do business in all states, the District of Columbia and Puerto Rico. NATIONWIDE ADVISORY SERVICES, INC. The Contracts are distributed by the General Distributor, Nationwide Advisory Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a wholly owned subsidiary of Nationwide Life Insurance Company. THE VARIABLE ACCOUNT The Variable Account was established by the Company on May 22, 1997 pursuant to Ohio law. The Company has caused the Variable Account to be registered with the SEC as a unit investment trust pursuant to the Investment Company Act of 1940 ("1940 Act"). Such registration does not involve supervision of the management of the Variable Account or of the Company by the SEC. The Variable Account is a separate investment account of the Company and as such, is not chargeable with liabilities arising out of any other business the Company may conduct. The Company does not guarantee the investment performance of the Variable Account. Obligations under the Contracts, however, are obligations of the Company. Income, gains and losses of the Variable Account, whether or not realized, are credited to or charged against the Variable Account without regard to other income, gains, or losses of the Company. Purchase Payments are allocated among one or more Sub-Accounts corresponding to one or more of the Underlying Mutual Funds designated by the Contract Owner. There are two Sub-Accounts within the Variable Account for each of the Underlying Mutual Fund options which may be designated by the Contract Owner. One such Sub-Account contains the Underlying Mutual Fund shares attributable to Accumulation Units under IRAs, Roth IRAs and Tax Sheltered Annuities and one such Sub-Account contains the Underlying Mutual Fund shares attributable to Accumulation Units under Non-Qualified Contracts. UNDERLYING MUTUAL FUND OPTIONS A Contract Owner may choose from among a number of different Underlying Mutual Fund options. See Appendix B which contains a summary of investment objectives for each Underlying Mutual Fund. More detailed information may be found in the current prospectus for each Underlying Mutual Fund. Prospectuses for the Underlying Mutual Funds should be read in conjunction with this prospectus. A copy of each prospectus may be obtained without charge from the Company by calling 1-800-848-6331, TDD 1-800-238-3035, or writing P.O. Box 16609, Columbus, Ohio 43216-6609. The Underlying Mutual Fund options are NOT available to the general public directly. The Underlying Mutual Funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. 16 18 of 126 19 Some of the Underlying Mutual Funds have been established by investment advisers which manage publicly traded mutual funds having similar names and investment objectives. While some of the Underlying Mutual Funds may be similar to, and may in fact be modeled after, publicly traded mutual funds, Contract purchasers should understand that the Underlying Mutual Funds are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any corresponding Underlying Mutual Funds may differ substantially. The Underlying Mutual Funds may also be available to registered separate accounts offering variable annuity and variable life products of other participating insurance companies, as well as to the Variable Account and other separate accounts of the Company. Although the Company does not anticipate disadvantages to this, there is a possibility that a material conflict may arise between the interest of the Variable Account and one or more of the other separate accounts in which the Underlying Mutual Funds participate. A conflict may occur due to a number of reasons including: a change in law affecting the operations of variable life insurance policies and variable annuity contracts or differences in the voting instructions of the Contract Owners and those of other companies. In the event of conflict, the Company will take any steps necessary to protect the Contract Owners and variable annuity payees, including withdrawal of the Variable Account from participation in the Underlying Mutual Fund(s) involved in the conflict. VOTING RIGHTS Voting rights under the Contracts apply ONLY with respect to amounts allocated to the Sub-Accounts. In accordance with its view of applicable law, the Company will vote the shares of the Underlying Mutual Funds at regular and special meetings of the shareholders. These shares will be voted in accordance with instructions received from Contract Owners. If the 1940 Act or any regulation thereunder should be amended or if the present interpretation changes permitting the Company to vote the shares of the Underlying Mutual Funds in its own right, it may elect to do so. The Contract Owner is the person who has the voting interest under the Contract. The number of Underlying Mutual Fund shares attributable to each Contract Owner is determined by dividing the Contract Owner's interest in each respective Sub-Account by the Net Asset Value of the Underlying Mutual Fund corresponding to the Sub-Account. The number of shares which may be voted will be determined as of the date chosen by the Company not more than 90 days prior to the meeting of the Underlying Mutual Fund. Each person having a voting interest will receive periodic reports relating to the Underlying Mutual Fund, proxy material and a form with which to give such voting instructions. Voting instructions will be solicited by written communication at least 21 days prior to such meeting. Underlying Mutual Fund shares to which no timely instructions are received will be voted by the Company in the same proportion as the voting instructions which are received with respect to all contracts participating in the Variable Account. SUBSTITUTION OF SECURITIES If shares of the Underlying Mutual Fund options are no longer available for investment by the Variable Account or if, in the judgment of the Company's management, further investment in such Underlying Mutual Fund shares is inappropriate, the Company may eliminate Sub-Accounts, combine two or more Sub-Accounts, or substitute shares of another underlying mutual fund for underlying mutual fund shares already purchased or to be purchased in the future with Purchase Payments under the Contract. No substitution of securities in the Variable Account may take place without prior approval of the SEC. GTO ALLOCATIONS GTOs are separate investment options under the Contract. GTOs provide a guaranteed rate of interest over four different maturity durations of three (3), five (5), seven (7) or ten (10) years. A guaranteed interest rate, determined and declared by the Company for any maturity duration selected, will be credited unless a Distribution from the GTO occurs for any reason. If a Distribution occurs, the proceeds will be subject to a MVA, resulting in either an upward or downward adjustment in the value of the distributed proceeds, depending on interest rate fluctuations. No MVA will be applied if GTO allocations are held to maturity. Because every guaranteed term will end on the final day of a calendar quarter, the guaranteed term may last for up to 3 months beyond the 3, 5, 7 or 10 year anniversary of the allocation to the GTO. 17 19 of 126 20 The minimum amount of any allocation made to a GTO must be at least $1,000. Allocations to the GTOs are not subject to Variable Account Charges. Generally, the MVA will reduce the value of distributed proceeds when prevailing interest rates are higher than the GTO rate in effect for the maturity duration elected. Conversely, when prevailing rates are lower than the GTO rate in effect, distribution proceeds will increase in value. The effect of a MVA should be carefully considered prior to surrender or transfer from allocations to a GTO. GTOs are available only during the accumulation phase of a Contract and are not available as investment options during the Annuitization phase of a Contract. In addition, GTOs are not available for use in conjunction with Asset Rebalancing, Dollar Cost Averaging or Systematic Withdrawals. A prospectus describing the GTOs must be read with this prospectus in the same manner that prospectuses for Underlying Mutual Fund options must be read with this prospectus. A prospectus for the GTOs may be obtained without charge by calling 1-800-848-6331, TDD 1-800-238-3035, or writing P.O. Box 16609, Columbus, Ohio 43216-6609. GTOs MAY NOT BE AVAILABLE IN EVERY STATE JURISDICTION. VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS ANNUAL VARIABLE ACCOUNT CHARGE The Annual Variable Account Charge applies to allocations made to the Sub-Accounts. The Company deducts charges from the Variable Account equal to an annual rate of 1.10% of the daily net assets of the Variable Account. The Annual Variable Account Charge compensates the Company for administrative expenses incurred relating to the issuance and maintenance of the Contracts and for mortality risks assumed in connection with the death benefit and annuity features of the Contracts. This deduction is made from each Sub-Account in the same proportion that the value in each Sub-Account bears to the total value in the Variable Account. It is the opinion of the Company that the Annual Variable Account Charge, in the aggregate, is reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed. All of the charges described in this section apply to Variable Account allocations. Allocations to the Fixed Account or to the GTOs are subject to the Contract Maintenance Charge, CDSC and premium tax deductions, if applicable, but are not subject to charges exclusive to the Variable Account. CONTRACT MAINTENANCE CHARGE Each year on the Contract Anniversary (and on the date of surrender in any year in which the entire Contract Value is surrendered), the Company deducts a Contract Maintenance Charge equal to $15 to reimburse it for administrative expenses relating to the issuance and maintenance of the Contract. If the Contract Value on any Contract Anniversary (or on the date of surrender in any year in which the entire Contract Value is surrendered) is $25,000 or more, the Company will waive the Contract Maintenance Charge for that year. All Contract Maintenance Charge reductions will be based on objective underwriting guidelines which will be applied in a non-discriminatory manner. The deduction of the Contract Maintenance Charge is made from each Sub-Account, the Fixed Account and the GTOs in the same proportion that the value in each Sub-Account, Fixed Account and GTOs bears to the total Contract Value. The amount of the Contract Maintenance Charge may not be increased by the Company. In no event will the reduction or elimination of the Contract Maintenance Charge be permitted where such reduction or elimination will be unfairly discriminatory to any person or where it is prohibited by state law. CONTINGENT DEFERRED SALES CHARGE ("CDSC") No deduction for sales charges is made from the Purchase Payments for these Contracts. However, if any part of the Contract Value is surrendered, the Company will, with certain exceptions, deduct a CDSC (see "Waiver of CDSC"). The Standard Contractual CDSC will not exceed the lesser of: (1) 7% of the amount surrendered; or (2) 7% of the total of all Purchase Payments made within 84 months prior to the date of the surrender request. 18 20 of 126 21 The Standard Contractual CDSC applies to Purchase Payments as follows:
NUMBER OF COMPLETED CDSC NUMBER OF COMPLETED CDSC YEARS FROM DATE OF PERCENTAGE YEARS FROM DATE OF PERCENTAGE PURCHASE PAYMENT PURCHASE PAYMENT 0 7% 4 4% 1 7% 5 3% 2 6% 6 2% 3 5% 7 0%
For an additional charge of 0.15% of the daily net assets of the Variable Account, the Contract Owner of a Roth IRA may elect a Five Year CDSC option which will not exceed the lesser of: (1) 7% of the amount surrendered; or (2) 7% of the total of all Purchase Payments made within 60 months prior to the date of surrender request. The Five Year CDSC applies to Purchase Payments as follows:
NUMBER OF COMPLETED CDSC YEARS FROM DATE OF PERCENTAGE PURCHASE PAYMENT 0 7% 1 7% 2 6% 3 4% 4 2% 5 0%
The CDSC for either option, when it is applicable, will be used to cover expenses relating to the sale of the Contracts, including commissions paid to sales personnel, the costs of preparation of sales literature and other promotional activity. The Company attempts to recover its distribution costs relating to the sale of the Contracts from the CDSC. Any shortfall will be made up from the General Account of the Company, which may indirectly include portions of the Annual Variable Account Charge and Contract Maintenance Charge, since the Company expects to generate a profit from these charges. The maximum amount that may be paid to a selling agent on the sale of these Contracts is 6% of Purchase Payments. The CDSC is calculated by multiplying the applicable CDSC percentages noted below by the Purchase Payments that are surrendered. For purposes of calculating the CDSC, surrenders are considered to come first from the oldest Purchase Payment made to the Contract, then the next oldest Purchase Payment and so forth. For tax purposes, a surrender is usually treated as a withdrawal of earnings first. WAIVER OF CDSC (AVAILABLE FOR ALL CONTRACTS) Each Contract Year, the Contract Owner may withdraw, without a CDSC the greater of: (a) an amount equal to 10% of the total of all Purchase Payments; or (b) any amount withdrawn to meet minimum Distribution requirements under the Code. This CDSC-free withdrawal privilege is non-cumulative. Free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year. In addition, no CDSC will be deducted: (1) upon the Annuitization of Contracts which have been in force for at least two years; (2) upon payment of a Death Benefit pursuant to the death of the Annuitant; or (3) from any values which have been held under a Contract for at least 84 months. No CDSC applies upon the transfer of values among the Sub-Accounts or between or among the GTOs, the Fixed Account and the Variable Account. When a Contract described in this prospectus is exchanged for another Contract issued by the Company or any of its affiliated insurance companies, of the type and class which the Company determines is eligible for such exchange, the Company may waive the CDSC on the first Contract. A CDSC may apply to the contract received in the exchange 19 21 of 126 22 When a Contract is held by a Charitable Remainder Trust, the amount which may be withdrawn from this Contract without application of a CDSC, will be the larger of (a) or (b), where: (a) is the amount which would otherwise be available for withdrawal without application of a CDSC; and where (b) is the difference between the total Purchase Payments made to the Contract as of the date of the withdrawal (reduced by previous withdrawals of such Purchase Payments) and the Contract Value at the close of the day prior to the date of the withdrawal. The Contract Owner may be subject to income tax on all or a portion of any such withdrawals and to a tax penalty if the Contract Owner takes withdrawals prior to age 59-1/2 (see "Non-Qualified Contracts-Natural Persons as Contract Owners"). In no event will elimination of CDSC be permitted where such elimination will be unfairly discriminatory to any person, or where it is prohibited by state law. WAIVER OF CDSC OPTIONS -ADDITIONAL WITHDRAWAL WITHOUT CHARGE AND DISABILITY WAIVER In addition to the 10% free withdrawal percentage, for an additional charge of 0.10% of the daily net assets of the Variable Account, the Contract Owner may elect the right to withdraw without CDSC an amount equal each year to an additional 5% of the sum of all Purchase Payments made to the Contract. This additional withdrawal benefit is non-cumulative. If such an election is made, CDSC will also be waived if a Contract Owner (or Annuitant if the Contract is owned by a non-natural owner) is Disabled after the Date of Issue and before attaining the age of 65. If this waiver becomes effective, no additional Purchase Payments may be made to this Contract. -10 YEAR AND DISABILITY WAIVER (AVAILABLE ONLY FOR CONTRACTS ISSUED AS TAX SHELTERED ANNUITY CONTRACTS) For an additional charge of 0.05% of the daily net assets of the Variable Account, the Contract Owner may elect a waiver of CDSC if the Contract Owner has been the Owner of the Contract for 10 years and has made active deferrals for at least 5 of those 10 years. Under this provision, CDSC will also be waived if the Contract Owner becomes Disabled after the Date of Issue and prior to attaining age 65. If this waiver becomes effective, no additional Purchase Payments may be made to this Contract. -HARDSHIP WAIVER (AVAILABLE ONLY FOR CONTRACTS ISSUED AS TAX SHELTERED ANNUITY CONTRACTS) For an additional charge of 0.15% of the daily net assets of the Variable Account, the Contract Owner may elect a waiver of CDSC if the Contract Owner experiences a hardship. For purposes of the Contract, a hardship is defined as any event described in Section 401(k)(2)(B) of the Code, which includes but is not limited to, separation from service, death, disability or termination of the plan. The Contract Owner may be required to provide proof of hardship which is satisfactory to the Company. If this waiver becomes effective, no additional Purchase Payments may be made to this Contract. -OPTIONAL LONG TERM CARE FACILITY AND DEATH BENEFIT CHARGES If a Long Term Care Facility and Death Benefit option is chosen, the Company will deduct a charge equal to an annual rate of either 0.05% or 0.10% of the daily net assets of the Variable Account depending upon which option was chosen (see "Death Benefit Payment"). These charges are designed to reimburse the Company for increased expenses and mortality risks. 20 22 of 126 23 For those Contracts which have elected a Long Term Care Facility and Death Benefit Rider at the time of application, the following Long Term Care Facility provisions also apply. Beginning at the third Contract Anniversary Date, surrender charges on withdrawals will not apply if a Contract Owner has been confined to a Long Term Care Facility or Hospital for a continuous 90 day period which has commenced any time after the Contract Issue Date. In addition, upon receipt of a Physician's letter at the Home Office, no surrender charges will be deducted upon withdrawals if any Contract Owner has been diagnosed by that Physician to have a Terminal Illness. For those Contracts which have established a non-natural person as Contract Owner for the benefit of a natural person, the Annuitant may exercise the rights as Contract Owner for the purposes described in this provision. IF THE NON-NATURAL CONTRACT OWNER HAS NOT BEEN ESTABLISHED FOR THE BENEFIT OF A PERSON (E.G., THE CONTRACT OWNER IS A CORPORATION OR A TRUST FOR THE BENEFIT OF AN ENTITY), THE ANNUITANT MAY NOT EXERCISE THE RIGHTS DESCRIBED IN THIS PROVISION. The Contract Owner may be subject to income tax on all or a portion of any such withdrawals and to a tax penalty if the Contract Owner takes withdrawals prior to age 59-1/2 (see "Non-Qualified Contracts - Natural Persons as Contract Owners"). PREMIUM TAXES The Company will charge against the Contract Value any premium taxes levied by a state or any other government entity upon Purchase Payments received by the Company. Premium tax rates currently range from 0% to 3.5%. This range is subject to change. The method used to recoup premium tax will be determined by the Company at its sole discretion in compliance with state law. The Company currently deducts such charges from the Contract Value either at: (1) the time the Contract is surrendered; (2) Annuitization; or (3) such earlier date as the Company may become subject to such taxes. OPERATION OF THE CONTRACT INVESTMENTS OF THE VARIABLE ACCOUNT The Contract Owner may have Purchase Payments allocated among one or more of the Sub-Accounts. Shares of the Underlying Mutual Fund options specified by the Contract Owner are purchased at Net Asset Value for the respective Sub-Account(s) and converted into Accumulation Units. The Contract Owner may change the allocation of Purchase Payments or may exchange amounts among the Sub-Accounts. Such transactions may be subject to conditions imposed by the Underlying Mutual Funds, as well those set forth in the Contract. ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE Purchase Payments are allocated to the Fixed Account, GTOs or to one or more Sub-Accounts in accordance with the designation of the Underlying Mutual Funds by the Contract Owner and converted into Accumulation Units. The initial first year Purchase Payment for Contracts issued as Non-Qualified Contracts, IRAs, Roth IRAs, SEP IRAs and Simple IRAs must be at least $1,000. There are no minimum Purchase Payments requirements for Contracts issued as Tax Sheltered Annuities or Charitable Remainder Trusts. However, subsequent Purchase Payments for Contracts issued as Tax Sheltered Annuities must be at least $25. In addition, any amounts allocated to the GTO(s) must be at least $1,000. Please refer to the prospectus for the GTO(s) for additional details regarding Purchase Payments made to the GTO(s). The cumulative total of all purchase payments under contracts issued by the Company on the life of any Annuitant may not exceed $1,000,000 without prior consent of the Company. The initial Purchase Payment allocated to designated Sub-Accounts will be priced no later than 2 business days after receipt of an order to purchase, if the application and all information necessary for processing the purchase order are complete. The Company may, however, retain the Purchase Payment for up to 5 business days while attempting to complete an incomplete application. If the application cannot be made complete within 5 business days, the prospective purchaser will be informed of the reasons for the delay and the Purchase Payment will be returned immediately unless the prospective purchaser specifically consents to the Company retaining the 21 23 of 126 24 Purchase Payment until the application is complete. Thereafter, subsequent Purchase Payments will be priced on the basis of the Accumulation Unit value next computed for the appropriate Sub-Account after the additional Purchase Payment is received. Purchase Payments will not be priced on the following nationally recognized holidays: New Year's Day; Martin Luther King, Jr. Day; Presidents Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving; and Christmas. VALUE OF AN ACCUMULATION UNIT The Accumulation Unit value for any Valuation Period is determined by multiplying the Accumulation Unit value for each Sub-Account for the immediately preceding Valuation Period by the net investment factor for the Sub-Account during the subsequent Valuation Period. Though the number of Accumulation Units will not change as a result of investment experience, the value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period. NET INVESTMENT FACTOR The net investment factor for any Valuation Period is determined by dividing (a) by (b) and subtracting (c) from the result where: (a) is the net of: (1) the Net Asset Value per share of the Underlying Mutual Fund held in the Sub-Account determined at the end of the current Valuation Period; and (2) the per share amount of any dividend or capital gain Distributions made by the Underlying Mutual Fund held in the Sub-Account if the "ex-dividend" date occurs during the current Valuation Period. (b) is the Net Asset Value per share of the Underlying Mutual Fund held in the Sub-Account determined at the end of the immediately preceding Valuation Period. (c) is a factor representing the Annual Variable Account Charge, which may include any Contract options chosen. Such factor is equal to an annual rate ranging from 1.10% to 1.40% of the daily net assets of the Variable Account depending on which Contract features were chosen by the Contract Owner at the time of application. The net investment factor may be greater or less than one; therefore, the value of an Accumulation Unit may increase or decrease. It should be noted that changes in the net investment factor may not be directly proportional to changes in the Net Asset Value of Underlying Mutual Fund shares because of the deduction for the Annual Variable Account Charge. DETERMINING THE CONTRACT VALUE The Contract Value is the sum of the value of all Accumulation Units, amounts allocated and credited to the Fixed Account, and amounts allocated and credited to a GTO which may be subject to a Market Value Adjustment. The number of Accumulation Units credited to each Sub-Account is determined by dividing the net amount allocated to the Sub-Account by the Accumulation Unit value for the Sub-Account for the Valuation Period during which the Purchase Payment is received by the Company. If part or all of the Contract Value is surrendered or charges or deductions are made against the Contract Value, an appropriate number of Accumulation Units and an appropriate amount from the Fixed Account and GTOs will be deducted in the same proportion that the Contract Owner's interest in each of the Sub-Accounts, Fixed Account and GTOs bears to the total Contract Value. RIGHT TO REVOKE The Contract Owner has a ten day free look to examine the Contract. Within ten days of the date the Contract is received, it may be returned for any reason to the Home Office at the address shown on page 1 of this prospectus. If the Contract is returned to the Company in a timely manner, the Company will void the Contract and refund the Contract Value in full, unless otherwise required by law. State and/or federal law may provide additional free look privileges. All IRA, Roth IRA, SEP IRA and Simple IRA refunds will be return of Purchase Payments. 22 24 of 126 25 The liability of the Variable Account under this provision is limited to the Contract Value in each Sub-Account on the date of revocation. Any additional amounts refunded to the Contract Owner will be paid by the Company. TRANSFERS The Contract Owner may request a transfer of up to 100% of the combined value of any GTO allocation and the Variable Account value to the Fixed Account, without penalty or adjustment. Transfers from a GTO prior to maturity are subject to a Market Value Adjustment. The Company reserves the right to restrict transfers from the Variable Account to the Fixed Account to 10% of the combined value of any GTO allocation and the Variable Account Contract Value for any 12 month period. All amounts transferred to the Fixed Account must remain on deposit in the Fixed Account until the expiration of the current Interest Rate Guarantee Period. In addition, transfers from the Fixed Account may not be made prior to the end of the then current Interest Rate Guarantee Period. The Interest Rate Guarantee Period for any amount allocated to the Fixed Account expires on the final day of a calendar quarter during which the one year anniversary of the allocation to the Fixed Account occurs. For all transfers involving the Variable Account, the Contract Owner's value in each Sub-Account will be determined as of the date the transfer request is received in the Home Office in good order. The Company reserves the right to refuse transfers or Purchase Payments into the Fixed Account if the Fixed Account is greater than or equal to 30% of the total Contract Value. Once the Contract has been Annuitized, transfers may only be made on each anniversary of the Annuitization Date. The Contract Owner may at the maturity of an Interest Rate Guarantee Period, transfer a portion of the value of the Fixed Account to the Variable Account or to a GTO. The amount that may be transferred from the Fixed Account to the Variable Account or to a GTO will be determined by the Company, at its sole discretion, but will not be less than 10% of the total value of the portion of the Fixed Account that is maturing. The amount that may be transferred from the Fixed Account will be declared upon the expiration date of the then current Interest Rate Guarantee Period. Transfers from the Fixed Account must be made within 45 days after the expiration date of the guarantee period. Contract Owners who have entered into a Dollar Cost Averaging agreement with the Company (see "Dollar Cost Averaging") may transfer from the Fixed Account to the Variable Account (but not to GTOs) under the terms of that agreement. Transfers may be made either in writing or, in states allowing such transfers, by telephone. This telephone exchange privilege is made available to Contract Owners automatically without the Contract Owner's election. The Company will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures may include any or all of the following: requesting identifying information, such as name, contract number, Social Security Number, and/or personal identification number; tape recording all telephone transactions, and providing written confirmation thereof to both the Contract Owner and any agent of record, at the last address of record; or such other procedures as the Company may deem reasonable. Although the Company's failure to follow reasonable procedures may result in the Company's liability for any losses due to unauthorized or fraudulent telephone transfers, the Company will not be liable for following instructions communicated by telephone which it reasonably believes to be genuine. Any losses incurred pursuant to actions taken by the Company in reliance on telephone instructions reasonably believed to be genuine will be borne by the Contract Owner. Contracts described in this prospectus may be sold to individuals who independently utilize the services of a firm or individual engaged in market timing. Generally, such firms or individuals obtain authorization from multiple Contract Owners to make transfers and exchanges among the Sub-Accounts on the basis of perceived market trends. Because of the unusually large transfers of funds associated with some of these transactions, the ability of the Company or Underlying Mutual Funds to process such transactions may be compromised, and the execution of such transactions may possibly disadvantage or work to the detriment of other Contract Owners not utilizing market timing services. Accordingly, the right to exchange Contract Values among the Sub-Accounts may be subject to modification if such rights are exercised by a market timing firm or any other third party authorized to initiate transfer or exchange transactions on behalf of multiple Contract Owners. THE RIGHTS OF INDIVIDUAL CONTRACT OWNERS TO EXCHANGE CONTRACT VALUES, WHEN INSTRUCTIONS ARE SUBMITTED DIRECTLY BY THE CONTRACT OWNER, OR BY THE CONTRACT OWNER'S REPRESENTATIVE OF RECORD AS AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY FORM, 23 25 of 126 26 WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company may, among other things, not accept: (1) the transfer or exchange instructions of any agent acting under a power of attorney on behalf of more than one Contract Owner, or (2) the transfer or exchange instructions of individual Contract Owners who have executed preauthorized transfer or exchange forms which are submitted by market timing firms or other third parties on behalf of more than one Contract Owner at the same time. The Company will not impose any such restrictions or otherwise modify exchange rights unless such action is reasonably intended to prevent the use of such rights in a manner that will disadvantage or potentially impair the contract rights of other Contract Owners. CONTRACT OWNERSHIP Unless the Contract otherwise provides, the Contract Owner has all rights under the Contract. PURCHASERS NAMING SOMEONE OTHER THAN THEMSELVES AS OWNER WILL HAVE NO RIGHTS UNDER THE CONTRACT. Prior to the Annuitization Date, the Contract Owner may name a new Contract Owner in Non-Qualified Contracts. Such change may be subject to state and federal gift taxes and may also result in federal income taxation. Any change of Contract Owner designation will automatically revoke any prior Contract Owner designation. Once proper notice of the change is recorded by the Home Office, the change will become effective as of the date the written request was signed. A change of Contract Owner will not apply and will not be effective with respect to any payment made or action taken by the Company prior to the time that the change was recorded by the Home Office. Prior to the Annuitization Date, the Contract Owner may request a change in the Annuitant, the Contingent Annuitant, Contingent Owner, Beneficiary, or Contingent Beneficiary. Such a request must be made in writing on a form acceptable to the Company and must be signed by the Contract Owner. Such request must be received at the Home Office prior to the Annuitization Date. Any such change is subject to review and approval by the Company. If the Contract Owner is not a natural person and there is a change of the Annuitant, Distributions will be made as if the Contract Owner died at the time of such change. On the Annuitization Date, the Annuitant will become the Contract Owner. JOINT OWNERSHIP Joint Owners must be spouses at the time joint ownership is requested, unless otherwise required by law. If a Joint Owner is named, the Joint Owner will possess an undivided interest in the Contract. If a Contract Owner who is also the Annuitant dies before the Annuitization Date and there is a surviving Joint Owner, all benefits under the Contract are payable to the surviving Joint Owner. The exercise of any ownership right in the Contract will require a written request signed by both Joint Owners. The Company will not be liable for any loss, liability, cost, or expense for acting in accordance with the instructions of either Joint Owner. CONTINGENT OWNERSHIP The Contingent Owner is the person who may receive certain benefits under the Contract if a Contract Owner, who is not the Annuitant, dies prior to the Annuitization Date and there is no surviving Joint Owner. If no Contingent Owner survives a Contract Owner and there is no surviving Joint Owner, all rights and interest of the Contingent Owner will vest in the Contract Owner's estate. If a Contract Owner, who is also the Annuitant, dies before the Annuitization Date, the Contingent Owner will not have any rights in the Contract, unless the Contingent Owner is also the named Beneficiary. Subject to the terms of any existing assignment, the Contract Owner may change the Contingent Owner prior to the Annuitization Date by written notice to the Company. Once proper notice of the change is recorded by the Home Office, the change will become effective as of the date the written request was signed, whether or not the Contract Owner is living at the time of recording, but without further liability as to any payment or settlement made by the Company before receipt of such change. 24 26 of 126 27 BENEFICIARY The Beneficiary is the person(s) who may receive certain benefits under the Contract in the event the Annuitant dies prior to the Annuitization Date. However, a Contract Owner who is also the Annuitant dies before the Annuitization Date and there is no surviving Joint Owner, all benefits under the Contract are payable to the surviving Joint Owner. If more than one Beneficiary survives the Annuitant, each will share equally unless otherwise specified in the Beneficiary designation. If no Beneficiary survives the Annuitant, all rights and interest of the Beneficiary will vest in the Contingent Beneficiary. If more than one Contingent Beneficiary survives, each will share equally unless otherwise specified in the Contingent Beneficiary designation. If no Contingent Beneficiaries survive the Annuitant, all rights and interest of the Contingent Beneficiary will vest with the Contract Owner or the estate of the last surviving Contract Owner. If the Contract Owner is a Charitable Remainder Trust, upon the death of the Annuitant, all interest in the Death Benefit proceeds will accrue to the Charitable Remainder Trust. Any designation which creates a conflict with the Charitable Remainder Trust's right to such interest will be void and of no effect. Subject to the terms of any existing assignment, the Contract Owner may change the Beneficiary or Contingent Beneficiary during the lifetime of the Annuitant by written notice to the Company. Once proper notice of the change is recorded by the Home Office, the change will become effective as of the date the written request was signed, whether or not the Annuitant is living at the time of recording, but without further liability as to any payment or settlement made by the Company before receipt of such change. SURRENDER (REDEMPTION) Prior to the earlier of the Annuitization Date or the death of the Annuitant, the Company will, allow the Contract Owner to surrender a portion or all of the Contract Value. The request for surrender must be made in writing and must include the Contract when surrendering the Contract in full. In some cases the Company will require additional documentation. The Company may require that the signature(s) be guaranteed by a member firm of a major stock exchange or other depository institution qualified to give such a guaranty. The Company will, upon receipt of any such written request, surrender a number of Accumulation Units from the Variable Account and an amount from the Fixed Account and GTOs to equal the gross dollar amount requested, less any applicable CDSC (see "Contingent Deferred Sales Charge"). In the event of a partial surrender, the Company will, unless instructed to the contrary, surrender Accumulation Units from all Sub-Accounts in which the Contract Owner has an interest, and from the Fixed Account and GTOs. The number of Accumulation Units surrendered from each Sub-Account and the amount surrendered from the Fixed Account and GTOs will be in the same proportion that the Contract Owner's interest in the Sub-Accounts, Fixed Account and GTOs bears to the total Contract Value. The Company will pay any amounts surrendered from the Sub-Accounts within 7 days. However, the Company reserves the right to suspend or postpone the date of any payment for any Valuation Period when: (1) the New York Stock Exchange ("Exchange") is closed; (2) trading on the Exchange is restricted; (3) an emergency exists as a result of which disposal of securities held in the Variable Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Variable Account net assets; or (4) the SEC, by order, permits such suspension or postponement for the protection of security holders. The applicable rules and regulations of the SEC will govern as to whether the conditions prescribed in (2) and (3) exist. The Contract Value on surrender may be more or less than the total of Purchase Payments made by a Contract Owner, depending on the market value of the Underlying Mutual Fund shares and Variable Account Charges. SURRENDERS UNDER A TAX SHELTERED ANNUITY CONTRACT Except as provided below, the Contract Owner may surrender part or all of the Contract Value at any time this Contract is in force prior to the earlier of the Annuitization Date or the death of the Annuitant: 25 27 of 126 28 A. The surrender of Contract Value attributable to contributions made pursuant to a qualified cash or deferred arrangement (within the meaning of Code Section 402(g)(3)(A)), a salary reduction agreement (within the meaning of Code Section 402(g)(3)(C)), or transfers from a Custodial Account (described in Section 403(b)(7) of the Code), may be executed only: 1. when the Contract Owner attains age 59-1/2, separates from service, dies, or becomes disabled (within the meaning of Code Section 72(m)(7)); or 2. in the case of hardship (as defined for purposes of Code Section 401(k)), provided that any surrender of Contract Value in the case of hardship may not include any income attributable to salary reduction contributions. B. The surrender limitations described in Section A above also apply to: 1. salary reduction contributions to Tax Sheltered Annuities made for plan years beginning after December 31, 1988; 2. earnings credited to such contracts after the last plan year beginning before January 1, 1989, on amounts attributable to salary reduction contributions; and 3. all amounts transferred from 403(b)(7) Custodial Accounts (except that earnings, and employer contributions as of December 31, 1988 in such Custodial Accounts, may be withdrawn in the case of hardship). C. Any Distribution other than the above, including exercise of a contractual ten day free look provision (when available) may result in the immediate application of taxes and penalties and/or retroactive disqualification of a Qualified Contract or Tax Sheltered Annuity. A premature Distribution may not be eligible for rollover treatment. To assist in preventing disqualification of a Tax Sheltered Annuity in the event of a ten day free look, the Company will agree to transfer the proceeds to another contract which meets the requirements of Section 403(b) of the Code, upon proper direction by the Contract Owner. The foregoing is the Company's understanding of the withdrawal restrictions which are currently applicable under Code Section 401(k)(2)(B), Code Section 403(b)(11) and Revenue Ruling 90-24. Such restrictions are subject to legislative change and/or reinterpretation. Distributions pursuant to Qualified Domestic Relations Orders will not be considered to be a violation of the restrictions stated in this provision. LOAN PRIVILEGE Prior to the Annuitization Date, the Contract Owner of a Tax Sheltered Annuity Contract may receive a loan from the Contract Value subject to the terms of the Contract, the Plan, and the Code, which may impose restrictions on loans. The Company assesses a $25 processing fee for each loan processed. The processing fee is taken from the Variable Account, Fixed Account and GTOs in the same proportion that the Contract Owners interest in the Variable Account, Fixed Account and GTOs bears to the total Contract Value. Loans from Tax Sheltered Annuities are available beginning 30 days after the Date of Issue. The Contract Owner may borrow a minimum of $1,000, unless a lower minimum amount is mandated by state law. In non-ERISA plans, for Contract Values up to $20,000, the maximum loan balance which may be outstanding at any time is 80% of the Contract Value, but not more than $10,000. If the Contract Value is $20,000 or more, the maximum loan balance which may be outstanding at any time is 50% of the Contract Value, but not more than $50,000. For ERISA plans, the maximum loan balance which may be outstanding at any time is 50% of the Contract Value, but not more than $50,000. The $50,000 limit will be reduced by the highest loan balances owed during the prior one-year period. Additional loans are subject to the Contract minimum amount. The aggregate of all loans may not exceed the Contract Value limitations stated in this provision. For salary reduction Tax Sheltered Annuities, loans may only be secured by the Contract Value. All loans are made from the collateral fixed account. An amount equal to the principal amount of the loan will be transferred to the collateral fixed account. The Company will transfer to the collateral fixed account the Sub-Account's Accumulation Units in proportion to the asset in each option until the required balance is reached or all such Accumulation Units are exhausted. Any additional requested collateral will next be transferred from the Fixed Account. Any remaining required collateral will be transferred from the GTO which may be subject to 26 28 of 126 29 Market Value Adjustment. No withdrawal charges are deducted at the time of the loan, or on any transfers to the collateral fixed account. Until the loan has been repaid in full, that portion of the collateral fixed account equal to the outstanding loan balance will be credited with interest at a rate 2.25% less than the loan interest rate fixed by the Company for the term of the loan. However, the interest rate credited to the collateral fixed account will never be less than 3.0%. Specific loan terms are disclosed at the time of loan application or loan issuance. Loans must be repaid in substantially level payments, not less frequently than quarterly, within five years. Loans used to purchase the principal residence of the Contract Owner must be repaid within 15 years. During the loan term, the outstanding balance of the loan will continue to earn interest at an annual rate as specified in the loan agreement. Loan repayments will consist of principal and interest in amounts set forth in the loan agreement. Loan repayments will be allocated among the Sub-Accounts in accordance with the Contract, unless the Contract Owner and the Company agree to amend the Contract at a later date on a case by case basis. No loan repayments less than $1,000 are permitted into the GTOs. If the proportional share of the loan repayment to the GTOs is less than $1,000, that portion of the loan repayment will be allocated to the NSAT Money Market Fund, unless the Contract Owner directs the loan repayments to be directed to the Fixed Account or another available investment option under the Variable Account. Amounts distributed will be reduced by the amount of the loan outstanding, plus accrued interest if: (1) the Contract is surrendered; (2) the Contract Owner/Annuitant dies; or (3) the Contract Owner who is not the Annuitant dies prior to Annuitization. In addition, the Contract Value will be reduced by the amount of any outstanding loans plus accrued interest if annuity payments begin while the loan is outstanding. Until the loan is repaid, the Company reserves the right to restrict any transfer of the Contract which would otherwise qualify as a transfer as permitted in the Code. If a loan payment is not made when due, interest will continue to accrue. A grace period may be available under the terms of the loan agreement. If a loan payment is not made when due, or by the end of the applicable grace period, the entire loan will be treated as a deemed Distribution, will be taxable to the borrower, and may be subject to the early withdrawal tax penalty. Interest will continue to accrue on the loan after default. Any defaulted amounts, plus accrued interest, will be deducted from the Contract when the participant becomes eligible for a Distribution of at least that amount. Additional loans may not be available while a previous loan remains in default. Loans may also be subject to additional limitations or restrictions under the terms of a Tax Sheltered Annuity Plan. Loans permitted under this Contract may still be taxable in whole or part if the participant has additional loans from other plans or contracts. The Company will calculate the maximum nontaxable loan based on the information provided by the participant or the employer. Loan repayments must be identified as such or else they will be treated as Purchase Payments and will not be used to reduce the outstanding loan principal or interest due. The Company reserves the right to modify the loan's terms or procedures if there is a change in applicable law. The Company also reserves the right to assess a loan processing fee. IRAs, Roth IRAs, SEP IRAs, Simple IRAs and Non-Qualified Contracts are not eligible for loans. ASSIGNMENT The Contract Owner of a Non-Qualified Contract may assign some or all rights under the Contract at any time during the lifetime of the Annuitant prior to the Annuitization Date. Once proper notice of assignment is recorded by the Home Office, the assignment will become effective as of the date the written request was signed. The Company is not responsible for the validity or tax consequences of any assignment. The Company will not be liable for any payment or other settlement made by the Company before recording of the assignment. Where necessary for the proper administration of the terms of the Contract, an assignment will not be recorded until the Company has received sufficient direction from the Contract Owner and assignee as to the proper allocation of Contract rights under the assignment. 27 29 of 126 30 Any portion of the Contract Value, which is pledged or assigned, will be treated as a Distribution and will be included in gross income to the extent that the cash value exceeds the investment in the Contract for the taxable year in which it was pledged or assigned. In addition, any Contract Value assigned may be subject to a tax penalty equal to 10% of the amount which is included in gross income. All rights in the Contract are personal to the Contract Owner and may not be assigned without written consent of the Company. Assignment of the entire Contract Value may cause the portion of the Contract Value exceeding the total investment in the Contract and previously taxed amounts to be included in gross income for federal income tax purposes each year that the assignment is in effect. IRAs, Roth IRAs, and Tax Sheltered Annuities may not be assigned, pledged or otherwise transferred except under such conditions as may be allowed by law. CONTRACT OWNER SERVICES ASSET REBALANCING- The Contract Owner may direct the automatic reallocation of Contract Values to the Sub-Accounts on a predetermined percentage basis. Asset Rebalancing will occur every three months or on another frequency authorized by the Company. If the last day of the three month period falls on a Saturday, Sunday, recognized holiday or any other day when the New York Stock Exchange is closed, the Asset Rebalancing reallocation will occur on the first business day after that day. Asset Rebalancing requests must be in writing on a form provided by the Company. The Contract Owner may want to contact a financial adviser to discuss the use of Asset Rebalancing. Asset Rebalancing may be subject to employer imposed limitations or restrictions for Contracts issued to a Tax Sheltered Annuity Plan. Asset Rebalancing is not available for assets held in the GTOs. Amounts transferred from the GTO prior to the expiration of the specified term are subject to the Market Value Adjustment. The Company reserves the right to discontinue establishing new Asset Rebalancing programs. The Company also reserves the right to assess a processing fee for this service. DOLLAR COST AVERAGING- The Contract Owner may direct the Company to automatically transfer a specified amount from the Fidelity VIP High Income Portfolio, NSAT-Government Bond Fund, NSAT-Nationwide High Income Bond Fund, NSAT- Money Market Fund or the Fixed Account to any other Sub-Account. Dollar Cost Averaging will occur on a monthly basis or on another frequency permitted by the Company. Dollar Cost Averaging is a long-term investment program which provides for regular, level investments over time. There is no guarantee that Dollar Cost Averaging will result in a profit or protect against loss. The minimum monthly transfer is $100. Transfers will be processed until either the value in the originating Sub-Account(s) or the Fixed Account is exhausted or the Contract Owner instructs the Home Office to cancel the transfers. Dollar Cost Averaging transfers may not be directed to GTOs. The Company reserves the right to discontinue establishing new Dollar Cost Averaging programs. The Company also reserves the right to assess a processing fee for this service. SYSTEMATIC WITHDRAWALS- A Contract Owner may elect in writing to begin receiving withdrawals of a specified dollar amount (of at least $100) on a monthly, quarterly, semi-annual, or annual basis. Unless otherwise instructed, the withdrawals will be taken from the Sub-Accounts and the Fixed Account on a prorated basis. Systematic Withdrawals are not available from the GTOs. A CDSC may apply (see "Contingent Deferred Sales Charge"). Unless directed otherwise by the Contract Owner, the Company will withhold federal income taxes. In addition, a 10% penalty tax may be assessed by the IRS if the Contract Owner is under age 59-1/2, unless the Contract Owner has made an irrevocable election of Distributions of substantially equal payments. Withdrawals may be discontinued at any time by notifying the Home Office in writing If the Contract Owner withdraws amounts pursuant to a Systematic Withdrawal program, then the Contract Owner may withdraw each Contract Year without a CDSC an amount up to the greatest of: (1) 10% of the total sum of all Purchase Payments made to the Contract at the time of withdrawal; (2) an amount withdrawn in order to meet minimum Distribution requirements; or (3) the specified percentage of the Contract Value based on the Contract Owner's age, as shown in the following table: 28 30 of 126 31 Contract Owner's Percentage of Age Contract Value ------------------ -------------------------------- Under Age 59-1/2 5% Age 59-1/2 through Age 61 7% Age 62 through Age 64 8% Age 65 through Age 74 10% Age 75 and Over 13% If the total amounts withdrawn in any Contract Year exceed the CDSC-free amount as calculated under the Systematic Withdrawal method described above, then such total withdrawn amounts will be eligible only for the 10% of Purchase Payment CDSC-free withdrawal privilege described in the "Contingent Deferred Sales Charge" section, and the total amount of CDSC charged during the Contract Year will be determined in accordance with that provision. The Contract Value and the Contract Owner's age for purposes of applying the CDSC-free withdrawal percentage described in this provision are determined as of the date the request for a Systematic Withdrawal program is received and recorded by the Home Office. (In the case of Joint Owners, the older Owner's age will be used.) Furthermore, this CDSC-free withdrawal privilege for Systematic Withdrawals is non-cumulative. Free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year. The Company reserves the right to discontinue establishing new Systematic Withdrawal programs. The Company also reserves the right to assess a processing fee for this service. Systematic Withdrawals are not available prior to the expiration of the ten day free look provision of the Contract (see "Right to Revoke"). ANNUITY PAYMENT PERIOD, DEATH BENEFIT AND OTHER DISTRIBUTIONS ANNUITY COMMENCEMENT DATE An Annuity Commencement Date will be selected. Such date will be the first day of a calendar month unless otherwise agreed upon. The date must be at least 2 years after the Date of Issue. In the event the Contract is issued subject to the terms of a Qualified Plan or Tax Sheltered Annuity Plan, Annuitization may occur during the first 2 years subject to approval by the Company. The Annuity Commencement Date may be changed by the Contract Owner in writing subject to approval by the Company. ANNUITIZATION Annuitization is irrevocable once payments have begun. When making an Annuitization election, the Annuitant must choose: (1) an Annuity Payout Option; and (2) either a Fixed Payment Annuity, Variable Payment Annuity or an available combination. Payments under a Fixed Payment Annuity are guaranteed by the Company as to the dollar amount during the annuity payment period. The dollar amount of each payment under a Variable Payment Annuity will vary depending on the performance of the selected Underlying Mutual Fund options. The dollar amount of each variable payment could be higher or lower than a previous payment. FIXED PAYMENT ANNUITY - FIRST AND SUBSEQUENT PAYMENTS The first payment under a Fixed Payment Annuity will be determined by applying the portion of the total Contract Value specified by the Contract Owner to the Fixed Payment Annuity table then in effect for the Annuity Payment Option elected, after deducting any applicable premium taxes from the total Contract Value. This will be done at the Annuitization Date on an age last birthday basis. Subsequent payments will remain level unless the Annuity Payment Option elected provides otherwise. The Company does not credit discretionary interest paid by the Company to payments during the annuity payment period. 29 31 of 126 32 VARIABLE PAYMENT ANNUITY - FIRST AND SUBSEQUENT PAYMENTS The first payment under a Variable Annuity Payment will be determined by applying the portion of the total Contract Value specified by the Contract Owner to the Variable Payment Annuity table then in effect for the Annuity Payment Option elected, after deducting any applicable premium taxes from the total Contract Value. This will be done at the Annuitization Date on an age last birthday basis. The dollar amount of the first payment is divided by the value of an Annuity Unit as of the Annuitization Date to establish the number of Annuity Units representing each monthly annuity payment. This number of Annuity Units remains fixed during the annuity payment period. The dollar amount of the second and subsequent payments is not predetermined and may change from month to month. The dollar amount of each subsequent payment is determined by multiplying the fixed number of Annuity Units by the Annuity Unit value for the Valuation Period in which the payment is due. The Company guarantees that the dollar amount of each payment after the first will not be affected by variations in mortality experience from mortality assumptions used to determine the first payment. VARIABLE PAYMENT ANNUITY - ASSUMED INVESTMENT RATE A 3.5% assumed investment rate is built into the Variable Payment Annuity purchase rate basis in the Contracts. A higher assumption would mean a higher initial payment but more slowly rising or more rapidly falling subsequent payments. A lower assumption would have the opposite effect. If the actual net investment rate is at the annual rate of 3.5%, the annuity payments will be level. VARIABLE PAYMENT ANNUITY - VALUE OF AN ANNUITY UNIT The value of an Annuity Unit for a Sub-Account for any subsequent Valuation Period is determined by multiplying the Annuity Unit value from the immediately preceding Valuation Period by the net investment factor for the Valuation Period for which the Annuity Unit value is being calculated, and multiplying the result by an interest factor to neutralize the assumed investment rate of 3.5% per annum built into the Variable Payment Annuity purchase rate basis in the Contracts (see "Net Investment Factor"). VARIABLE PAYMENT ANNUITY - EXCHANGES AMONG UNDERLYING MUTUAL FUND OPTIONS During the annuity payment period, exchanges among the Underlying Mutual Fund options must be made in writing and the exchange will take place on the anniversary of the Annuitization Date. FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS Payments will be made based on the Annuity Payment Option selected. However, if the net amount available under any Annuity Payment Option is less than $500, the Company will have the right to pay such amount in one lump sum in lieu of periodic annuity payments. In addition, if the payments to be provided would be or become less than $20, the Company will have the right to change the frequency of payments to such intervals as will result in payments of at least $20. In no event will the Company make payments under an annuity option less frequently than annually. ANNUITY PAYMENT OPTIONS The Contract Owner may, upon prior written notice to the Company, at any time prior to the Annuitization Date, elect one of the following Annuity Payment Options: (1) Life Annuity-An annuity payable periodically, but at least annually, during the lifetime of the Annuitant, ending with the last payment due prior to the death of the Annuitant. FOR EXAMPLE, IF THE ANNUITANT DIES BEFORE THE SECOND ANNUITY PAYMENT DATE, THE ANNUITANT WILL RECEIVE ONLY ONE ANNUITY PAYMENT. THE ANNUITANT WILL ONLY RECEIVE TWO ANNUITY PAYMENTS IF HE OR SHE DIES BEFORE THE THIRD ANNUITY PAYMENT DATE AND SO ON. (2) Joint and Last Survivor Annuity-An annuity payable periodically, but at least annually, during the joint lifetimes of the Annuitant and designated second individual and continuing thereafter during the lifetime of the survivor. AS IS THE CASE UNDER OPTION 1 ABOVE, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED. (3) Life Annuity With 120 or 240 Monthly Payments Guaranteed-An annuity payable monthly during the lifetime of the Annuitant. If the Annuitant dies before all of the guaranteed payments have been made, 30 32 of 126 33 payments will continue to be made for the remainder of the selected guaranteed period to a designee chosen by the Annuitant at the time the Annuity Payment Option was elected. Alternatively, the designee may elect to receive the present value of any remaining guaranteed payments in a lump sum. The present value will be computed as of the date on which the Company receives the notice of the Annuitant's death Some of the stated Annuity Options may not be available in all states. The Contract Owner may request an alternative option prior to the Annuitization Date subject to approval by the Company. For Non-Qualified Contracts, no Distribution will be made until an Annuity Payment Option has been elected. IRAs and Tax Sheltered Annuities are subject to the "minimum distribution" requirements set forth in the plan, Contract, or Code. DEATH OF CONTRACT OWNER - NON-QUALIFIED CONTRACTS For Non-Qualified Contracts, if the Contract Owner and the Annuitant are not the same and a Contract Owner dies prior to the Annuitization Date, then the Joint Owner, if any, becomes the new Contract Owner. If there is no surviving Joint Owner, the Contingent Owner becomes the new Contract Owner. If there is no surviving Contingent Owner, the last surviving Contract Owner's estate becomes the Contract Owner. The entire interest in the Contract Value, less any applicable deductions (which may include a CDSC), must be distributed in accordance with the provisions of "Required Distributions for Non-Qualified Contracts". DEATH OF THE ANNUITANT - NON-QUALIFIED CONTRACTS If the Contract Owner and Annuitant are not the same, and the Annuitant dies prior to the Annuitization Date, a Death Benefit will be payable to the Joint Owner, Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last surviving Contract Owner's estate, as specified in the "Beneficiary" provision, unless there is a surviving Contingent Annuitant. In such case, the Contingent Annuitant becomes the Annuitant and no Death Benefit is payable. The Beneficiary may elect to receive the Death Benefit: (1) in a lump sum Distribution; (2) as an annuity payout; or (3) in any Distribution permitted by law and approved by the Company. An election must be received by the Company within 60 days of the Annuitant's death. If the Annuitant dies after the Annuitization Date, any benefit that may be payable will be paid according to the selected Annuity Payment Option. DEATH OF CONTRACT OWNER/ANNUITANT If any Contract Owner and Annuitant are the same person, and the Annuitant dies before the Annuitization Date, a Death Benefit will be payable to the Joint Owner, Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last surviving Contract Owner's estate, as specified in the "Beneficiary" provision and in accordance with the appropriate "Required Distributions" provisions. If the Annuitant dies after the Annuitization Date, any benefit that may be payable will be paid according to the selected Annuity Payment Option. DEATH BENEFIT PAYMENT At the time of application, Contract Owners may select one of three Death Benefits available under the Contract as listed below (not all Death Benefit Options may be available in all states at the time of application). If no selection is made at the time of application, the Death Benefit will be the Five-Year Reset Death Benefit (Standard Contractual Death Benefit). The Death Benefit value is determined as of the Valuation Date at or next following the date the Home Office receives: (1) proper proof of the Annuitant's death; (2) an election specifying the Distribution method; and 31 33 of 126 34 (3) any state required form(s). FIVE-YEAR RESET DEATH BENEFIT (STANDARD CONTRACTUAL DEATH BENEFIT) If the Annuitant dies at any time prior to the Annuitization Date, the dollar amount of the death benefit will be the greatest of: (1) the Contract Value; (2) the total of all Purchase Payments made to the Contract, less an adjustment for amounts surrendered; or (3) the Contract Value as of the most recent five year Contract Anniversary before the Annuitant's 86th birthday, less an adjustment for amounts surrendered, plus Purchase Payments received after that Contract Anniversary. The adjustment for amounts surrendered will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date(s) of the partial surrender(s). No additional charge will be assessed to the Contract Owner for election of the Five-Year Reset Death Benefit (Standard Contractual Death Benefit). ONE-YEAR STEP UP DEATH BENEFIT (OPTION 1) If the Annuitant dies at any time prior to the Annuitization Date, the dollar amount of the death benefit will be the greatest of: (1) the Contract Value; (2) the total of all Purchase Payments, less an adjustment for amounts surrendered; or (3) the highest Contract Value on any Anniversary Date before the Annuitant's 86th birthday, less an adjustment for amounts surrendered, plus Purchase Payments received after that Contract Anniversary. The adjustment for amounts surrendered will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date(s) of the partial surrender(s). For this Death Benefit Option, the Company deducts a charge at an annual rate of 0.05% of the daily net assets of the Variable Account. This charge is designed only to reimburse the Company for increases in the mortality and expense risks, and consequently the Company may lower this charge at any time without prior notice to the Contract Owner. However, the Company may generate a profit from this charge. 5% ENHANCED DEATH BENEFIT (OPTION 2) If the Annuitant dies at any time prior to Annuitization Date, the dollar amount of the death benefit will be the greater of: (1) the Contract Value; or (2) the total of all Purchase Payments, less any amounts surrendered, accumulated at 5% simple interest from the date of each Purchase Payment or surrender to the most recent Contract Anniversary Date prior to the Annuitant's 86th birthday, less an adjustment for amounts surrendered, plus Purchase Payments received since that anniversary. The total accumulated amount will not exceed 200% of the net of Purchase Payments and amounts surrendered. The adjustment for amounts subsequently surrendered after the most recent Contract Anniversary Date will reduce the 5% interest anniversary value in the same proportion that the Contract Value was reduced on the date(s) of the partial surrender(s). For this Death Benefit Rider Option, the Company deducts a charge at an annual rate of 0.10% of the daily net assets of the Variable Account. This charge is designed only to reimburse the Company for increases in the mortality and expense risks, and consequently, the Company may lower this charge at any time without prior notice to the Contract Owner. However, the Company may generate a profit from this charge. 32 34 of 126 35 FOR ANY DEATH BENEFIT OPTION SELECTED, IF THE ANNUITANT DIES AFTER THE ANNUITIZATION DATE, ANY PAYMENT THAT MAY BE PAYABLE WILL BE DETERMINED ACCORDING TO THE SELECTED ANNUITY PAYMENT OPTION. REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS Upon the death of any Contract Owner or Joint Owner (including an Annuitant who becomes the Contract Owner on the Annuitization Date), certain distributions for Non-Qualified Contracts are required by Section 72(s) of the Code. Notwithstanding any provision of the Contract to the contrary, the following distributions will be made in accordance with such requirements: 1. If any Contract Owner dies on or after the Annuitization Date and before the entire interest under the Contract has been distributed, then the remaining interest will be distributed at least as rapidly as under the method of distribution in effect as of the date of the Contract Owner's death. 2. If any Contract Owner dies prior to the Annuitization Date, then the entire interest in the Contract (consisting of either the Death Benefit or the Contract Value reduced by certain charges as set forth elsewhere in the Contract) will be distributed within 5 years of the death of the Contract Owner, provided however: (a) any interest payable to or for the benefit of a natural person (referred to herein as a "designated beneficiary"), may be distributed over the life of the designated beneficiary or over a period not extending beyond the life expectancy of the designated beneficiary. Payments must begin within one year of the date of the Contract Owner's death unless otherwise permitted by federal income tax regulations; and (b) if the designated beneficiary is the surviving spouse of the deceased Contract Owner, the spouse may elect to become the Contract Owner in lieu of receiving a Death Benefit, and any distributions required under these distribution rules will be made upon the death of the spouse. In the event that this Contract is owned by a person that is not a natural person (e.g., a trust or corporation), then, for purposes of these distribution provisions: (a) the death of the Annuitant will be treated as the death of any Contract Owner; (b) any change of the Annuitant will be treated as the death of any Contract Owner; and (c) in either case the appropriate distribution required under these distribution rules will be made upon the death or change, as the case may be. The Annuitant is the primary annuitant as defined in Section 72(s)(6)(B) of the Code. These distribution provisions will not be applicable to any Contract that is not required to be subject to the provisions of 72(s) of the Code by reason of Section 72(s)(5) or any other law or rule. Upon the death of a Contract Owner, the designated beneficiary must elect a method of distribution which complies with the above distribution provisions and which is acceptable to the Company. Such election must be received by the Company within 60 days of the Contract Owner's death. REQUIRED DISTRIBUTIONS FOR TAX SHELTERED ANNUITIES Amounts in a Tax Sheltered Annuity Contract will be distributed in a manner consistent with the Minimum Distribution and Incidental Benefit (MDIB) provisions of Section 401(a)(9) of the Code and applicable regulations. Amounts will be paid, notwithstanding anything else contained herein, to the Annuitant under the Annuity Payments Option selected, over a period not exceeding: (a) the life of the Annuitant or the joint lives of the Annuitant and the Annuitant's designated beneficiary under the selected Annuity Payment Option; or (b) a period not extending beyond the life expectancy of the Annuitant or the joint life expectancies of the Annuitant and the Annuitant's designated beneficiary under the selected annuity Payment Option. No Distributions will be required from this Contract if Distributions otherwise required from this Contract are being withdrawn from another Tax Sheltered Annuity Contract of the Annuitant. 33 35 of 126 36 If the Annuitant's entire interest in a Tax Sheltered Annuity is to be distributed in equal or substantially equal payments over a period described in (a) or (b) above, such payments will commence on the required beginning date, which is the later of: (a) the first day of April following the calendar year in which the Annuitant attains age 70-1/2; or (b) when the Annuitant retires. However, provision (b) does not apply to any employee who is a 5% Owner (as defined in Section 416 of the Code) with respect to the plan year ending in the calendar year in which the employee attains the age of 70-1/2. If the Annuitant dies prior to the commencement of his or her Distribution, the interest in the Tax Sheltered Annuity must be distributed by December 31 of the calendar year in which the fifth anniversary of his or her death occurs unless: (a) the Annuitant names his or her surviving spouse as the Beneficiary and the spouse elects to receive Distribution of the Contract in substantially equal payments over his or her life (or a period not exceeding his or her life expectancy) and commencing not later than December 31 of the year in which the Annuitant would have attained age 70-1/2; or (b) the Annuitant names a Beneficiary other than his or her surviving spouse and the Beneficiary elects to receive a Distribution of the Contract in substantially equal payments over his or her life (or a period not exceeding his or her life expectancy) commencing not later than December 31 of the year following the year in which the Annuitant dies. If the Annuitant dies after Distribution has commenced, the Distribution must continue at least as rapidly as under the schedule being used prior to his or her death. Payments commencing on the required beginning date will not be less than the lesser of the quotient obtained by dividing the entire interest of the Annuitant by the life expectancy of the Annuitant, or the joint life expectancies of the Annuitant and the Annuitant's designated beneficiary (if the Annuitant dies prior to the required beginning date) or the Beneficiary under the selected Annuity Payment Option (if the Annuitant dies after the required beginning date) whichever is applicable under the applicable minimum distribution or MDIB provisions. Life expectancy and joint life expectancies are computed by the use of return multiples contained in Section 1.72-9 of the Treasury Regulations. If amounts distributed to the Annuitant are less than those mentioned above, a penalty tax of 50% is levied on the excess of the amount that should have been distributed for that year over the amount that actually was distributed for that year. REQUIRED DISTRIBUTIONS FOR IRAS Distributions from an IRA must begin no later than April 1 of the calendar year following the calendar year in which the Contract Owner attains age 70-1/2. Distribution may be payable in a lump sum or in substantially equal payments over: (a) the Contract Owner's life or the lives of the Contract Owner and his or her spouse or designated beneficiary; or (b) a period not extending beyond the life expectancy of the Contract Owner or the joint life expectancy of the Contract Owner and the Contract Owner's designated beneficiary. If the Contract Owner dies prior to the commencement of his or her Distribution, the interest in the IRA must be distributed by December 31 of the calendar year in which the fifth anniversary of his or her death occurs, unless: (a) The Contract Owner names his or her surviving spouse as the Beneficiary and such spouse elects to: (i) treat the annuity as an IRA established for his or her benefit; or (ii) receive Distribution of the Contract in substantially equal payments over his or her life (or a period not exceeding his or her life expectancy) and commencing not later than December 31 of the year in which the Contract Owner would have attained age 70-1/2; or 34 36 of 126 37 (b) The Contract Owner names a Beneficiary other than his or her surviving spouse and such Beneficiary elects to receive a Distribution of the Contract in substantially equal payments over his or her life (or a period not exceeding his or her life expectancy) commencing not later than December 31 of the year following the year in which the Contract Owner dies. No Distribution will be required from this Contract if Distributions otherwise required from this Contract are being withdrawn from another Individual Retirement Annuity or IRA of the Contract Owner. If the Contract Owner dies after Distribution has commenced, Distribution must continue at least as rapidly as under the schedule being used prior to his or her death, except that a surviving spouse who is the beneficiary under the Annuity Payment Option, may treat the Contract as his or her own, in the same manner as is described in section (a)(i) of this provision. If the amounts distributed to the Contract Owner are less than those mentioned above, a penalty tax of 50% is levied on the excess of the amount that should have been distributed for that year over the amount that actually was distributed for that year. A pro-rata portion of all Distributions will be included in the gross income of the person receiving the Distribution and taxed at ordinary income tax rates. The portion of the Distribution which is taxable is based on the ratio between the amount by which non-deductible Purchase Payments exceed prior non-taxable Distributions and total account balances at the time of the Distribution. The owner of an IRA must annually report the amount of non-deductible Purchase Payments, the amount of any Distribution, the amount by which non-deductible Purchase Payments for all years exceed non-taxable Distributions for all years, and the total balance of all IRAs. IRA Distributions will not receive the benefit of the tax treatment of a lump sum Distribution from a Qualified Plan. If the Contract Owner dies prior to the time Distribution of his or her interest in the annuity is completed, the balance will also be included in his or her gross estate. REQUIRED DISTRIBUTIONS FOR ROTH IRAS Distributions from a Roth IRA, unlike other IRAs, are not required to commence during the lifetime of the Contract Owner. Upon the death of the Contract Owner, the Contract Owner's interest in the Roth IRA must be distributed by December 31 of the calendar year in which the fifth anniversary of his or her death occurs, unless: (a) The Contract Owner names his or her surviving spouse as the Beneficiary and such spouse elects to: (i) treat the annuity as a Roth IRA established for his or her benefit; or (ii) receive Distribution of the account in substantially payments over his or her life (or a period not exceeding his or her life expectancy) and commencing not later than December 31 of the year following the year in which the Contract Owner would have attained age 70-1/2; or (b) The Contract Owner names a Beneficiary other than his or her surviving spouse and such Beneficiary elects to receive a Distribution of the Contract in substantially equal payments over his or her life (or a period not exceeding his or her life expectancy) commencing not later than December 31 of the following year in which the Contract Owner dies. Distributions from Roth IRAs may be either taxable or nontaxable, depending upon whether they are "qualified distributions" or "nonqualified distributions" (see "Federal Income Taxes"). 35 37 of 126 38 FEDERAL TAX CONSIDERATIONS FEDERAL INCOME TAXES The Company does not make any guarantee regarding the tax status for any Contract or any transaction involving the Contracts. Contract Owners should consult a financial consultant, legal counsel or tax advisor to discuss in detail the taxation and the use of the Contracts. Section 72 of the Code governs federal income taxation of annuities in general. That section sets forth different rules for: (1) IRAs; (2) Roth IRAs; (3) SEP IRAs; (4) Simple IRAs; (5) Tax Sheltered Annuities; and (6) Non-Qualified Contracts. Each type of annuity is discussed below. Distributions to participants from Tax Sheltered Annuities are generally taxed when received. A portion of each Distribution is excludable from income based on a formula required by the Code. The formula required by the Code excludes from income an amount equal to the investment in the Contract divided by the number of anticipated payments, as determined pursuant to Section 72(d) of the Code, until the full investment in the Contract is recovered; thereafter, all Distributions are fully taxable. Distributions from IRAs and Contracts owned by Individual Retirement Accounts are generally taxed when received. The portion of each such payment which is excludable is based on the ratio between the amount by which nondeductible Purchase Payments to all the Contracts exceeds prior non-taxable Distributions from such Contracts, and the total account balances in such Contracts at the time of the Distribution. The owner of such IRAs or the Annuitant under Contracts held by Individual Retirement Accounts must annually report to the IRS the amount of nondeductible Purchase Payments, the amount of any Distribution, the amount by which nondeductible Purchase Payments for all years exceed non-taxable Distributions for all years, and the total balance in all IRAs and Individual Retirement Accounts. Distributions of earnings from Roth IRAs are taxable or nontaxable, depending upon whether they are "qualified distributions" or "nonqualified distributions." A "qualified distribution" is one that satisfies the five year rule and meets one of the following four requirements: (i) it is made on or after the date on which the Contract Owner attains the age of 59-1/2; (ii) it is made to a Beneficiary (or the Contract Owner's estate) on or after the death of the Contract Owner; (iii) it is attributable to the Contract Owner's Disability; or (iv) it is a qualified first-time homebuyer distribution (as defined in Section 72(t)(2)(F) of the Code). If the Roth IRA does not have any qualified rollover contributions from a retirement plan other than a Roth IRA (or income allocable thereto), the five year rule is satisfied if the Distribution is not made within the five year period beginning with the first contribution to the Roth IRA. If the Roth IRA has any qualified rollover contributions from a retirement plan other than a Roth IRA (or income allocable thereto), the five year rule is satisfied if the Distribution is not made within the five taxable year period commencing with the taxable year in which the qualified rollover contribution was made. A nonqualified distribution is any Distribution that is not a qualified distribution. A qualified distribution is not included in gross income for federal income tax purposes. A nonqualified distribution is not includible in gross income to the extent that such Distribution, when added to all previous Distributions, does not exceed that aggregate amount of contributions made to the Roth IRA. Any nonqualified distribution in excess of the aggregate amount of contributions will be included in the Contract Owner's gross income in the year that is distributed to the Contract Owner. Taxable Distributions will not receive the benefit of the tax treatment of a lump sum Distribution from a Qualified Plan. If the Contract Owner dies prior to the complete Distribution of the Contract, the balance will also be included in the Contract Owner's gross estate for tax purposes. A change of the Annuitant or Contingent Annuitant may be treated by the IRS as a taxable transaction. PUERTO RICO Under the Puerto Rico tax code, Distributions from a Non-Qualified Contract prior to Annuitization are treated as nontaxable return of principal until the principal is fully recovered; thereafter, all Distributions are fully taxable. Distributions after Annuitization are treated as part taxable income and part nontaxable return of principal. The amount excluded from gross income after Annuitization is equal to the amount of the Distribution in excess of 3% of the total Purchase Payments paid, until an amount equal to the total Purchase Payments paid has been excluded; thereafter, the entire Distribution is included in gross income. Puerto Rico does not impose an early 36 38 of 126 39 withdrawal penalty tax. Generally, Puerto Rico does not require income tax to be withheld from Distributions of income. A personal adviser should be consulted. NON-QUALIFIED CONTRACTS - NATURAL PERSONS AS CONTRACT OWNERS The rules applicable to Non-Qualified Contracts provide that a portion of each annuity payment received is excludable from taxable income based on the ratio between the Contract Owner's investment in the Contract and the expected return on the Contract until the investment has been recovered; thereafter the entire amount is includible in income. The maximum amount excludable from income is the investment in the Contract. If the Annuitant dies prior to excluding from income the entire investment in the Contract, the Annuitant's final tax return may reflect a deduction for the balance of the investment in the Contract. Distributions made from the Contract prior to the Annuitization Date are taxable to the Contract Owner to the extent that the cash value of the Contract exceeds the Contract Owner's investment at the time of the Distribution. Distributions, for this purpose, include partial surrenders, dividends, loans, or any portion of the Contract which is assigned or pledged; or for Contracts issued after April 22, 1987, any portion of the Contract transferred by gift. For these purposes, a transfer by gift may occur upon Annuitization if the Contract Owner and the Annuitant are not the same individual. In determining the taxable amount of a Distribution, all annuity contracts issued after October 21, 1988 by the same company to the same contract owner during any 12 month period will be treated as one annuity contract. Additional limitations on the use of multiple contracts may be imposed by Treasury Regulations. Distributions prior to the Annuitization Date with respect to that portion of the Contract invested prior to August 14, 1982, are treated first as a recovery of the investment in the Contract as of that date. A Distribution in excess of the amount of the investment in the Contract as of August 14, 1982, will be treated as taxable income. The Tax Reform Act of 1986 has changed the tax treatment of certain Non-Qualified Contracts held by entities other than individuals. Such entities are taxed currently on the earnings on the Contract which are attributable to contributions made to the Contract after February 28, 1986. There are exceptions for immediate annuities and certain Contracts owned for the benefit of an individual. An immediate annuity, for purposes of this discussion, is a single premium Contract on which payments begin within one year of purchase. If this Contract is issued as the result of an exchange described in Section 1035 of the Code, for purposes of determining whether the Contract is an immediate annuity, it will generally be considered to have been purchased on the purchase date of the contract given up in the exchange. Code Section 72 also provides for a penalty tax, equal to 10% of the portion of any Distribution that is includible in gross income, if such Distribution is made prior to attaining age 59-1/2. The penalty tax does not apply if the Distribution is attributable to the Contract Owner's death, Disability or one of a series of substantially equal periodic payments made over the life or life expectancy of the Contract Owner (or the joint lives or joint life expectancies of the Contract Owner and the beneficiary selected by the Contract Owner to receive payment under the Annuity Payment Option selected by the Contract Owner) or for the purchase of an immediate annuity, or is allocable to an investment in the Contract before August 14, 1982. A Contract Owner wishing to begin taking Distributions to which the 10% tax penalty does not apply should forward a written request to the Company. Upon receipt of a written request from the Contract Owner, the Company will inform the Contract Owner of the procedures pursuant to Company policy and subject to limitations of the Contract including but not limited to first year withdrawals. Such election shall be irrevocable and may not be amended or changed. In order to qualify as an annuity contract under Section 72 of the Code, the contract must provide for Distribution of the entire contract to be made upon the death of a Contract Owner. If a Contract Owner dies prior to the Annuitization Date, then the Joint Owner, the Contingent Owner or other named recipient must receive the Distribution within 5 years of the Contract Owner's death. However, the recipient may elect for payments to be made over his or her life or life expectancy provided that such payments begin within one year from the death of the Contract Owner. If the Joint Owner, Contingent Owner or other named recipient is the surviving spouse, the spouse may be treated as the Contract Owner and the Contract may be continued throughout the life of the surviving spouse. In the event the Contract Owner dies on or after the Annuitization Date and before the entire interest has been distributed, the remaining portion must be distributed at least as rapidly as under the method of Distribution being used on the date of the Contract Owner's death (see "Required Distribution For Qualified Plans and Tax Sheltered Annuities"). If the Contract Owner is not a natural person, the death of the Annuitant (or a 37 39 of 126 40 change in the Annuitant) will result in a Distribution pursuant to these rules, regardless of whether a Contingent Annuitant is named. The Code requires that any election to receive an annuity in lieu of a lump sum payment must be made within 60 days after the lump sum becomes payable (generally, the election must be made within 60 days after the death of an Owner or the Annuitant). If the election is made more than 60 days after the lump sum first becomes payable, the election will be ignored for tax purposes, and the entire amount of the lump sum will be subject to immediate tax. If the election is made within the 60 day period, each Distribution will be taxable when it is paid. NON-QUALIFIED CONTRACTS - NON-NATURAL PERSONS AS CONTRACT OWNERS The foregoing discussion of the taxation of Non-Qualified Contracts applies to Contracts owned (or, pursuant to Section 72(u) of the Code, deemed to be owned) by individuals. As a general rule, contracts owned by corporations, partnerships, trusts, and similar entities ("non-natural persons"), rather than by one or more individuals, are not treated as annuity contracts for most purposes under the Code; in particular, they are not treated as annuity contracts for purposes of Section 72. Therefore, the taxation rules for Distributions, as described above, do not apply to Non-Qualified Contracts owned by non-natural persons. Rather the income earned under a Non-Qualified Contract that is owned by a non-natural person is taxed as ordinary income during the taxable year that it is earned, and is not deferred, even if the income is not distributed out of the Contract to the Contract Owner. The foregoing non-natural person rule does not apply to all entity-owned contracts. A Contract that is owned by a non-natural person as an agent for an individual is treated as owned by the individual. This exception does not apply, however, to a non-natural person who is an employer that holds the Contract under a non-qualified deferred compensation arrangement for one or more employees. The non-natural person rules also do not apply to a Contract that is: (a) acquired by the estate of a decedent by reason of the death of the decedent; (b) issued in connection with certain qualified retirement plans and individual retirement plans; (c) used in connection with certain structured settlements; (d) purchased by an employer upon the termination of certain qualified retirement plans; or (e) an immediate annuity. IRAS AND TAX SHELTERED ANNUITIES Contract Owners seeking information regarding eligibility, limitations on permissible amounts of Purchase Payments, and the tax consequences of distributions from IRAs and Tax Sheltered Annuities should seek competent advice; the terms of such plans may limit the rights available under the Contracts. Pursuant to Section 403(b)(1)(E) Code, a Contract that is issued as a Tax-Sheltered Annuity is required to limit the amount of the Purchase Payment for any year to an amount that does not exceed the limit set forth in Section 402(g) of the Code, as it is from time to time increased to reflect increases in the cost of living. This limit may be reduced by any deposits, contributions or payments made to any other Tax-Sheltered Annuity or other plan, contract or arrangement by or on behalf of the Contract Owner. The Code permits the rollover of most Distributions from Qualified Plans to IRAs. Most Distributions from Tax-Sheltered Annuities may be rolled into another Tax-Sheltered Annuity, IRAs, or an Individual Retirement Account. Distributions that may not be rolled over are those which are: (a) one of a series of substantially equal annual (or more frequent) payments made: (i) over the life (or life expectancy) of the Contract Owner; (ii) over the joint lives (or joint life expectancies) of the Contract Owner and the Contract Owner's designated Beneficiary; or (iii) for a specified period of ten years or more; or (b) a required minimum distribution. 38 40 of 126 41 Any Distribution eligible for rollover will be subject to federal tax withholding at a rate of twenty percent (20%) unless the Distribution is transferred directly to an appropriate plan as described above. Individual Retirement Accounts and IRAs may not provide life insurance benefits. If the Death Benefit exceeds the greater of the cash value of the Contract or the sum of all Purchase Payments (less any surrenders), it is possible the IRS could determine that the Individual Retirement Account or IRA did not qualify for the desired tax treatment. ROTH IRAS The Contract may be purchased as a Roth IRA. The Contract Owner should seek competent advice as to the tax consequences associated with the use of a Contract as a Roth IRA, for information regarding eligibility to invest in a Roth IRA, for limitations on permissible amounts of Purchase Payments that may be made to a Roth IRA, and as to the tax consequences of Distributions from Roth IRAs. The Code permits the rollover of most Distributions from Individual Retirement Accounts or IRAs to Roth IRAs. The rollovers are subject to federal income tax as Distributions from the Individual Retirement Account or IRA. For rollovers that take place in 1998, the income from rollover is included in income ratably over the four year period commencing in 1998. For rollovers in subsequent years, the entire amount of income from the rollover will be required to be included in income in the year of the rollover Distribution from the Individual Retirement Account or IRA. A Distribution from a Roth IRA that received the proceeds of a rollover from an Individual Retirement Account or IRA within the previous five years could be subject to a 10% penalty even if the Distribution is not taxable. In addition, if the rollover from the Individual Retirement Account or IRA was made in 1998 and the income from that rollover was included in income ratably over a four year period, a Distribution from the Roth IRA within four years of the rollover may be subject to an additional 10% penalty. WITHHOLDING The Company is required to withhold tax from certain Distributions to the extent that such Distribution would constitute income to the Contract Owner or other payee. The Contract Owner or other payee is entitled to elect not to have federal income tax withheld from certain types of Distributions, but may be subject to penalties in the event insufficient federal income tax is withheld during a calendar year. However, if the IRS notifies the Company that the Contract Owner or other payee has furnished an incorrect taxpayer identification number, or if the Contract Owner or other payee fails to provide a taxpayer identification number, the Distributions may be subject to back-up withholding at the statutory rate which is presently 31% and which cannot be waived by the Contract Owner or other payee. NON-RESIDENT ALIENS Distributions to nonresident aliens (NRAs) are generally subject to federal income tax and tax withholding at a statutory rate of thirty percent (30%) of the amount of income that is distributed. The Company may be required to withhold such amount from the Distribution and remit it to the IRS. Distributions to certain NRAs may be subject to lower, or in certain instances, zero tax and withholding rates, if the United States has entered into an applicable treaty. However, in order to obtain the benefits of such treaty provisions, the NRA must give to the Company sufficient proof of his or her residency and citizenship in the form and manner prescribed by the IRS. For Distributions the NRA must obtain an Individual Taxpayer Identification Number from the IRS, and furnish that number to the Company prior to the Distribution. If the Company does not have the proper proof of citizenship or residency and a proper Individual Taxpayer Identification Number prior to any Distribution, the Company will be required to withhold 30% of the income, regardless of any treaty provision. A payment may not be subject to withholding where the recipient sufficiently establishes to the Company that such payment is effectively connected to the recipient's conduct of a trade or business in the United States and that such payment is includable in the recipient's gross income for United States federal income tax purposes. Any such Distributions will be subject to the rules set forth in the section entitled "Withholding." FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES A transfer of the Contract from one Contract Owner to another, or the payment of a Distribution under the Contract to someone other than a Contract Owner, may constitute a gift for federal gift tax purposes. Upon the 39 41 of 126 42 death of the Contract Owner, the value of the Contract may be included in his or her gross estate for federal estate tax purposes, even if all or a portion of the value is also subject to federal income taxes. The Company may be required to determine whether the Death Benefit or any other payment or Distribution constitutes a "direct skip" as defined in Section 2612 of the Code, and the amount of the generation skipping transfer tax, if any, resulting from such direct skip. A direct skip may occur when property is transferred to, or a Death Benefit or other Distribution is made to: (a) an individual who is two or more generations younger than the Contract Owner; or (b) certain trusts, as described in Section 2613 of the Code (generally, trusts that have no beneficiaries who are not 2 or more generations younger than the Contract Owner). If the Contract Owner is not an individual, then for this purpose only, "Contract Owner" refers to any person who would be required to include the Contract, Death Benefit, Distribution, or other payment in his or her federal gross estate at his or her death, or who is required to report the transfer of the Contract, Death Benefit, Distribution, or other payment for federal gift tax purposes. If the Company determines that a generation-skipping transfer tax is required to be paid by reason of a direct skip, the Company is required by Section 2603 of the Code to reduce the amount of such Death Benefit, Distribution, or other payment by such tax liability, and pay the tax liability directly to the IRS. Federal estate, gift and generation-skipping transfer tax consequences, and state and local estate, inheritance, succession, generation skipping transfer, and other tax consequences of owning or transferring a Contract, and of receiving a Distribution, Death Benefit, or other payment, depend on the circumstances of the person owning or transferring the Contract, or person receiving a Distribution, Death Benefit, or other payment. CHARGE FOR TAX The Company is no longer required to maintain a capital gain reserve liability on Non-Qualified Contracts since capital gains attributable to assets held in Sub-Accounts for such Contracts are not taxable to the Company. However, the Company reserves the right to implement and adjust the tax charge in the future if the tax laws change. DIVERSIFICATION The IRS has promulgated regulations under Section 817(h) of the Code relating to diversification standards for the investments underlying a variable annuity contract. The regulations provide that a variable annuity contract which does not satisfy the diversification standards will not be treated as an annuity contract, unless the failure to satisfy the regulations was inadvertent, the failure is corrected, and the Contract Owner or the Company pays an amount to the IRS. The amount will be based on the tax that would have been paid by the Contract Owner if the income, for the period the contract was not diversified, had been received by the Contract Owner. If the failure to diversify is not corrected in this manner, the Contract Owner will be deemed the owner of the underlying securities and will be taxed on the earnings of his or her account. The Company believes, under its interpretation of the Code and regulations thereunder, that the investments underlying this Contract meet these diversification standards. Representatives of the IRS have suggested, from time to time, that the number of Underlying Mutual Funds available or the number of transfer opportunities available under a variable product may be relevant in determining whether the product qualifies for the desired tax treatment. No formal guidance has been issued in this area. Should the Secretary of the Treasury issue additional rules or regulations limiting the number of Underlying Mutual Funds, transfers between Underlying Mutual Funds, exchanges of Underlying Mutual Funds or changes in investment objectives of Underlying Mutual Funds such that the Contract would no longer qualify as an annuity under Section 72 of the Code, the Company will take whatever steps are available to remain in compliance. TAX CHANGES The Code has been subjected to numerous amendments and changes and it is reasonable to believe that it will continue to be revised. The United States Congress has considered numerous legislative proposals that, if enacted, could change the tax treatment of the Contracts. It is reasonable to believe that such proposals, may 40 42 of 126 43 be enacted into law. In addition, the Treasury Department may amend existing regulations, issue new regulations, or adopt new interpretations of existing law that may be in variance with its current positions on these matters. In addition, state law (which is not discussed herein) may affect the tax consequences of the Contract. The foregoing discussion, which is based on the Company's understanding of federal tax laws as they are currently interpreted by the IRS, is general and is not intended as tax advice. Statutes, regulations, and rulings are subject to interpretation by the courts. The courts may determine that a different interpretation than the currently favored interpretation is appropriate, thereby changing the operation of the rules that are applicable to annuity contracts. Any of the foregoing may change from time to time without any notice, and the tax consequences arising out of a Contract may be changed retroactively. There is no way of predicting whether, when, and to what extent any such change may take place. No representation is made as to the likelihood of the continuation of these current laws, interpretations and policies. THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO ANNUITY CONTRACTS. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR. GENERAL INFORMATION CONTRACT OWNER INQUIRIES Contract Owner inquiries may be directed to the Company by writing P.O. Box 16609, Columbus, Ohio 43216-6609, or calling 1-800-848-6331, TDD 1-800-238-3035. STATEMENTS AND REPORTS The Company will mail to Contract Owners, at their last known address, any statements and reports required by law. Contract Owners should promptly notify the Company of any address change. Statements are mailed detailing the Contracts quarterly activity. The Company will also send a confirmation statement to Contract Owners each time a transaction is made affecting the Contract Value. However, instead of receiving an immediate confirmation of transactions made pursuant to some types of recurring payment plans (such as a dollar cost averaging program or salary reduction arrangement), the Contract Owner may receive confirmation of such transactions in their quarterly statements. The Contract Owner should review the information in these statements carefully. All errors or corrections must be reported to the Company immediately to assure proper crediting to the Contract. The Company will assume all transactions are accurately reported on quarterly statements or confirmation statements unless the Contract Owner notifies the Home Office within 30 days after receipt of the statement. The Company will also send to Contract Owners a semi-annual report as of June 30 and an annual report as of December 31, containing financial statements for the Variable Account. ADVERTISING A "yield" and "effective yield" may be advertised for the NSAT-Money Market Fund. "Yield" is a measure of the net dividend and interest income earned over a specific seven-day period (which period will be stated in the advertisement) expressed as a percentage of the offering price of the NSAT-Money Market Fund's units. Yield is an annualized figure, which means that it is assumed that the NSAT-Money Market Fund generates the same level of net income over a 52-week period. The "effective yield" is calculated similarly but includes the effect of assumed compounding, calculated under rules prescribed by the SEC. The effective yield will be slightly higher than yield due to this compounding effect. The Company may also from time to time advertise the performance of a Sub-Account relative to the performance of other variable annuity sub-accounts or underlying mutual fund options with similar or different objectives, or the investment industry as a whole. Other investments to which the Sub-Accounts may be compared include, but are not limited to: precious metals; real estate; stocks and bonds; closed-end funds; CDs; bank money market deposit accounts and passbook savings; and the Consumer Price Index. The Sub-Accounts may also be compared to certain market indexes, which may include, but are not limited to: S&P 500; Shearson/Lehman Intermediate Government/Corporate Bond Index; Shearson/Lehman Long-Term 41 43 of 126 44 Government/Corporate Bond Index; Donoghue Money Fund Average; U.S. Treasury Note Index; Bank Rate Monitor National Index of 2-1/2 Year CD Rates; and Dow Jones Industrial Average. Normally these rankings and ratings are published by independent tracking services and publications of general interest including, but not limited to: Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's, magazines such as Money, Forbes, Kiplinger's Personal Finance Magazine, Financial World, Consumer Reports, Business Week, Time, Newsweek, National Underwriter, U.S. News and World Report; rating services such as LIMRA, Value, Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports; and other publications such as the Wall Street Journal, Barron's, Investor's Daily, and Standard & Poor's Outlook. In addition, Variable Annuity Research & Data Service (The VARDS Report) is an independent rating service that ranks over 500 variable annuity funds based upon total return performance. These rating services and publications rank the performance of the Underlying Mutual Fund options against all underlying mutual funds over specified periods and against underlying mutual funds in specified categories. The rankings may or may not include the effects of sales charges or other fees. The Company is also ranked and rated by independent financial rating services, among which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of these ratings is to reflect the financial strength or claims-paying ability of the Company. The ratings are not intended to reflect the investment experience or financial strength of the Variable Account. The Company may advertise these ratings from time to time. In addition, the Company may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend the Company or the Contracts. Furthermore, the Company may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. The Company may, from time to time, advertise several types of historical performance of the Sub-Accounts. The Company may advertise for the Sub-Account's standardized "average annual total return," calculated in a manner prescribed by the SEC, and nonstandardized "total return." "Average annual total return" illustrates the percentage rate of return of a hypothetical initial investment of $1,000 for the most recent one, five and ten year periods, or for a period covering the time the Underlying Mutual Fund has been available in the Variable Account if the Underlying Mutual Fund option has not been available for the prescribed periods. THIS CALCULATION REFLECTS THE DEDUCTION OF ALL CHARGES WHICH COULD BE MADE TO THE CONTRACTS, IF ALL AVAILABLE OPTIONS WERE CHOSEN, EXCEPT FOR THE PROCESSING FEE AND PREMIUM TAXES, WHICH MAY BE IMPOSED BY CERTAIN STATES. Nonstandardized "total return," calculated similar to standardized "average annual total return," illustrates the percentage rate of return of a hypothetical initial investment of $10,000 for the most recent one, five and ten year periods, or for a period covering the time the Underlying Mutual Fund option has been in existence. For those Underlying Mutual Fund options which have not been held as Sub-Accounts for one of the prescribed periods, the nonstandardized total return illustrations will show the investment performance such Underlying Mutual Fund options would have achieved (reduced by the same charges except the CDSC) had such Underlying Mutual Fund options been available in the Variable Account for the periods quoted. THE CDSC IS NOT REFLECTED BECAUSE THE CONTRACTS ARE DESIGNED FOR LONG TERM INVESTMENT. THE CDSC, IF REFLECTED, WOULD DECREASE THE LEVEL OF PERFORMANCE SHOWN. AN INITIAL INVESTMENT OF $10,000 IS ASSUMED BECAUSE THAT AMOUNT MORE CLOSELY APPROXIMATES THE SIZE OF A TYPICAL CONTRACT THAN DOES THE $1,000 ASSUMPTION USED IN CALCULATING THE STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. The quotations and other comparative material advertised by the Company are based upon historical earnings and are not intended to represent or guarantee future results. Contract Value at redemption may be more or less than the original cost. YEAR 2000 COMPLIANCE ISSUES The Company has developed a plan to address issues related to the Year 2000. The problem relates to many existing computer programs using only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. The Company has 42 44 of 126 45 been evaluating its exposure to the Year 2000 issue through a review of all of its operating systems as well as dependencies on the systems of others since 1996. The Company expects all system changes and replacements needed to achieve Year 2000 compliance to be completed by the end of 1998. Compliance testing will be completed in the first quarter of 1999. The Company charges all costs associated with these system changes as the costs are incurred. Operating expenses in 1997 include approximately $45 million on technology projects, which includes costs related to Year 2000 and the development of a new policy administration system for traditional life insurance products and other system enhancements. The Company anticipates spending a comparable amount in 1998 on technology projects, including Year 2000 initiatives. These expenses do not have an effect on the assets of the Variable Account and are not charged through to the Contract Owner. LEGAL PROCEEDINGS The Company is a party to litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on the Company. The General Distributor, Nationwide Advisory Services, Inc. is not engaged in any litigation of any material nature. In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits, relating to life insurance pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements. In February 1997, Nationwide Life Insurance Company was named as a defendant in a lawsuit filed in New York Supreme Court related to the sale of whole life policies on a "vanishing premium" basis (John H. Snyder v. Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks to represent a national class of Nationwide Life policyholders and claims unspecified compensatory and punitive damages. This lawsuit has not been certified as a class action. In April 1997, a motion to dismiss the Snyder complaint in its entirety was filed by the defendants, and the plaintiff has opposed such motion. In April 1998, Nationwide Life Insurance Company was named as a defendant in a lawsuit filed in Ohio State Court similar to the Snyder lawsuit (David Mishler v. Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks to represent a similar class, makes similar allegations and seeks unspecified compensatory and punitive damages. In November 1997, two plaintiffs, one who was the owner of a variable life insurance contract and the other who was the owner of a variable annuity contract, commenced an action against Nationwide Life Insurance Company and the American Century group of defendants (Robert Young and David D. Distad v. Nationwide Life Insurance Company et al.). In this action, plaintiffs seek to represent a class of variable life insurance contract owners and variable annuity contract owners whom they claim were allegedly misled when purchasing these variable contracts into believing that the performance of their sub-account mutual fund 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 Court denied, in part, and granted, in part, motions to dismiss the complaint filed by Nationwide Life Insurance Company and American Century. This lawsuit is in an early stage and has not been certified as a class action. Nationwide Life Insurance Company intends to defend this case vigorously. There can be no assurance that any litigation relating to pricing and sales practices will not have a material adverse effect on the Company in the future. TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION PAGE General Information and History...............................................1 Services......................................................................1 Purchase of Securities Being Offered..........................................1 Underwriters..................................................................2 Calculations of Performance...................................................2 Annuity Payments..............................................................3 Financial Statements..........................................................4 43 45 of 126 46 APPENDIX A FIXED ACCOUNT the general account of the Company, which support insurance and annuity obligations. Because of exemptive and exclusionary provisions, interests in the general account have not been registered under the "1933 Act" nor is the general account registered as an investment company under the "1940 Act." Accordingly, neither the general account nor any interest therein are subject to the provisions of the 1933 or 1940 Acts, and we have been advised that the staff of the SEC has not reviewed the disclosures in this prospectus which relate to the Fixed Account. Disclosures regarding the Fixed Account and the general account may be subject to certain provisions of the federal securities law relating to the accuracy and completeness of statements made in prospectuses. FIXED ACCOUNT ALLOCATIONS THE FIXED ACCOUNT The Fixed Account is made up of all the general assets of the Company, other than those in the Variable Account and any other segregated asset account. Purchase Payments will be allocated to the Fixed Account by election of the Contract Owner. The Company will invest the assets of the Fixed Account in those assets chosen by the Company and allowed by applicable law. Investment income from such assets will be allocated by the Company between itself and the Contracts participating in the Fixed Account. Investment income from the Fixed Account includes compensation for mortality and expense risks borne by the Company in connection with Fixed Account Contracts. The amount of such investment income allocated to the contracts will vary from at the sole discretion of the Company at such rate(s) as the Company prospectively declares. The guaranteed rate for any Purchase Payment will remain in effect for a period not less than twelve months. However, the Company guarantees that it will credit interest at not less than 3.0% per year. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3.0% PER YEAR WILL BE DETERMINED AT THE SOLE DISCRETION OF THE COMPANY. THE CONTRACT OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 3.0% FOR ANY GIVEN YEAR. New Purchase Payments deposited to the Contract which are allocated to the Fixed Account may receive a different rate of interest than money transferred from the Sub-Accounts to the Fixed Account and amounts maturing in the Fixed Account at the expiration of an Interest Rate Guarantee Period. The Company guarantees that the Fixed Account Contract Value will not be less than the amount of the Purchase Payments allocated to the Fixed Account, plus interest credited as described above, less any applicable charges including CDSC. TRANSFERS For transfers from the Fixed Account to the Variable Account, refer to the "Transfers" provision of the prospectus. 44 46 of 126 47 APPENDIX B OBJECTIVES FOR PARTICIPATING UNDERLYING MUTUAL FUNDS THE UNDERLYING MUTUAL FUNDS LISTED BELOW ARE DESIGNED PRIMARILY AS INVESTMENT VEHICLES FOR VARIABLE ANNUITY CONTRACTS AND VARIABLE LIFE INSURANCE POLICIES ISSUED BY INSURANCE COMPANIES. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE ACHIEVED. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS. American Century Variable Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a diversified, open-end investment management company which offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. American Century Variable Portfolios, Inc. is managed by American Century Investment Management, Inc. -AMERICAN CENTURY VP INCOME & GROWTH Investment Objective: Dividend growth, current income and capital appreciation. The Fund seeks to achieve its investment objective by investing in common stocks. The investment manager constructs the portfolio to match the risk characteristics of the S&P 500 Stock Index and then optimizes each portfolio to achieve the desired balance of risk and return potential. This includes targeting a dividend yield that exceeds that of the S&P 500. Such a management technique known as "portfolio optimization" may cause the Fund to be more heavily invested in some industries than in others. However, the Fund may not invest more than 25% of its total assets in companies whose principal business activities are in the same industry. -AMERICAN CENTURY VP INTERNATIONAL Investment Objective: To seek capital growth. The Fund will seek to achieve its investment objective by investing primarily in securities of foreign companies that meet certain fundamental and technical standards of selection and, in the opinion of the investment manager, have potential for appreciation. Under normal conditions, the Fund will invest at least 65% of its assets in common stocks or other equity securities of issuers from at least three countries outside the United States. While securities of United States issuers may be included in the portfolio from time to time, it is the primary intent of the manager to diversify investments across a broad range of foreign issuers. Although the primary investment of the Fund will be common stocks (defined to include depository receipts for common stock and other equity equivalents), the Fund may also invest in other types of securities consistent with the Fund's objective. When the manager believes that the total capital growth potential of other securities equals or exceeds the potential return of common stocks, the Fund may invest up to 35% of its assets in such other securities. There can be no assurance that the Fund will achieve its objectives. -AMERICAN CENTURY VP VALUE Investment Objective: The investment objective of the Fund is long-term capital growth; income is a secondary objective. The equity securities in which the Fund will invest will be primarily securities of well-established companies with intermediate-to-large market capitalizations that are believed by management to be undervalued at the time of purchase. Under normal market conditions, the Fund expects to invest at least 80% of the value of its total asset in equity securities, including common and preferred stock, convertible preferred stock and convertible debt obligations. DREYFUS STOCK INDEX FUND, INC. The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified, management investment company incorporated under Maryland law on January 24, 1989 and commenced operations on September 29, 1989. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as the Fund's manager, while Mellon Equity Associates, an affiliate of Dreyfus, serves as the Fund's index manager. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation. 45 47 of 126 48 Investment Objective: To provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation. DREYFUS VARIABLE INVESTMENT FUND Dreyfus Variable Investment Fund ("Fund") is an open-end, management investment company. It was organized as an unincorporated business trust under the laws of the Commonwealth of Massachusetts on October 29, 1986 and commenced operations on August 31, 1990. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. Dreyfus serves as the Fund's manager. Fayez Sarofim & Company serves as the sub-adviser and provides day-to-day management of the Portfolio. -CAPITAL APPRECIATION PORTFOLIO Investment Objective: The Portfolio's primary investment objective is to provide long-term capital growth consistent with the preservation of capital; current income is a secondary investment objective. This Portfolio invests primarily in the common stocks of domestic and foreign issuers. THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified, management investment company incorporated under Maryland law on July 20, 1992 and commenced operations on October 7, 1993. The Fund offers its share only as investment vehicles for variable annuity and variable life insurance products of insurance companies. Dreyfus serves as the Fund's investment adviser. NCM Capital Management Group, Inc. serves as the Fund's sub-investment adviser and provides day-to-day management of the Fund's portfolio. Investment Objective: Capital growth through equity investment in companies that, in the opinion of the Fund's advisers, not only meet traditional investment standards, but which also show evidence that they conduct their business in a manner that contributes to the enhancement of the quality of life in America. Current income is secondary to the primary goal. FIDELITY VARIABLE INSURANCE PRODUCTS FUND The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. Shares of VIP are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. Fidelity Management & Research Company ("FMR") is the manager for VIP and its portfolios. -VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS Investment Objective: Reasonable income by investing primarily in income-producing equity securities. In choosing these securities FMR also will consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. -VIP GROWTH PORTFOLIO: SERVICE CLASS Investment Objective: Capital appreciation. This Portfolio will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the Portfolio. Many securities which FMR believes would have the greatest potential may be regarded as speculative, and investment in the Portfolio may involve greater risk than is inherent in other underlying mutual funds. It is also important to point out that this Portfolio makes sense for you if you can afford to ride out changes in the stock market because it invests primarily in common stocks. FMR can also make temporary investments in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. 46 48 of 126 49 -VIP HIGH INCOME PORTFOLIO: SERVICE CLASS Investment Objective: High level of current income by investing primarily in high-risk, lower-rated, high-yielding, fixed-income securities, while also considering growth of capital. FMR will seek high current income normally by investing the Portfolio's assets as follows: o at least 65% in income-producing debt securities and preferred stocks, including convertible securities o up to 20% in common stocks and other equity securities when consistent with the Portfolio's primary objective or acquired as part of a unit combining fixed-income and equity securities Higher yields are usually available on securities that are lower-rated or that are unrated. Lower-rated securities are usually defined as Ba or lower by Moody's Investor Service, Inc. ("Moody's"); BB or lower by Standard & Poor's and may be deemed to be of a speculative nature. The Portfolio may also purchase lower-quality bonds such as those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor protection for payment of principal and interest (commonly referred to as "junk bonds"). For a further discussion of lower-rated securities, please see the "Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus. -VIP OVERSEAS PORTFOLIO: SERVICE CLASS Investment Objective: Long-term capital growth primarily through investments in foreign securities. This Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside the United States. FIDELITY VARIABLE INSURANCE PRODUCTS FUND II The Fidelity Variable Insurance Products Fund II (VIP II) is an open-end, diversified, management investment company organized as a Massachusetts business trust on March 21, 1988. VIP II's shares are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. FMR is the manager of VIP II and its portfolios. -VIP II CONTRAFUND PORTFOLIO: SERVICE CLASS Investment Objective: To seek capital appreciation by investing primarily in companies that FMR believes to be undervalued due to an overly pessimistic appraisal by the public. This strategy can lead to investments in domestic or foreign companies, small and large, many of which may not be well known. The Portfolio primarily invests in common stock and securities convertible into common stock, but it has the flexibility to invest in any type of security that may produce capital appreciation. FIDELITY VARIABLE INSURANCE PRODUCTS FUND III The Fidelity Variable Insurance Products Fund III (VIP III) is an open-end, diversified, management investment company organized as a Massachusetts business trust on July 14, 1994. VIP III's shares are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. FMR is the manager of VIP III and it's portfolios. -VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS Investment Objective: Capital growth by investing primarily in common stocks and securities convertible into common stocks. The Portfolio, under normal conditions, will invest at least 65% of its total assets in securities of companies that FMR believes have long-term growth potential. Although the Portfolio invests primarily in common stock and securities convertible into common stock, it has the ability to purchase other securities, such as preferred stock and bonds, that may produce capital growth. The Portfolio may invest in foreign securities without limitation. MORGAN STANLEY UNIVERSAL FUNDS, INC. Morgan Stanley Universal Funds, Inc. is a mutual fund designed to provide investment vehicles for variable annuity contracts and variable life insurance policies and for certain tax-qualified investors. Its Emerging Markets Debt Portfolio is managed by Morgan Stanley Asset Management, Inc. 47 49 of 126 50 -EMERGING MARKETS DEBT PORTFOLIO Investment Objective: High total return by investing primarily in dollar and non-dollar denominated fixed income securities of government and government-related issuers located in emerging market countries, which securities provide a high level of current income, while at the same time holding the potential for capital appreciation if the perceived creditworthiness of the issuer improves due to improving economic, financial, political, social or other conditions in the country in which the issuer is located. NATIONWIDE SEPARATE ACCOUNT TRUST Nationwide Separate Account Trust ("NSAT") is a diversified open-end management investment company created under the laws of Massachusetts. NSAT offers shares in the mutual funds listed below, each with its own investment objectives. Shares of NSAT will be sold primarily to separate accounts to fund the benefits under variable life insurance policies and variable annuity contracts issued by life insurance companies. The assets of NSAT are managed by Nationwide Advisory Services, Inc. ("NAS"), a wholly-owned subsidiary of Nationwide Life Insurance Company. -CAPITAL APPRECIATION FUND Investment Objective: Long-term growth by primarily investing in a diversified portfolio of the common stock of companies which NAS determines have a better-than-average potential for sustained capital growth over the long term. -GOVERNMENT BOND FUND Investment Objective: As high a level of income as is consistent with the preservation of capital by investing in a diversified portfolio of securities issued or backed by the U.S. Government, its agencies or instrumentalities. -MONEY MARKET FUND Investment Objective: As high a level of current income as is considered consistent with the preservation of capital and liquidity by investing primarily in money market instruments. -TOTAL RETURN FUND Investment Objective: Capital growth by investing in common stocks of companies that NAS believes will have above-average earnings or otherwise provide investors with above-average potential for capital appreciation. To maximize this potential, NAS may also utilize from time to time, securities convertible into common stock, warrants and options to purchase such stocks. SUBADVISED NATIONWIDE FUNDS -NATIONWIDE BALANCED FUND Subadviser: Salomon Brothers Asset Management, Inc. Investment Objective: Primarily seeks above-average income compared to a portfolio entirely invested in equity securities. The Fund's secondary objective is to take advantage of opportunities for growth of capital and income. The Fund seeks its objective primarily through investments in a broad variety of securities, including equity securities, fixed-income securities and short term obligations. Under normal market conditions, it is anticipated that the Fund will invest at least 40% of the Fund's total assets in equity securities and at least 25% in fixed-income senior securities. The Fund's subadviser, Salomon Brothers Asset Management, Inc., will have discretion to invest in the full range of maturities of fixed-income securities. Generally, most of the Fund's long-term debt investments will consist of "investment grade" securities, but the Fund may invest up to 20% of its net assets in non-convertible fixed-income securities rated below investment grade or determined by the subadviser to be of comparable quality. These securities are commonly known as junk bonds. In addition, the Fund may invest an unlimited amount in convertible securities rated below investment grade. 48 50 of 126 51 -NATIONWIDE EQUITY INCOME FUND Subadviser: Federated Investment Counseling Investment Objective: Seeks above average income and capital appreciation by investing at least 65% of its assets in income-producing equity securities. Such equity securities include common stocks, preferred stocks, and securities (including debt securities) that are convertible into common stocks. The portion of the Fund's total assets invested in each type of equity security will vary according to the Fund's subadviser's assessment of market, economic conditions and outlook. -NATIONWIDE GLOBAL EQUITY FUND Subadviser: J. P. Morgan Investment Management Inc. Investment Objective: To provide high total return from a globally diversified portfolio of equity securities. Total return will consist of income plus realized and unrealized capital gains and losses. The Fund seeks its investment objective through country allocation, stock selection and management of currency exposure. Under normal market conditions, J.P. Morgan Investment Management Inc., intends to keep the Fund essentially fully invested with at least 65% of the value of its total assets in equity securities consisting of common stocks and other securities with equity characteristics such as preferred stocks, warrants, rights, convertible securities, trust certificates, limited partnership interests and equity participations. The Fund's primary equity instruments are the common stock of companies based in the developed countries around the world. The assets of the Fund will ordinarily be invested in the securities of at least five different countries. -NATIONWIDE HIGH INCOME BOND FUND Subadviser: Federated Investment Counseling Investment Objective: Seeks to provide high current income by investing primarily in a professionally managed, diversified portfolio of fixed income securities. To meet its objective, the Fund intends to invest at least 65% of its assets in lower-rated fixed income securities such as preferred stocks, bonds, debentures, notes, equipment lease certificates and equipment trust certificates which are rated BBB or lower by Standard & Poor's or Fitch Investors Service or Baa or lower by Moody's (or if not rated, are determined by the Fund's subadviser to be of a comparable quality). Such investments are commonly referred to as "junk bonds." For a further discussion of lower-rated securities, please see the "High Yield Securities" section of the Fund's prospectus. -NATIONWIDE MULTI SECTOR BOND FUND Subadviser: Salomon Brothers Asset Management, Inc. with Salomon Brothers Asset Management Limited Investment Objective: Primarily seeks a high level of current income. Capital appreciation is a secondary objective. The Fund seeks to achieve its objectives by investing in a globally diverse portfolio of fixed-income investments and by giving the subadviser, Salomon Brothers Asset Management, Inc. broad discretion to deploy the Fund's assets among certain segments of the fixed-income market that the subadviser believes will best contribute to achievement of the Fund's investment objectives. The Fund reserves the right to invest predominantly in securities rated in medium or lower categories, or as determined by the subadviser to be of comparable quality, commonly referred to as "junk bonds." Although the subadviser has the ability to invest up to 100% of the Fund's assets in lower-rated securities, the subadviser does not anticipate investing in excess of 75% of the Fund's assets in such securities. The Subadviser has entered into a subadvisory agreement with its London based affiliate, Salomon Brothers Asset Management Limited, pursuant to which the subadviser has delegated to Salomon Brothers Asset Management Limited responsibility for management of the Fund's investments in non-dollar denominated debt securities and currency transactions. 49 51 of 126 52 -NATIONWIDE SELECT ADVISERS MID CAP FUND Subadvisers: First Pacific Advisors, Inc., Pilgrim Baxter & Associates, Ltd., and Rice, Hall, James & Associates Investment Objective: Capital appreciation by investing primarily in equity securities of medium-sized companies (market capitalization between $500 million and $7 billion). Under normal market conditions, the Fund will invest in equity securities consisting of common stock, preferred stock and securities convertible into common stocks, including convertible preferred stock and convertible bonds. NAS has chosen the Fund's subadvisers because they utilize a number of different investment styles. In utilizing these different styles, NAS hopes to increase prospects for investment return and to reduce market risk and volatility. -NATIONWIDE SMALL CAP VALUE FUND Subadviser: The Dreyfus Corporation Investment Objective: Capital appreciation through investment in a diversified portfolio of equity securities of companies with a median market capitalization of approximately $1 billion. Under normal market conditions, at least 75% of the Fund's total assets will be invested in equity securities of companies with market capitalizations at the time of purchase of between $200 million and $2.5 billion. The Fund will invest in equity securities of domestic and foreign issuers characterized as "value" companies according to criteria established by The Dreyfus Corporation, the Fund's subadviser. -NATIONWIDE SMALL COMPANY FUND Subadvisers: The Dreyfus Corporation, Neuberger & Berman, L.P., Pictet International Management Limited with Van Eck Associates Corporation, Strong Capital Management, Inc. and Warburg Pincus Asset Management, Inc. Investment Objective: Long-term growth of capital by investing primarily in equity securities of domestic and foreign companies with market capitalizations of less than $1 billion at the time of purchase. The subadvisers were chosen because they utilize a number of different investment styles when investing in small company stocks. By utilizing different investment styles, NAS hopes to increase prospects for investment return and to reduce market risk and volatility. -NATIONWIDE STRATEGIC GROWTH FUND Subadviser: Strong Capital Management Inc. Investment Objective: Capital growth by investing primarily in equity securities that the Fund's subadviser believes have above-average growth prospects. The Fund will generally invest in companies whose earnings are believed to be in a relatively strong growth trend, and to a lesser extent, in companies in which significant further growth is not anticipated but whose market value is thought to be undervalued. Under normal market conditions, the Fund will invest at least 65% of its total assets in equity securities, including common stocks, preferred stocks, and securities convertible into common or preferred stocks, such as warrants and convertible bonds. The Fund may invest up to 35% of its total assets in debt obligations, including intermediate- to long-term corporate or U.S. Government debt securities. -NATIONWIDE STRATEGIC VALUE FUND Subadviser: Strong Capital Management Inc./Schafer Capital Management Inc. Investment Objective: Primarily long-term capital appreciation; current income is a secondary objective. The Fund seeks to meet its objectives by investing in securities which are believed to offer the possibility of increase in value, primarily common stocks of established companies having a strong financial position and a low stock market valuation at the time of purchase in relation to investment value. Other than considered appropriate for cash reserves, the Fund will generally maintain a fully invested position in common stocks of publicly held companies, primarily in stocks of companies listed on a national securities exchange or other equity securities (common stock or securities convertible into common stock). Investments may also be made in debt securities which are convertible into common stocks and in warrants or other rights to purchase common stock, which in such case are considered equity securities 50 52 of 126 53 by the Fund. Strong Capital Management, Inc. has subcontracted with Schafer Capital Management, Inc. to subadvise the Fund. NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST Neuberger & Berman Advisers Management Trust ("N&B AMT") is an open-end, diversified management investment company consisting of several series. Shares of the series of N&B AMT are offered in connection with certain variable annuity contracts and variable life insurance policies issued through life insurance company separate accounts and are also offered directly to qualified pension and retirement plans outside of the separate account context. The Guardian, Partners and Mid-Cap Growth Portfolios of N&B AMT invest all of their investable assets in a corresponding series of Advisers Managers Trust managed by Neuberger & Berman Management Incorporated ("N&B Management"). Each series then invests in securities in accordance with an investment objective, policies and limitations identical to those of the Portfolio. This "master/feeder fund" structure is different from that of many other investment companies which directly acquire and manage their own portfolios of securities. (For more information regarding "master/feeder fund" structure, see "Special Information Regarding Organization, Capitalization, and Other Matters" in the underlying mutual fund prospectus.) The investment advisor is N&B Management. -AMT GUARDIAN PORTFOLIO Investment Objective: Capital appreciation and secondarily, current income. The Portfolio and its corresponding series seek to achieve these objectives by investing in common stocks of long-established, high-quality companies. N&B Management uses a value-oriented investment approach in selecting securities, looking for low price-to-earnings ratios, strong balance sheets, solid management, and consistent earnings. -AMT MID-CAP GROWTH PORTFOLIO Investment Objective: Capital appreciation by investing in equity securities of medium-sized companies that N&B Management believes have the potential for long-term, above-average capital appreciation. Medium-sized companies have market capitalizations form $300 million to $10 billion at the time of investment. The Portfolio and its corresponding series may invest up to 10% of its net assets, measured at the time of investment, in corporate debt securities that are below investment grade or, if unrated, deemed by N&B Management to be of comparable quality. Securities that are below investment grade, as well as unrated securities, are often considered to be speculative and usually entail greater risk. As a part of the Portfolio's investment strategy, the Portfolio may invest up to 20% of its net assets in securities of issuers organized and doing business principally outside the United States. This limitation does not apply with respect to foreign securities that are denominated in U.S. dollars. -AMT PARTNERS PORTFOLIO Investment Objective: Capital growth by investing primarily in the common stock of established companies. Its investment program seeks securities believed to be undervalued based on fundamentals such as low price-to-earnings ratios, consistent cash flows, and the company's track record through all parts of the market cycle. OPPENHEIMER VARIABLE ACCOUNT FUNDS The Oppenheimer Variable Account Funds are an open-end, diversified management investment company organized as a Massachusetts business trust in 1984. Shares of the Funds are sold to provide benefits under variable life insurance policies and variable annuity contracts. OppenheimerFunds, Inc. is the investment adviser. -OPPENHEIMER AGGRESSIVE GROWTH FUND (FORMERLY "OPPENHEIMER CAPITAL APPRECIATION FUND") Investment Objective: Capital appreciation by investing in "growth type" companies. Such companies are believed to have relatively favorable long-term prospects for increasing demand for their goods or services, or to be developing new products, services or markets and normally retain a relatively larger portion of their earnings for research, development and investment in capital assets. The Fund may also 51 53 of 126 54 invest in cyclical industries in "special situations" that OppenheimerFunds, Inc. believes present opportunities for capital growth. -OPPENHEIMER GROWTH FUND Investment Objective: Capital appreciation by investing in securities of well-known established companies. Such securities generally have a history of earnings and dividends and are issued by seasoned companies (companies which have an operating history of at least five years including predecessors). Current income is a secondary consideration in the selection of the Fund's portfolio securities. -OPPENHEIMER GROWTH & INCOME FUND Investment Objective: High total return, which stocks, preferred stocks, convertible securities and warrants. Debt investments will include bonds, participation includes growth in the value of its shares as well as current income from quality and debt securities. In seeking its investment objectives, the Fund may invest in equity and debt securities. Equity investments will include common interests, asset-backed securities, private-label mortgage-backed securities and CMOs, zero coupon securities and U.S. debt obligations, and cash and cash equivalents. From time to time, the Fund may focus on small to medium capitalization issuers, the securities of which may be subject to greater price volatility than those of larger capitalized issuers. VAN ECK WORLDWIDE INSURANCE TRUST Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management investment company organized as a business trust under the laws of the Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are offered only to separate accounts of insurance companies to fund the benefits of variable life insurance policies and variable annuity contracts. The investment advisor and manager is Van Eck Associates Corporation. -WORLDWIDE EMERGING MARKETS FUND Investment Objective: Seeks long-term capital appreciation by investing primarily in equity securities in emerging markets around the world. The Fund emphasizes investment in countries that, compared to the world's major economies, exhibit relatively low gross national product per capita, as well as the potential for rapid economic growth. -WORLDWIDE HARD ASSETS FUND Investment Objective: Long-term capital appreciation by investing primarily in "Hard Asset Securities." For the Fund's purpose, "Hard Assets" are real estate, energy, timber, and industrial and precious metals. Income is a secondary consideration. VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST Van Kampen American Capital Life Investment Trust is an open-end diversified management investment company organized as a Delaware business trust. Shares are offered in separate portfolios which are sold only to insurance companies to provide funding for variable life insurance policies and variable annuity contracts. Van Kampen American Capital Asset Management, Inc. serves as the Fund's investment adviser. - MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO Investment Objective: Long-term capital growth by investing principally in a diversified portfolio of securities of companies operating in the real estate industry ("Real Estate Securities"). Current income is a secondary consideration. Real Estate Securities include equity securities, including common stocks and convertible securities, as well as non-convertible preferred stocks and debt securities of real estate industry companies. A "real estate industry company" is a company that derives at least 50% of its assets (marked to market), gross income or net profits from the ownership, construction, management or sale of residential, commercial or industrial real estate. Under normal market conditions, at least 65% of the Fund's total assets will be invested in Real Estate Securities, primarily equity securities of real estate investment trusts. The Portfolio may invest up to 25% of its total assets in securities issued by foreign issuers, some or all of which may also be Real Estate Securities. 52 54 of 126 55 WARBURG PINCUS TRUST The Warburg Pincus Trust is an open-end management investment company organized in March 1995 as a business trust under the laws of The Commonwealth of Massachusetts. The Trust offers its shares to insurance companies for allocation to separate accounts for the purpose of funding variable annuity and variable life contracts. Portfolios are managed by Warburg Pincus Asset Management, Inc. ("Warburg"). -GROWTH & INCOME PORTFOLIO Investment Objective: Long-term growth of capital and income by investing primarily in dividend-paying equity securities. Under normal market conditions, the Portfolio will invest substantially all of its asset in equity securities that Warburg considers to be relatively undervalued based upon research and analysis, taking into account factors such as price/book ratio, price/cash flow ratio, earnings growth, debt/capital ratio and multiples of earnings of comparable securities. Although the Portfolio may hold securities of any size, it currently expects to focus on companies with market capitalizations of $1 billion or greater at the time of initial purchase. -INTERNATIONAL EQUITY PORTFOLIO Investment Objective: Long-term capital appreciation by investing primarily in a broadly diversified portfolio of equity securities of companies, wherever organized, that in the judgment of Warburg have their principal business activities and interests outside the United States. The Portfolio will ordinarily invest substantially all of its assets, but no less than 65% of its total assets, in common stocks, warrants and securities convertible into or exchangeable for common stocks. The Portfolio intends to invest principally in the securities of financially strong companies with opportunities for growth within growing international economies and markets through increased earning power and improved utilization or recognition of assets. -POST-VENTURE CAPITAL PORTFOLIO Investment Objective: Long-term growth of capital by investing primarily in equity securities of issuers in their post-venture capital stage of development and pursues an aggressive investment strategy. Under normal market conditions, the Portfolio will invest at least 65% of its total assets in equity securities of "post-venture capital companies." A post-venture capital company is one that has received venture capital financing either: (a) during the early stages of the company's existence or the early stages of the development of a new product or service; or (b) as part of a restructuring or recapitalization of the company. The Portfolio may invest up to 10% of its assets in venture capital and other investment funds. 53 55 of 126 56 STATEMENT OF ADDITIONAL INFORMATION ________ __, 1998 MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-9 This Statement of Additional Information is not a prospectus. It contains information in addition to and more detailed than set forth in the prospectus and should be read in conjunction with the prospectus dated __________ __, 1998. The prospectus may be obtained from Nationwide Life Insurance Company by writing P.O. Box 16609, Columbus, Ohio 43216-6609, or calling 1-800-848-6331, TDD 1-800-238-3035. TABLE OF CONTENTS PAGE General Information and History................................................1 Services.......................................................................1 Purchase of Securities Being Offered...........................................1 Underwriters...................................................................2 Calculations of Performance....................................................2 Annuity Payments...............................................................3 Financial Statements...........................................................4 GENERAL INFORMATION AND HISTORY The Nationwide Variable Account-9 is a separate investment account of Nationwide Life Insurance Company ("Company"). The Company is a member of the Nationwide Insurance Enterprise. All of the Company's common stock is owned by Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two classes of common stock outstanding with different voting rights enabling Nationwide Corporation (the holder of all of the outstanding Class B Common Stock) to control NFS. Nationwide Corporation is a holding company, as well. All of its common stock is held by Nationwide Mutual Insurance Company (95.3%) and Nationwide Mutual Fire Insurance Company (4.7%), the ultimate controlling persons of Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise is one of America's largest insurance and financial services family of companies, with combined assets of over $83.2 billion as of December 31, 1997. SERVICES The Company, which has responsibility for administration of the Contracts and the Variable Account, maintains records of the name, address, taxpayer identification number, and other pertinent information for each Contract Owner and the number and type of Contract issued to each such Contract Owner and records with respect to the Contract Value of each Contract. The Custodian of the assets of the Variable Account is the Company. The Company will maintain a record of all purchases and redemptions of shares of the Underlying Mutual Funds. The Company, or affiliates of the Company may have entered into agreements with either the investment adviser or distributor for several of the Underlying Mutual Funds. The agreements relate to administrative services furnished by the Company or an affiliate of the Company and provide for an annual fee based on the average aggregate net assets of the Variable Account (and other separate accounts of the Company or life insurance company subsidiaries of the Company) invested in particular Underlying Mutual Funds. These fees in no way affect the net asset value of the Underlying Mutual Funds or fees paid by the Contract Owner. The audited financial statements have been included herein in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, Two Nationwide Plaza, Columbus, Ohio 43215, and upon the authority of said firm as experts in accounting and auditing. PURCHASE OF SECURITIES BEING OFFERED The Contracts will be sold by licensed insurance agents in the states where the Contracts may be lawfully sold. Such agents will be registered representatives of broker-dealers registered under the Securities Exchange Act of 1934 who are members of the National Association of Securities Dealers, Inc. ("NASD"). 1 56 of 126 57 When a Contract described in the prospectus is exchanged for another contract issued by the Company or any of its affiliated insurance companies of the type and class which the Company determines is eligible for such an exchange, the Company may waive any remaining Contingent Deferred Sales Charges on the first Contract. A Contingent Deferred Sales Charge may apply to the contract received in the exchange. UNDERWRITERS The Contracts, which are offered continuously, are distributed by Nationwide Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio 43216, a wholly owned subsidiary of the Company. During the fiscal years ended December 31, 1997, 1996 and 1995, no underwriting commissions were paid by the Company to NAS. CALCULATIONS OF PERFORMANCE Any current yield quotations of the NSAT-Money Market Fund, subject to Rule 482 of the Securities Act of 1933, will consist of a seven calendar day historical yield, carried at least to the nearest hundredth of a percent. The yield will be calculated by determining the net change, exclusive of capital changes, in the value of hypothetical pre-existing account having a balance of one accumulation unit at the beginning of the base period, subtracting a hypothetical charge reflecting deductions from Contract Owner accounts, and dividing the net change in account value by the value of the account at the beginning of the period to obtain a base period return, and multiplying the base period return by (365/7) or (366/7) in a leap year. The NSAT-Money Market Fund's effective yield is computed similarly, but includes the effect of assumed compounding on an annualized basis of the current unit value yield quotations of the NSAT-Money Market Fund. The NSAT-Money Market Fund's yield and effective yield will fluctuate daily. Actual yields will depend on factors such as the type of instruments in the Fund's portfolio, portfolio quality and average maturity, changes in interest rates, and the Fund's expenses. Although the NSAT-Money Market Fund determines its yield on the basis of a seven day period, it may use a different time period on occasion. The yield quotes may reflect the expense limitation described "Investment Manager and Other Services" in the NSAT-Money Market Fund's Statement of Additional Information. There is no assurance that the yields quoted on any given occasion will remain in effect for any period of time and there is no guarantee that the Net Asset Values will remain constant. It should be noted that a Contract Owner's investment in the NSAT-Money Market Fund is not guaranteed or insured. Yield of other money market funds may not be comparable if a different base period or another method of calculation is used. All performance advertising will include quotations of standardized average annual total return, calculated in accordance with a standard method prescribed by rules of the SEC. Standardized average annual total return is found by taking a hypothetical $1,000 investment in each of the Sub-Accounts' units on the first day of the period at the offering price, which is the Accumulation Unit Value per unit ("initial investment") and computing the ending redeemable value ("redeemable value") of that investment at the end of the period. The redeemable value is then divided by the initial investment and this quotient is taken to the Nth root (N represents the number of years in the period) and 1 is subtracted from the result which is then expressed as a percentage, carried to at least the nearest hundredth of a percent. Standardized average annual total return reflects the deduction of a 1.10% Annual Variable Account Charge and all charges which could be assessed if all available Contract Options were chosen by the Contract Owner at the time of application. No deduction is made for the Loan Processing Fee and premium taxes which may be assessed by certain states. Nonstandardized total return may also be advertised, and is calculated in a manner similar to standardized average annual total return except the nonstandardized total return is based on a hypothetical initial investment of $10,000. An assumed initial investment of $10,000 will be used because that figure more closely approximates the size of a typical Contract than does the $1,000 figure used in calculating the standardized average annual total return quotations. The standardized average annual total return and nonstandardized average annual total return quotations will be current to the last day of the calendar quarter preceding the date on which an advertisement is submitted for publication. The standardized average annual return will be based on rolling calendar quarters and will cover periods of one, five, and ten years, or a period covering the time the Underlying Mutual Fund has been available in the Variable Account if the Underlying Mutual Fund has not been available for one of the prescribed periods. Nonstandardized average annual total return will based on rolling calendar quarters and will cover periods of one, five and ten years, or a period covering the time the Underlying Mutual Fund has been in existence. 2 57 of 126 58 Quotations of average annual total return and total return are based upon historical earnings and will fluctuate. Any quotation of performance, is not a guarantee of future performance. Factors affecting a Sub-Account's performance include general market conditions, operating expenses and investment management. A Contract Owner's account when redeemed may be more or less than original cost. ANNUITY PAYMENTS See "Frequency and Amount of Annuity Payments" located in the prospectus . 3 58 of 126 59 1 Independent Auditors' Report The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide Variable Account-9: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide Variable Account-9 as of December 31, 1997, and the related statement of operations and changes in contract owners' equity for the period November 3, 1997 (commencement of operations) through December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1997, by correspondence with the transfer agents of the underlying mutual funds. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Variable Account-9 as of December 31, 1997, and the results of its operations and its changes in contract owners' equity for the period November 3, 1997 (commencement of operations) through December 31, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Columbus, Ohio February 6, 1998 2 NATIONWIDE VARIABLE ACCOUNT-9 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 1997 ASSETS: Investments at market value: American Century VP - American Century VP Income & Growth (ACVPIncGr) 84,893 shares (cost $450,578) ................................................ $ 457,574 American Century VP - American Century VP International (ACVPInt) 80,394 shares (cost $542,059) ................................................ 549,894 American Century VP - American Century VP Value (ACVPValue) 196,160 shares (cost $1,338,005) ............................................. 1,359,390 The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) 34,310 shares (cost $860,435) ................................................ 856,728 Dreyfus Stock Index Fund (DryStkIx) 237,689 shares (cost $6,131,037) ............................................. 6,120,488 Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) 33,406 shares (cost $933,581) ................................................ 932,024 Fidelity VIP - Equity-Income Portfolio - Service Class (FidVIPEI) 219,066 shares (cost $5,236,886) ............................................. 5,316,739 Fidelity VIP - Growth Portfolio - Service Class (FidVIPGr) 54,069 shares (cost $1,982,184) .............................................. 2,005,421 Fidelity VIP - High Income Portfolio - Service Class (FidVIPHI) 214,286 shares (cost $2,891,778) ............................................. 2,907,867 Fidelity VIP - Overseas Portfolio - Service Class (FidVIPOv) 47,969 shares (cost $915,194) ................................................ 921,008 Fidelity VIP-II - Contrafund Portfolio - Service Class (FidVIPCon) 186,227 shares (cost $3,654,849) ............................................. 3,711,501 Fidelity VIP-III - Growth Opportunities Portfolio - Service Class (FidVIPGrOp) 133,797 shares (cost $2,533,275) ............................................. 2,578,274 Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt) 20,291 shares (cost $198,057) ................................................ 196,210 Nationwide SAT - Balanced Fund (NSATBal) 88,368 shares (cost $887,470) ................................................ 892,518 Nationwide SAT - Capital Appreciation Fund (NSATCapAp) 125,479 shares (cost $2,670,893) ............................................. 2,661,401 Nationwide SAT - Equity Income Fund (NSATEqInc) 58,341 shares (cost $583,644) ................................................ 592,744 Nationwide SAT - Global Equities Fund (NSATGlobEq) 50,842 shares (cost $510,241) ................................................ 513,508 Nationwide SAT - Government Bond Fund (NSATGvtBd) 278,560 shares (cost $3,197,266) ............................................. 3,170,007 Nationwide SAT - High Income Bond Fund (NSATHIncBd) 90,314 shares (cost $915,644) ................................................ 913,981 Nationwide SAT - Money Market Fund (NSATMyMkt) 13,547,449 shares (cost $13,547,449) ......................................... 13,547,449
(Continued) 3 Nationwide SAT - Multi Sector Bond Fund (NSATMSecBd) 103,611 shares (cost $1,041,445) ............................................. 1,041,294 Nationwide SAT - Select Advisers Mid Cap Fund (NSATMidCap) 23,045 shares (cost $223,629) ................................................ 229,068 Nationwide SAT - Small Cap Value Fund (NSATSmCapV) 118,195 shares (cost $1,152,448) ............................................. 1,157,126 Nationwide SAT - Small Company Fund (NSATSmCo) 98,316 shares (cost $1,579,198) .............................................. 1,558,309 Nationwide SAT - Strategic Growth Fund (NSATStrGro) 31,934 shares (cost $317,603) ................................................ 326,042 Nationwide SAT - Strategic Value Fund (NSATStrVal) 47,632 shares (cost $479,420) ................................................ 483,462 Nationwide SAT - Total Return Fund (NSATTotRe) 369,863 shares (cost $6,138,365) ............................................. 6,058,352 Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) 43,903 shares (cost $450,063) ................................................ 461,856 Neuberger & Berman AMT - Mid-Cap Growth Portfolio (NBAMTMCGr) 134,925 shares (cost $1,507,668) ............................................. 1,581,319 Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) 648,620 shares (cost $13,284,917) ............................................ 13,361,565 Oppenheimer VAF - Capital Appreciation Fund (OppCapAp) 17,589 shares (cost $715,409) ................................................ 720,432 Oppenheimer VAF - Growth Fund (OppGro) 29,292 shares (cost $940,476) ................................................ 950,219 Oppenheimer VAF - Growth & Income Fund (OppGrInc) 52,688 shares (cost $1,059,047) .............................................. 1,084,321 Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) 59,776 shares (cost $653,391) ................................................ 657,534 Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) 14,006 shares (cost $216,855) ................................................ 220,174 Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio (MSRESec) 66,892 shares (cost $1,120,342) .............................................. 1,060,238 Warburg Pincus Trust - Growth & Income Portfolio (WPGrInc) 42,112 shares (cost $428,967) ................................................ 435,022 Warburg Pincus Trust - International Equity Portfolio (WPIntEq) 77,526 shares (cost $857,239) ................................................ 813,248 Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) 12,882 shares (cost $140,450) ................................................ 142,473 --------- Total investments ......................................................... 82,546,780 Accounts receivable ................................................................ 3,013 --------- Total assets .............................................................. 82,549,793 ACCOUNTS PAYABLE ...................................................................... 364,121 --------- CONTRACT OWNERS' EQUITY (NOTE 4) $ 82,185,672 =========
See accompanying notes to financial statements. 4 NATIONWIDE VARIABLE ACCOUNT - 9 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997
TOTAL ACVPINCGR ACVPINT ACVPVALUE ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends........................... $ 184,101 -- -- -- Mortality and expense risk charges (note 2).... (44,505) (231) (247) (638) ----------- ----------- ----------- ----------- Net investment activity........................ 139,596 (231) (247) (638) ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold............ 1,928,035 3,255 -- -- Cost of mutual fund shares sold.................. (1,932,025) (3,092) -- -- ----------- ----------- ----------- ----------- Realized gain (loss) on investments............ (3,990) 163 -- -- Change in unrealized gain (loss) on investments.. 259,323 6,996 7,835 21,385 ----------- ----------- ----------- ----------- Net gain (loss) on investments................. 255,333 7,159 7,835 21,385 ----------- ----------- ----------- ----------- Reinvested capital gains......................... 478,503 -- -- -- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations........... 873,432 6,928 7,588 20,747 ----------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners.............................. 81,649,336 389,541 451,373 929,382 Transfers between funds....................... -- 61,740 90,951 410,117 Redemptions................................... (339,129) (635) (18) (856) Contingent deferred sales charges (note 2).... (409) -- -- -- Adjustments to maintain reserves.............. 2,442 5 4 8 ----------- ----------- ----------- ----------- Net equity transactions..................... 81,312,240 450,651 542,310 1,338,651 ----------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY........... 82,185,672 457,579 549,898 1,359,398 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD..... -- -- -- -- ----------- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD........... $82,185,672 457,579 549,898 1,359,398 =========== =========== =========== ===========
DRYSRGRO DRYSTKIX DRYCAPAP FIDVIPEI ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends........................... 2,537 19,230 4,948 -- Mortality and expense risk charges (note 2).... (432) (2,973) (430) (2,576) ----------- ----------- ----------- ----------- Net investment activity........................ 2,105 16,257 4,518 (2,576) ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold............ -- 53,202 -- 72,868 Cost of mutual fund shares sold.................. -- (55,328) -- (74,460) ----------- ----------- ----------- ----------- Realized gain (loss) on investments............ -- (2,126) -- (1,592) Change in unrealized gain (loss) on investments.. (3,707) (10,549) (1,557) 79,853 ----------- ----------- ----------- ----------- Net gain (loss) on investments................. (3,707) (12,675) (1,557) 78,261 ----------- ----------- ----------- ----------- Reinvested capital gains......................... 20,741 83,330 414 -- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners'.. equity resulting from operations........... 19,139 86,912 3,375 75,685 ----------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners.............................. 806,446 5,885,293 894,637 4,978,409 Transfers between funds....................... 32,713 151,175 34,011 268,956 Redemptions................................... (1,570) (3,783) -- (7,395) Contingent deferred sales charges (note 2).... -- -- -- -- Adjustments to maintain reserves.............. (4) 1,038 (1) 1,150 ----------- ----------- ----------- ----------- Net equity transactions..................... 837,585 6,033,723 928,647 5,241,120 ----------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY........... 856,724 6,120,635 932,022 5,316,805 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD..... -- -- -- -- ----------- ----------- ----------- ----------- CONTRACT OWNERS' EQUITY END OF PERIOD........... 856,724 6,120,635 932,022 5,316,805 =========== =========== =========== ===========
See accompanying notes to financial statements. 5 NATIONWIDE VARIABLE ACCOUNT - 9 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997
FIDVIPGR FIDVIPHI FIDVIPOV FIDVIPCON ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends........................... $ - - - - Mortality and expense risk charges (note 2).... (956) (1,568) (438) (2,331) -------------- ----------- -------- ---------- Net investment activity........................ (956) (1,568) (438) (2,331) -------------- ----------- -------- ---------- Proceeds from mutual fund shares sold............ 24,231 - 5,931 - Cost of mutual fund shares sold.................. (24,000) - (5,843) - -------------- ----------- -------- ---------- Realized gain (loss) on investments............ 231 - 88 - Change in unrealized gain (loss) on investments.. 23,237 16,089 5,814 56,652 -------------- ----------- -------- ---------- Net gain (loss) on investments................. 23,468 16,089 5,902 56,652 -------------- ----------- -------- ---------- Reinvested capital gains......................... - - - - -------------- ----------- -------- ---------- Net increase (decrease) in contract owners' equity resulting from operations........... 22,512 14,521 5,464 54,321 -------------- ----------- -------- ---------- EQUITY TRANSACTIONS: Purchase payments received from contract owners.............................. 1,981,907 2,761,595 757,896 3,573,555 Transfers between funds....................... 1,697 132,705 157,648 83,693 Redemptions................................... (577) (954) - (70) Contingent deferred sales charges (note 2).... - - - - Adjustments to maintain reserves.............. (111) (1) (2) 7 -------------- ----------- -------- ---------- Net equity transactions..................... 1,982,916 2,893,345 915,542 3,657,185 -------------- ----------- -------- ---------- NET CHANGE IN CONTRACT OWNERS' EQUITY........... 2,005,428 2,907,866 921,006 3,711,506 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD..... $ - - - - -------------- ----------- -------- ---------- CONTRACT OWNERS' EQUITY END OF PERIOD........... 2,005,428 2,907,866 921,006 3,711,506 ============== =========== ======== ==========
FIDVIPGROP MSEMMKT NSATBAL NSATCAPAP ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends........................... - 3,740 3,951 5,462 Mortality and expense risk charges (note 2).... (1,137) (110) (459) (1,430) ---------- ------ --------- --------- Net investment activity........................ (1,137) 3,630 3,492 4,032 ---------- ------ --------- --------- Proceeds from mutual fund shares sold............ 3 810 - - Cost of mutual fund shares sold.................. (3) (823) - - ---------- ------ --------- --------- Realized gain (loss) on investments............ - - - - Change in unrealized gain (loss) on investments.. 44,999 (1,847) 5,048 (9,492) ---------- ------ --------- --------- Net gain (loss) on investments................. 44,999 (1,860) 5,048 (9,492) ---------- ------ --------- --------- Reinvested capital gains......................... - 1,623 - 52,894 ---------- ------ --------- --------- Net increase (decrease) in contract owners' equity resulting from operations........... 43,862 3,393 8,540 47,434 ---------- ------ --------- --------- EQUITY TRANSACTIONS: Purchase payments received from contract owners.............................. 2,201,875 185,958 818,465 2,528,751 Transfers between funds....................... 332,841 6,858 65,644 88,972 Redemptions................................... (304) - (90) (3,756) Contingent deferred sales charges (note 2).... - - - - Adjustments to maintain reserves.............. (4) (1) (26) 4 ---------- ------ --------- --------- Net equity transactions..................... 2,534,408 192,815 883,993 2,613,971 ---------- ------ --------- --------- NET CHANGE IN CONTRACT OWNERS' EQUITY........... 2,578,270 196,208 892,533 2,661,405 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD..... - - - - ---------- ------- ------- --------- CONTRACT OWNERS' EQUITY END OF PERIOD........... 2,578,270 196,208 892,533 2,661,405 ========== ======= ======== =========
6 NATIONWIDE VARIABLE ACCOUNT - 9 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997
NSATEqInc NSATGlobEq NSATGvtBd NSATHIncBd ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends $ 989 871 46,514 9,587 Mortality and expense risk charges note 2) (411) (326) (1,730) (637) --------- --------- ---------- --------- Net investment activity 578 545 44,784 8,950 --------- --------- ---------- --------- Proceeds from mutual fund shares sold 2 - 24,775 663 Cost of mutual fund shares sold (3) - (24,775) (653) --------- --------- ---------- --------- Realized gain (loss) on investments (1) - - 10 Change in unrealized gain (loss) on investments 9,100 3,267 (27,259) (1,663) --------- --------- ---------- --------- Net gain (loss) on investments 9,099 3,267 (27,259) (1,653) --------- --------- ---------- --------- Reinvested capital gains - - - - --------- --------- ---------- --------- Net increase (decrease) in contract owners' equity resulting from operations 9,677 3,812 17,525 7,297 --------- --------- ---------- --------- EQUITY TRANSACTIONS: Purchase payments received from contract owners 524,315 505,387 3,147,571 762,946 Transfers between funds 58,870 4,389 4,912 144,381 Redemptions (135) - - (643) Contingent deferred sales charges (note 2) - - - - Adjustments to maintain reserves 14 (105) 1 - --------- --------- ---------- --------- Net equity transactions 583,064 509,671 3,152,484 906,684 --------- --------- ---------- --------- NET CHANGE IN CONTRACT OWNERS' EQUITY 592,741 513,483 3,170,009 913,981 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD - - - - CONTRACT OWNERS' EQUITY END OF PERIOD --------- --------- ---------- --------- $ 592,741 513,483 3,170,009 913,981 ========= ========= ========== =========
NSATMyMkt NSATMSecBd NSATMidCap NSATSmCapV ----------- ----------- ----------- ------------- INVESTMENT ACTIVITY: Reinvested dividends 35,527 5,220 535 590 Mortality and expense risk charges note 2) (7,038) (610) (121) (603) ------------ ---------- ---------- ----------- Net investment activity 28,489 4,610 414 (13) ------------ ---------- ---------- ----------- Proceeds from mutual fund shares sold 772,983 3 - - Cost of mutual fund shares sold (772,983) (3) - - ------------ ---------- ---------- ----------- Realized gain (loss) on investments - - - - Change in unrealized gain (loss) on investments - (151) 5,439 4,678 ------------ ---------- ---------- ----------- Net gain (loss) on investments - (151) 5,439 4,678 ------------ ---------- ---------- ----------- Reinvested capital gains - - - 4,611 ------------ ---------- ---------- ----------- Net increase (decrease) in contract owners' equity resulting from operations 28,489 4,459 5,853 9,276 ------------ ---------- ---------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners 16,698,066 862,594 205,427 1,082,589 Transfers between funds (3,252,991) 174,229 20,348 65,401 Redemptions (289,851) - - - Contingent deferred sales charges (note 2) (409) - - - Adjustments to maintain reserves 2,636 14 (7) (112) ------------ ---------- ---------- ----------- Net equity transactions 13,157,451 1,036,837 223,209 1,147,878 ------------ ---------- ---------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY 13,185,940 1,041,296 229,062 1,157,154 Contract owners' equity beginning of period - - - - Contract owners' equity end of period ------------ ---------- ---------- ----------- 13,185,940 1,041,296 229,062 1,157,154 ============ ========== ========== ===========
(Continued) 7 NATIONWIDE VARIABLE ACCOUNT - 9 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997
NSATSmCo NSATStrGro NSATStrVal NSATTotRe ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends $ -- 301 542 15,396 Mortality and expense risk charges (note 2) (936) (150) (222) (3,422) ----------- ----------- ----------- ----------- Net investment activity (936) 151 320 11,974 ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold -- 1 -- -- Cost of mutual fund shares sold -- (1) -- -- ----------- ----------- ----------- ----------- Realized gain (loss) on investments -- -- -- -- Change in unrealized gain (loss) on investments (20,889) 8,439 4,042 (80,013) ----------- ----------- ----------- ----------- Net gain (loss) on investments (20,889) 8,439 4,042 (80,013) ----------- ----------- ----------- ----------- Reinvested capital gains 39,296 -- -- 175,028 ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations 17,471 8,590 4,362 106,989 ----------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners 1,396,707 310,341 364,129 5,708,934 Transfers between funds 144,223 7,111 114,972 247,938 Redemptions (19) -- -- (5,049) Contingent deferred sales charges (note 2) -- -- -- -- Adjustments to maintain reserves (67) -- -- (666) ----------- ----------- ----------- ----------- Net equity transactions 1,540,844 317,452 479,101 5,951,157 ----------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY 1,558,315 326,042 483,463 6,058,146 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD -- -- -- -- CONTRACT OWNERS' EQUITY END OF PERIOD $1,558,315 326,042 483,463 6,058,146 =========== =========== =========== ===========
NBAMTGuard NBAMTMCGr NBAMTPart OppCapAp ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends -- -- -- -- Mortality and expense risk charges (note 2) (322) (702) (7,474) (478) ----------- ----------- ----------- ----------- Net investment activity (322) (702) (7,474) (478) ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold 34 2 9,558 1,574 Cost of mutual fund shares sold (32) (2) (8,600) (1,616) ----------- ----------- ----------- ----------- Realized gain (loss) on investments 2 -- (43) (52) Change in unrealized gain (loss) on investments 11,793 73,651 76,648 5,023 ----------- ----------- ----------- ----------- Net gain (loss) on investments 11,795 73,651 76,605 4,971 ----------- ----------- ----------- ----------- Reinvested capital gains -- -- -- -- ----------- ----------- ----------- ----------- Net increase (decrease) in contract owners' equity resulting from operations 11,473 72,949 69,131 4,493 ----------- ----------- ----------- ----------- EQUITY TRANSACTIONS: Purchase payments received from contract owners 399,649 1,023,027 12,820,732 690,779 Transfers between funds 51,821 488,359 483,875 25,316 Redemptions -- (3,016) (12,173) (192) Contingent deferred sales charges (note 2) -- -- -- -- Adjustments to maintain reserves (876) 3 21 45 ----------- ----------- ----------- ----------- Net equity transactions 450,594 1,508,373 13,292,455 715,948 ----------- ----------- ----------- ----------- NET CHANGE IN CONTRACT OWNERS' EQUITY 462,067 1,581,322 13,361,586 720,441 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD -- -- -- -- CONTRACT OWNERS' EQUITY END OF PERIOD 462,067 1,581,322 13,361,586 720,441 =========== =========== =========== ===========
8 NATIONWIDE VARIABLE ACCOUNT - 9 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997
OPPGRO OPPGRINC VEWRLDMKT VEWRLDHAS ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends $ -- 1,975 -- -- Mortality and expense risk charges (note 2) (469) (674) (590) (111) ---------- ---------- ---------- ---------- Net investment activity (469) 1,301 (590) (111) ---------- ---------- ---------- ---------- Proceeds from mutual fund shares sold -- 8 505,309 -- Cost of mutual fund shares sold -- (8) (492,562) -- ---------- ---------- ---------- ---------- Realized gain (loss) on investments -- -- 12,747 -- Change in unrealized gain (loss) on investments 9,743 25,274 4,143 3,319 ---------- ---------- ---------- ---------- Net gain (loss) on investments 9,743 25,274 16,890 3,319 ---------- ---------- ---------- ---------- Reinvested capital gains -- -- -- -- ---------- ---------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations 9,274 26,575 16,300 3,208 ---------- ---------- ---------- ---------- EQUITY TRANSACTIONS: Purchase payments received from contract owners 933,456 953,722 1,193,031 178,412 Transfers between funds 7,668 104,635 (549,841) 38,553 Redemptions (27) (199) (1,956) -- Contingent deferred sales charges (note 2) -- -- -- -- ---------- ---------- ---------- ---------- Adjustments to maintain reserves (138) (358) 2 6 ---------- ---------- ---------- ---------- Net equity transactions 940,959 1,057,800 641,236 216,971 ---------- ---------- ---------- ---------- NET CHANGE IN CONTRACT OWNERS' EQUITY 950,233 1,084,375 657,536 220,179 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD -- -- -- -- $ ---------- ---------- ---------- ---------- CONTRACT OWNERS' EQUITY END OF PERIOD 950,233 1,084,375 657,536 220,179 ========== ========== ========== ==========
MSRESEC WPGRINC WPINTEQ WPPVENCAP ----------- ----------- ----------- ----------- INVESTMENT ACTIVITY: Reinvested dividends 19,701 1,508 4,961 16 Mortality and expense risk charges note 2) (545) (219) (469) (290) ---------- ---------- ---------- ---------- Net investment activity 19,156 1,289 4,492 (274) ---------- ---------- ---------- ---------- Proceeds from mutual fund shares sold -- -- 5,961 447,873 Cost of mutual fund shares sold -- -- (6,534) (460,704) ---------- ---------- ---------- ---------- Realized gain (loss) on investments -- -- (573) (12,831) Change in unrealized gain (loss) on investments (60,104) 6,055 (43,991) 2,023 ---------- ---------- ---------- ---------- Net gain (loss) on investments (60,104) 6,055 (44,564) (10,808) ---------- ---------- ---------- ---------- Reinvested capital gains 66,235 -- 34,331 -- ---------- ---------- ---------- ---------- Net increase (decrease) in contract owners' equity resulting from operations 25,287 7,344 (5,741) (11,082) ---------- ---------- ---------- ---------- EQUITY TRANSACTIONS: Purchase payments received from contract owners 917,137 402,032 838,600 584,670 Transfers between funds 117,890 25,646 (19,613) (427,813) Redemptions -- -- -- (3,302) Contingent deferred sales charges (note 2) -- -- -- -- ---------- ---------- ---------- ---------- Adjustments to maintain reserves (46) (2) 11 -- ---------- ---------- ---------- ---------- Net equity transactions 1,034,981 427,676 818,998 153,555 ---------- ---------- ---------- ---------- NET CHANGE IN CONTRACT OWNERS' EQUITY 1,060,268 435,020 813,257 142,473 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD -- -- -- -- ---------- ---------- ---------- ---------- CONTRACT OWNERS' EQUITY END OF PERIOD 1,060,268 435,020 813,257 142,473 ========== ========== ========== ==========
See accompanying notes to financial statements. 9 NATIONWIDE VARIABLE ACCOUNT-9 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Nature of Operations The Nationwide Variable Account-9 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on May 22, 1997. The Account has been registered as a unit investment trust under the Investment Company Act of 1940. The Company offers tax qualified and non-tax qualified Modified Single Premium Deferred Variable Annuity Contracts through the Account. The primary distribution for the contracts is through the brokerage community; however, other distributors are utilized. (b) The Contracts Only contracts without a front-end sales charge, but with a contingent deferred sales charge and certain other fees are offered for purchase. See note 2 for a discussion of contract expenses. With certain exceptions, contract owners in either the accumulation or the payout phase may invest in the following: Portfolios of the American Century Variable Portfolios, Inc. (American Century VP); American Century VP - American Century VP Income & Growth (ACVPIncGr) American Century VP - American Century VP International (ACVPInt) American Century VP - American Century VP Value (ACVPValue) The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) Dreyfus Stock Index Fund (DryStkIx) Portfolio of the Dreyfus Variable Investment Fund (Dreyfus VIF); Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP); Fidelity VIP - Equity-Income Portfolio - Service Class (FidVIPEI) Fidelity VIP - Growth Portfolio - Service Class (FidVIPGr) Fidelity VIP - High Income Portfolio - Service Class (FidVIPHI) Fidelity VIP - Overseas Portfolio - Service Class (FidVIPOv) Portfolio of the Fidelity Variable Insurance Products Fund II (Fidelity VIP-II); Fidelity VIP-II - Contrafund Portfolio - Service Class (FidVIPCon) Portfolio of the Fidelity Variable Insurance Products Fund III (Fidelity VIP-III); Fidelity VIP-III - Growth Opportunities Portfolio - Service Class (FidVIPGrOp) Portfolio of the Morgan Stanley Universal Funds, Inc. (Morgan Stanley); Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt) 10 Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed for a fee by an affiliated investment advisor); Nationwide SAT - Balanced Fund (NSATBal) Nationwide SAT - Capital Appreciation Fund (NSATCapAp) Nationwide SAT - Equity Income Fund (NSATEqInc) Nationwide SAT - Global Equity Fund (NSATGlobEq) Nationwide SAT - Government Bond Fund (NSATGvtBd) Nationwide SAT - High Income Bond Fund (NSATHIncBd) Nationwide SAT - Money Market Fund (NSATMyMkt) Nationwide SAT - Multi Sector Bond Fund (NSATMSecBd) Nationwide SAT - Select Advisers Mid Cap Fund (NSATMidCap) Nationwide SAT - Small Cap Value Fund (NSATSmCapV) Nationwide SAT - Small Company Fund (NSATSmCo) Nationwide SAT - Strategic Growth Fund (NSATStrGro) Nationwide SAT - Strategic Value Fund (NSATStrVal) Nationwide SAT - Total Return Fund (NSATTotRe) Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger & Berman AMT); Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) Neuberger & Berman AMT - Mid-Cap Growth Portfolio (NBAMTMCGr) Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) Funds of the Oppenheimer Variable Account Funds (Oppenheimer VAF); Oppenheimer VAF - Capital Appreciation Fund (OppCapAp) Oppenheimer VAF - Growth Fund (OppGro) Oppenheimer VAF - Growth & Income Fund (OppGrInc) Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT); Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) Portfolio of the Van Kampen American Capital Life Investment Trust (Van Kampen American Capital LIT); Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio (MSRESec) Portfolios of the Warburg Pincus Trust; Warburg Pincus Trust - Growth & Income Portfolio (WPGrInc) Warburg Pincus Trust - International Equity Portfolio (WPIntEq) Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) At December 31, 1997, contract owners have invested in all of the above funds. The contract owners' equity is affected by the investment results of each fund, equity transactions by contract owners and certain contract expenses (see note 2). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. (c) Security Valuation, Transactions and Related Investment Income The market value of the underlying mutual funds is based on the closing net asset value per share at December 31, 1997. The cost of investments sold is determined on the specific identification basis. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. (d) Federal Income Taxes Operations of the Account form a part of, and are taxed with, operations of the Company which is taxed as a life insurance company under the Internal Revenue Code. The Company does not provide for income taxes within the Account. Taxes are the responsibility of the contract owner upon termination or withdrawal. 11 (e) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) EXPENSES The Company does not deduct a sales charge from purchase payments received from the contract owners. However, if any part of the contract value of such contracts is surrendered the Company will, with certain exceptions, deduct from a contract owner's contract value a contingent deferred sales charge not to exceed 7% of the lesser of purchase payments or the amount surrendered, such charge declining 1% per year, to 0%, after the purchase payment has been held in the contract for 84 months. No sales charges are deducted on redemptions used to purchase units in the fixed investment options of the Company. The Company deducts a mortality and expense risk charge assessed through the daily unit value calculation equal to an annual rate of 0.95% (Base). Optional long term care facility with a one-year stepped up death benefit rider is offered at an additional annual rate of 0.05% (Rider Option 1). Optional long term care facility with a 5% enhanced death benefit rider is offered at an additional annual rate of 0.10% (Rider Option 2). The following table provides mortality, expense and administration charges by contract type for the period ended December 31, 1997:
TOTAL ACVPINCGR ACVPINT ACVPVALUE DRYSRGRO ------------ ------------ ------------ ------------ ------------ BOA Future (Base)............... $ 26,321 119 169 235 245 BOA Future (Rider Option 1)..... 13,431 83 58 348 157 BOA Future (Rider Option 2)..... 4,753 29 20 55 30 ------------ ------------ ------------ ------------ ------------ Total....................... $ 44,505 231 247 638 432 ============ ============ ============ ============ ============ DRYSTKIX DRYCAPAP FIDVIPEI FIDVIPGR FIDVIPHI ------------ ------------ ------------ ------------ ------------ BOA Future (Base)............... $ 1,875 267 1,422 572 1,047 BOA Future (Rider Option 1)..... 946 133 815 312 382 BOA Future (Rider Option 2)..... 152 30 339 72 139 ------------ ------------ ------------ ------------ ------------ Total....................... $ 2,973 430 2,576 956 1,568 ============ ============ ============ ============ ============ FIDVIPOV FIDVIPCON FIDVIPGROP MSEMMKT NSATBAL ------------ ------------ ------------ ------------ ------------ BOA Future (Base)............... $ 303 1,607 596 54 195 BOA Future (Rider Option 1)..... 95 564 418 40 154 BOA Future (Rider Option 2)..... 40 160 123 16 110 ------------ ------------ ------------ ------------ ------------ Total....................... $ 438 2,331 1,137 110 459 ============ ============ ============ ============ ============ NSATCAPAP NSATEQINC NSATGLOBEQ NSATGVTBD NSATHINCBD ------------ ------------ ------------ ------------ ------------ BOA Future (Base)............... $ 739 265 165 1,060 359 BOA Future (Rider Option 1)..... 447 116 116 369 153 BOA Future (Rider Option 2)..... 244 30 45 301 125 ------------ ------------ ------------ ------------ ------------ Total....................... $ 1,430 411 326 1,730 637 ============ ============ ============ ============ ============ NSATMYMKT NSATMSECBD NSATMIDCAP NSATSMCAPV NSATSMCO ------------ ------------ ------------ ------------ ------------ BOA Future (Base)............... $ 4,055 353 37 376 473 BOA Future (Rider Option 1)..... 1,841 186 62 190 380 BOA Future (Rider Option 2)..... 1,142 71 22 37 83 ------------ ------------ ------------ ------------ ------------ Total....................... $ 7,038 610 121 603 936 ============ ============ ============ ============ ============
12
NSATStrGro NSATStrVal NSATTotRe NBAMTGuard NBAMTMCGr ------------ ------------ ------------ ------------ ------------ BOA Future (Base)............... $ 83 125 2,108 110 183 BOA Future (Rider Option 1)..... 44 66 945 158 427 BOA Future (Rider Option 2)..... 23 31 369 54 92 ------------ ------------ ------------ ------------ ------------ Total....................... $ 150 222 3,422 322 702 ============ ============ ============ ============ ============ NBAMTPart OppCapAp OppGro OppGrInc VEWrldEMkt ------------ ------------ ------------ ------------ ------------ BOA Future (Base)............... $ 5,247 275 182 341 204 BOA Future (Rider Option 1)..... 1,929 120 193 204 380 BOA Future (Rider Option 2)..... 298 83 94 129 6 ------------ ------------ ------------ ------------ ------------ Total....................... $ 7,474 478 469 674 590 ============ ============ ============ ============ ============ VEWrldHAs MSRESec WPGrInc WPIntEq WPPVenCap ------------ ------------ ------------ ------------ ------------ BOA Future (Base)............... $ 79 302 61 325 108 BOA Future (Rider Option 1)..... 15 166 130 112 177 BOA Future (Rider Option 2)..... 17 77 28 32 5 ------------ ------------ ------------ ------------ ------------ Total....................... $ 111 545 219 469 290 ============ ============ ============ ============ ============
(3) RELATED PARTY TRANSACTIONS The Company performs various services on behalf of the Mutual Fund Companies in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions. These fees are paid to an affiliate of the Company. 13 (4) COMPONENTS OF CONTRACT OWNERS' EQUITY The following is a summary of contract owners' equity at December 31, 1997, for each series, in both the accumulation and payout phases.
PERIOD Contract owners' equity represented by: UNITS UNIT VALUE RETURN --------- ----------- ------- Contracts in accumulation phase: The BEST of AMERICA(R) America's FUTURE Annuity(SM) (Base): American Century VP - American Century VP Income & Growth: Tax qualified 5,919 $ 10.409767 $ 61,615 4% Non-tax qualified 14,727 10.409767 153,305 4% American Century VP - American Century VP International: Tax qualified 11,451 10.088106 115,519 1% Non-tax qualified 27,628 10.088106 278,714 1% American Century VP - American Century VP Value: Tax qualified 32,890 10.296896 338,665 3% Non-tax qualified 24,450 10.296896 251,759 3% The Dreyfus Socially Responsible Growth Fund, Inc.: Tax qualified 13,265 10.171132 134,920 2% Non-tax qualified 28,338 10.171132 288,230 2% Dreyfus Stock Index Fund: Tax qualified 167,229 10.343734 1,729,772 3% Non-tax qualified 220,208 10.343734 2,277,773 3% Dreyfus VIF - Capital Appreciation Portfolio: Tax qualified 23,139 10.249990 237,175 2% Non-tax qualified 36,467 10.249990 373,786 2% Fidelity VIP - Equity-Income Portfolio - Service Class: Tax qualified 124,825 10.338433 1,290,495 3% Non-tax qualified 152,449 10.338433 1,576,084 3% Fidelity VIP - Growth Portfolio - Service Class: Tax qualified 51,944 10.030842 521,042 0% Non-tax qualified 64,880 10.030842 650,801 0% Fidelity VIP - High Income Portfolio - Service Class: Tax qualified 90,815 10.126638 919,651 1% Non-tax qualified 114,247 10.126638 1,156,938 1% Fidelity VIP - Overseas Portfolio - Service Class: Tax qualified 29,834 9.902344 295,427 (1)% Non-tax qualified 32,688 9.902344 323,688 (1)% Fidelity VIP-II - Contrafund Portfolio - Service Class: Tax qualified 94,143 9.954885 937,183 0% Non-tax qualified 137,715 9.954885 1,370,937 0%
14 Fidelity VIP-III - Growth Opportunities Portfolio - Service Class: Tax qualified 65,917 10.400464 685,567 4% Non-tax qualified 74,836 10.400464 778,329 4% Morgan Stanley - Emerging Markets Debt Portfolio: Tax qualified 3,325 10.425451 34,665 4% Non-tax qualified 5,093 10.425451 53,097 4% Nationwide SAT - Balanced Fund: Tax qualified 20,941 10.130674 212,146 1% Non-tax qualified 23,584 10.130674 238,922 1% Nationwide SAT - Capital Appreciation Fund: Tax qualified 76,048 10.385596 789,804 4% Non-tax qualified 74,609 10.385596 774,859 4% Nationwide SAT - Equity Income Fund: Tax qualified 10,838 10.161693 110,132 2% Non-tax qualified 27,331 10.161693 277,729 2% Nationwide SAT - Global Equity Fund: Tax qualified 15,788 10.102208 159,494 1% Non-tax qualified 12,998 10.102208 131,308 1% Nationwide SAT - Government Bond Fund: Tax qualified 67,127 10.143182 680,881 1% Non-tax qualified 138,589 10.143182 1,405,733 1% Nationwide SAT - High Income Bond Fund: Tax qualified 15,004 10.212505 153,228 2% Non-tax qualified 33,703 10.212505 344,192 2% Nationwide SAT - Money Market Fund: Tax qualified 155,902 10.074129 1,570,577 1% Non-tax qualified 581,682 10.074129 5,859,940 1% Nationwide SAT - Multi Sector Bond Fund: Tax qualified 13,658 10.088793 137,793 1% Non-tax qualified 41,385 10.088793 417,525 1% Nationwide SAT - Select Advisers Mid Cap Fund: Tax qualified 3,322 9.949100 33,051 (1)% Non-tax qualified 5,540 9.949100 55,118 (1)% Nationwide SAT - Small Cap Value Fund: Tax qualified 29,661 9.823904 291,387 (2)% Non-tax qualified 42,125 9.823904 413,832 (2)% Nationwide SAT - Small Company Fund: Tax qualified 26,226 9.613184 252,115 (4)% Non-tax qualified 60,510 9.613184 581,694 (4)% Nationwide SAT - Strategic Growth Fund: Tax qualified 7,333 10.204129 74,827 2% Non-tax qualified 14,559 10.204129 148,562 2% Nationwide SAT - Strategic Value Fund: Tax qualified 12,123 10.147459 123,018 1% Non-tax qualified 13,612 10.147459 138,127 1%
(Continued) 15 Nationwide SAT - Total Return Fund: Tax qualified 182,146 10.242940 1,865,711 2% Non-tax qualified 197,787 10.242940 2,025,920 2% Neuberger & Berman AMT - Guardian Portfolio: Tax qualified 5,387 10.504106 56,586 5% Non-tax qualified 9,331 10.504106 98,014 5% Neuberger & Berman AMT - Mid-Cap Growth Portfolio: Tax qualified 24,058 11.702355 281,535 17% Non-tax qualified 27,997 11.702355 327,631 17% Neuberger & Berman AMT - Partners Portfolio: Tax qualified 123,308 10.132434 1,249,410 1% Non-tax qualified 816,409 10.132434 8,272,210 1% Oppenheimer VAF - Capital Appreciation Fund: Tax qualified 17,204 9.533314 164,011 (5)% Non-tax qualified 22,088 9.533314 210,572 (5)% Oppenheimer VAF - Growth Fund: Tax qualified 32,359 9.827325 318,002 (2)% Non-tax qualified 11,808 9.827325 116,041 (2)% Oppenheimer VAF - Growth & Income Fund: Tax qualified 18,417 10.259486 188,949 3% Non-tax qualified 39,986 10.259486 410,236 3% Van Eck WIT - Worldwide Emerging Markets Fund: Tax qualified 9,145 8.814851 80,612 (12)% Non-tax qualified 18,343 8.814851 161,691 (12)% Van Eck WIT - Worldwide Hard Assets Fund: Tax qualified 10,008 8.979477 89,867 (10)% Non-tax qualified 7,257 8.979477 65,164 (10)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio: Tax qualified 32,778 10.338661 338,881 3% Non-tax qualified 27,341 10.338661 282,669 3% Warburg Pincus Trust - Growth & Income Portfolio: Tax qualified 11,884 10.373620 123,280 4% Non-tax qualified 1,514 10.373620 15,706 4% Warburg Pincus Trust - International Equity Portfolio: Tax qualified 23,146 9.454794 218,841 (5)% Non-tax qualified 35,372 9.454794 334,435 (5)% Warburg Pincus Trust - Post Venture Capital Portfolio: Tax qualified 1,213 9.852750 11,951 (1)% Non-tax qualified 7,662 9.852750 75,492 (1)%
16 The BEST of AMERICA(R) America's FUTURE Annuity(SM) (Rider Option 1): American Century VP - American Century VP Income & Growth: Tax qualified 11,674 10.408936 121,514 4% Non-tax qualified 5,571 10.408936 57,988 4% American Century VP - American Century VP International: Tax qualified 3,170 10.087297 31,977 1% Non-tax qualified 9,299 10.087297 93,802 1% American Century VP - American Century VP Value: Tax qualified 42,338 10.296077 435,915 3% Non-tax qualified 22,796 10.296077 234,709 3% The Dreyfus Socially Responsible Growth Fund, Inc.: Tax qualified 21,267 10.170317 216,292 2% Non-tax qualified 13,946 10.170317 141,835 2% Dreyfus Stock Index Fund: Tax qualified 79,005 10.342909 817,142 3% Non-tax qualified 103,007 10.342909 1,065,392 3% Dreyfus VIF - Capital Appreciation Portfolio: Tax qualified 16,809 10.249171 172,278 2% Non-tax qualified 10,034 10.249171 102,840 2% Fidelity VIP - Equity-Income Portfolio - Service Class: Tax qualified 80,230 10.337608 829,386 3% Non-tax qualified 101,670 10.337608 1,051,025 3% Fidelity VIP - Growth Portfolio - Service Class: Tax qualified 26,495 10.030041 265,746 0% Non-tax qualified 42,184 10.030041 423,107 0% Fidelity VIP - High Income Portfolio - Service Class: Tax qualified 28,809 10.125825 291,715 1% Non-tax qualified 38,172 10.125825 386,523 1% Fidelity VIP - Overseas Portfolio - Service Class: Tax qualified 6,886 9.901549 68,182 (1)% Non-tax qualified 13,646 9.901549 135,117 (1)% Fidelity VIP-II - Contrafund Portfolio - Service Class: Tax qualified 52,859 9.954090 526,163 0% Non-tax qualified 61,145 9.954090 608,643 0% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class: Tax qualified 50,299 10.399630 523,091 4% Non-tax qualified 34,840 10.399630 362,323 4%
(Continued) 17 Morgan Stanley - Emerging Markets Debt Portfolio: Tax qualified 4,517 10.424614 47,088 4% Non-tax qualified 4,151 10.424614 43,273 4% Nationwide SAT - Balanced Fund: Tax qualified 18,660 10.129864 189,023 1% Non-tax qualified 7,268 10.129864 73,624 1% Nationwide SAT - Capital Appreciation Fund: Tax qualified 42,993 10.384765 446,472 4% Non-tax qualified 34,299 10.384765 356,187 4% Nationwide SAT - Equity Income Fund: Tax qualified 10,109 10.160882 102,716 2% Non-tax qualified 4,986 10.160882 50,662 2% Nationwide SAT - Global Equity Fund: Tax qualified 10,785 10.101401 108,944 1% Non-tax qualified 5,708 10.101401 57,659 1% Nationwide SAT - Government Bond Fund: Tax qualified 35,843 10.142367 363,533 1% Non-tax qualified 31,348 10.142367 317,943 1% Nationwide SAT - High Income Bond Fund: Tax qualified 15,211 10.211688 155,330 2% Non-tax qualified 7,868 10.211688 80,346 2% Nationwide SAT - Money Market Fund: Tax qualified 172,291 10.073279 1,735,535 1% Non-tax qualified 228,200 10.073279 2,298,722 1% Nationwide SAT - Multi Sector Bond Fund: Tax qualified 22,440 10.087985 226,374 1% Non-tax qualified 12,227 10.087985 123,346 1% Nationwide SAT - Select Advisers Mid Cap Fund: Tax qualified 5,466 9.948304 54,377 (1)% Non-tax qualified 4,072 9.948304 40,509 (1)% Nationwide SAT - Small Cap Value Fund: Tax qualified 16,510 9.823118 162,180 (2)% Non-tax qualified 20,577 9.823118 202,130 (2)% Nationwide SAT - Small Company Fund: Tax qualified 30,320 9.612411 291,448 (4)% Non-tax qualified 32,541 9.612411 312,797 (4)% Nationwide SAT - Strategic Growth Fund: Tax qualified 3,708 10.203313 37,834 2% Non-tax qualified 2,921 10.203313 29,804 2% Nationwide SAT - Strategic Value Fund: Tax qualified 3,022 10.146650 30,663 1% Non-tax qualified 13,153 10.146650 133,459 1% Nationwide SAT - Total Return Fund: Tax qualified 84,236 10.242118 862,755 2% Non-tax qualified 76,652 10.242118 785,079 2%
18 Neuberger & Berman AMT - Guardian Portfolio: Tax qualified 8,001 10.503269 84,037 5% Non-tax qualified 14,929 10.503269 156,803 5% Neuberger & Berman AMT - Mid-Cap Growth Portfolio: Tax qualified 56,145 11.701424 656,976 17% Non-tax qualified 16,768 11.701424 196,209 17% Neuberger & Berman AMT - Partners Portfolio: Tax qualified 195,515 10.131623 1,980,884 1% Non-tax qualified 133,165 10.131623 1,349,178 1% Oppenheimer VAF - Capital Appreciation Fund: Tax qualified 11,021 9.532548 105,058 (5)% Non-tax qualified 10,675 9.532548 101,760 (5)% Oppenheimer VAF - Growth Fund: Tax qualified 26,012 9.826536 255,608 (2)% Non-tax qualified 16,143 9.826536 158,630 (2)% Oppenheimer VAF - Growth & Income Fund: Tax qualified 15,547 10.258664 159,491 3% Non-tax qualified 15,661 10.258664 160,661 3% Van Eck WIT - Worldwide Emerging Markets Fund: Tax qualified 30,479 8.814146 268,646 (12)% Non-tax qualified 15,119 8.814146 133,261 (12)% Van Eck WIT - Worldwide Hard Assets Fund: Tax qualified 765 8.978753 6,869 (10)% Non-tax qualified 4,496 8.978753 40,368 (10)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio: Tax qualified 8,443 10.337835 87,282 3% Non-tax qualified 23,459 10.337835 242,515 3% Warburg Pincus Trust - Growth & Income Portfolio: Tax qualified 10,462 10.372788 108,520 4% Non-tax qualified 11,043 10.372788 114,547 4% Warburg Pincus Trust - International Equity Portfolio: Tax qualified 9,501 9.454036 89,823 (5)% Non-tax qualified 11,346 9.454036 107,265 (5)% Warburg Pincus Trust - Post Venture Capital Portfolio: Tax qualified 1,263 9.851960 12,443 (1)% Non-tax qualified 1,127 9.851960 11,103 (1)%
(Continued) 19 The BEST of AMERICA(R) America's FUTURE Annuity(SM) (Rider Option 2): American Century VP - American Century VP Income & Growth: Tax qualified 832 10.408098 8,660 4% Non-tax qualified 5,236 10.408098 54,497 4% American Century VP - American Century VP International: Tax qualified 698 10.086493 7,040 1% Non-tax qualified 2,265 10.086493 22,846 1% American Century VP - American Century VP Value: Tax qualified 1,336 10.295249 13,754 3% Non-tax qualified 8,217 10.295249 84,596 3% The Dreyfus Socially Responsible Growth Fund, Inc.: Tax qualified 4,821 10.169503 49,027 2% Non-tax qualified 2,598 10.169503 26,420 2% Dreyfus Stock Index Fund: Tax qualified 9,203 10.342079 95,178 3% Non-tax qualified 13,090 10.342079 135,378 3% Dreyfus VIF - Capital Appreciation Portfolio: Tax qualified 3,777 10.248351 38,708 2% Non-tax qualified 706 10.248351 7,235 2% Fidelity VIP - Equity-Income Portfolio - Service Class: Tax qualified 18,611 10.336779 192,378 3% Non-tax qualified 36,514 10.336779 377,437 3% Fidelity VIP - Growth Portfolio - Service Class: Tax qualified 4,718 10.029235 47,318 0% Non-tax qualified 9,713 10.029235 97,414 0% Fidelity VIP - High Income Portfolio - Service Class: Tax qualified 2,418 10.125013 24,482 1% Non-tax qualified 12,697 10.125013 128,557 1% Fidelity VIP - Overseas Portfolio - Service Class: Tax qualified 887 9.900760 8,782 (1)% Non-tax qualified 9,071 9.900760 89,810 (1)% Fidelity VIP-II - Contrafund Portfolio - Service Class: Tax qualified 12,678 9.953285 126,188 0% Non-tax qualified 14,306 9.953285 142,392 0% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class: Tax qualified 8,419 10.398800 87,547 4% Non-tax qualified 13,599 10.398800 141,413 4%
20 Morgan Stanley - Emerging Markets Debt Portfolio: Tax qualified 204 10.423780 2,126 4% Non-tax qualified 1,531 10.423780 15,959 4% Nationwide SAT - Balanced Fund: Tax qualified 4,261 10.129053 43,160 1% Non-tax qualified 13,393 10.129053 135,658 1% Nationwide SAT - Capital Appreciation Fund: Tax qualified 4,967 10.383931 51,577 4% Non-tax qualified 23,354 10.383931 242,506 4% Nationwide SAT - Equity Income Fund: Tax qualified 2,466 10.160070 25,055 2% Non-tax qualified 2,603 10.160070 26,447 2% Nationwide SAT - Global Equity Fund: Tax qualified 1,682 10.100588 16,989 1% Non-tax qualified 3,870 10.100588 39,089 1% Nationwide SAT - Government Bond Fund: Tax qualified 17,678 10.141552 179,282 1% Non-tax qualified 21,953 10.141552 222,637 1% Nationwide SAT - High Income Bond Fund: Tax qualified 2,543 10.210867 25,966 2% Non-tax qualified 15,172 10.210867 154,919 2% Nationwide SAT - Money Market Fund: Tax qualified 109,198 10.072429 1,099,889 1% Non-tax qualified 61,681 10.072429 621,277 1% Nationwide SAT - Multi Sector Bond Fund: Tax qualified 2,097 10.087176 21,153 1% Non-tax qualified 11,411 10.087176 115,105 1% Nationwide SAT - Select Advisers Mid Cap Fund: Tax qualified 2,671 9.947507 26,570 (1)% Non-tax qualified 1,954 9.947507 19,437 (1)% Nationwide SAT - Small Cap Value Fund: Tax qualified 3,373 9.822329 33,131 (2)% Non-tax qualified 5,548 9.822329 54,494 (2)% Nationwide SAT - Small Company Fund: Tax qualified 453 9.611642 4,354 (4)% Non-tax qualified 12,059 9.611642 115,907 (4)% Nationwide SAT - Strategic Growth Fund: Tax qualified 201 10.202497 2,051 2% Non-tax qualified 3,231 10.202497 32,964 2% Nationwide SAT - Strategic Value Fund: Tax qualified 227 10.145838 2,303 1% Non-tax qualified 5,509 10.145838 55,893 1% Nationwide SAT - Total Return Fund: Tax qualified 13,269 10.241300 135,892 2% Non-tax qualified 37,377 10.241300 382,789 2%
(Continued) 21 Neuberger & Berman AMT - Guardian Portfolio: Tax qualified 590 10.502434 6,196 5% Non-tax qualified 5,754 10.502434 60,431 5% Neuberger & Berman AMT - Mid-Cap Growth Portfolio: Tax qualified 3,696 11.700489 43,245 17% Non-tax qualified 6,472 11.700489 75,726 17% Neuberger & Berman AMT - Partners Portfolio: Tax qualified 9,975 10.130813 101,055 1% Non-tax qualified 40,357 10.130813 408,849 1% Oppenheimer VAF - Capital Appreciation Fund: Tax qualified 3,437 9.531780 32,761 (5)% Non-tax qualified 11,150 9.531780 106,279 (5)% Oppenheimer VAF - Growth Fund: Tax qualified 2,404 9.825746 23,621 (2)% Non-tax qualified 7,972 9.825746 78,331 (2)% Oppenheimer VAF - Growth & Income Fund: Tax qualified 1,064 10.257840 10,914 3% Non-tax qualified 15,025 10.257840 154,124 3% Van Eck WIT - Worldwide Emerging Markets Fund: Tax qualified 733 8.813437 6,460 (12)% Non-tax qualified 779 8.813437 6,866 (12)% Van Eck WIT - Worldwide Hard Assets Fund: Tax qualified 206 8.978030 1,849 (10)% Non-tax qualified 1,789 8.978030 16,062 (10)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio: Tax qualified 416 10.337004 4,300 3% Non-tax qualified 10,121 10.337004 104,621 3% Warburg Pincus Trust - Growth & Income Portfolio: Tax qualified 2,908 10.371958 30,162 4% Non-tax qualified 4,127 10.371958 42,805 4% Warburg Pincus Trust - International Equity Portfolio: Tax qualified 866 9.453278 8,187 (5)% Non-tax qualified 5,787 9.453278 54,706 (5)% Warburg Pincus Trust - Post Venture Capital Portfolio: Tax qualified 830 9.851173 8,176 (1)% Non-tax qualified 2,366 9.851173 23,308 (1)% ======== ========= ----------- $82,185,672 ===========
60 1 INDEPENDENT AUDITORS' REPORT The Board of Directors Nationwide Life Insurance Company: We have audited the accompanying consolidated balance sheets of Nationwide Life Insurance Company and subsidiaries (collectively the Company), a wholly owned subsidiary of Nationwide Financial Services, Inc., as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Columbus, Ohio January 30, 1998 2 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in millions of dollars)
December 31, ----------------------------------- ASSETS 1997 1996 ------ ----------------- --------------- Investments: Securities available-for-sale, at fair value: Fixed maturity securities $13,204.1 $12,304.6 Equity securities 80.4 59.1 Mortgage loans on real estate, net 5,181.6 5,272.1 Real estate, net 311.4 265.8 Policy loans 415.3 371.8 Other long-term investments 25.2 28.7 Short-term investments 358.4 4.8 ---------- --------- 19,576.4 18,306.9 ---------- --------- Cash 175.6 43.8 Accrued investment income 210.5 210.2 Deferred policy acquisition costs 1,665.4 1,366.5 Investment in subsidiaries classified as discontinued operations - 485.7 Other assets 438.4 426.5 Assets held in Separate Accounts 37,724.4 26,926.7 ---------- --------- $59,790.7 $47,766.3 ========== ========= LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Future policy benefits and claims $18,702.8 $17,600.6 Other liabilities 885.6 1,101.1 Liabilities related to Separate Accounts 37,724.4 26,926.7 ---------- --------- 57,312.8 45,628.4 ---------- --------- Commitments and contingencies (notes 7 and 13) Shareholder's equity: Common stock, $1 par value. Authorized 5.0 million shares; 3.8 million shares issued and outstanding 3.8 3.8 Additional paid-in capital 914.7 527.9 Retained earnings 1,312.3 1,432.6 Unrealized gains on securities available-for-sale, net 247.1 173.6 ---------- --------- 2,477.9 2,137.9 ---------- --------- $59,790.7 $47,766.3 ========== =========
See accompanying notes to consolidated financial statements. 3 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Income (in millions of dollars)
Years ended December 31, --------------------------------------------- 1997 1996 1995 ------------- ------------- -------------- Revenues: Investment product and universal life insurance product policy charges $ 545.2 $ 400.9 $ 286.6 Traditional life insurance premiums 205.4 198.6 199.1 Net investment income 1,409.2 1,357.8 1,294.0 Realized gains (losses) on investments 11.1 (0.3) (1.7) Other 46.5 35.9 20.7 ---------- ---------- ---------- 2,217.4 1,992.9 1,798.7 ---------- ---------- ---------- Benefits and expenses: Interest credited to policyholder account balances 1,016.6 982.3 950.3 Other benefits and claims 178.2 178.3 165.2 Policyholder dividends on participating policies 40.6 41.0 39.9 Amortization of deferred policy acquisition costs 167.2 133.4 82.7 Other operating expenses 384.9 342.4 273.0 ---------- ---------- ---------- 1,787.5 1,677.4 1,511.1 ---------- ---------- ---------- Income from continuing operations before federal income tax expense 429.9 315.5 287.6 Federal income tax expense 150.2 110.9 99.8 ---------- ---------- ---------- Income from continuing operations 279.7 204.6 187.8 Income from discontinued operations (less federal income tax expense of $4.5 and $7.4 in 1996 and 1995, respectively) - 11.3 24.7 ---------- ---------- ---------- Net income $ 279.7 $ 215.9 $ 212.5 ========== ========== ==========
See accompanying notes to consolidated financial statements. 4 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Shareholder's Equity (in millions of dollars)
Unrealized gains (losses) Additional on securities Total Common paid-in Retained available- shareholder's stock capital earnings for-sale, net equity ----------- ------------- -------------- ---------------- ------------- December 31, 1994 $3.8 $ 606.2 $1,378.2 $(119.7) $1,868.5 Capital contribution - 51.0 - (4.1) 46.9 Net income - - 212.5 - 212.5 Dividends to shareholder - - (7.5) - (7.5) Unrealized gains on securities available- for-sale, net - - - 508.1 508.1 -------- -------- -------- -------- --------- December 31, 1995 3.8 657.2 1,583.2 384.3 2628.5 Net income - - 215.9 - 215.9 Dividends to shareholder - (129.3) (366.5) (39.8) (535.6) Unrealized losses on securities available- for-sale, net - - - (170.9) (170.9) -------- -------- -------- -------- --------- December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9 Capital contribution - 836.8 - - 836.8 Net income - - 279.7 - 279.7 Dividends to shareholder - (450.0) (400.0) - (850.0) Unrealized gains on securities available- for-sale, net - - - 73.5 73.5 -------- -------- -------- -------- --------- December 31, 1997 $3.8 $ 914.7 $1,312.3 $ 247.1 $2,477.9 ======== ======== ======== ======== =========
See accompanying notes to consolidated financial statements. 5 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Cash Flows (in millions of dollars)
Years ended December 31, ---------------------------------------------- 1997 1996 1995 ------------------------------ --------------- Cash flows from operating activities: Net income $ 279.7 $ 215.9 $ 212.5 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account balances 1,016.6 982.3 950.3 Capitalization of deferred policy acquisition costs (487.9) (422.6) (321.3) Amortization of deferred policy acquisition costs 167.2 133.4 82.7 Amortization and depreciation (2.0) 7.0 10.2 Realized (gains) losses on invested assets, net (11.1) (0.3) 3.3 (Increase) decrease in accrued investment income (0.3) 2.8 (16.9) (Increase) decrease in other assets (12.7) (38.9) 39.9 (Decrease) increase in policy liabilities (23.1) (151.0) 123.9 Increase in other liabilities 230.6 191.4 27.0 Other, net (10.9) (61.7) 1.8 ----------- --------- -------- Net cash provided by operating activities 1,146.1 858.3 1,113.4 ----------- --------- -------- Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 993.4 1,162.8 634.6 Proceeds from sale of securities available-for-sale 574.5 299.6 107.3 Proceeds from maturity of fixed maturity securities held-to-maturity - - 564.4 Proceeds from repayments of mortgage loans on real estate 437.3 309.0 207.8 Proceeds from sale of real estate 34.8 18.5 48.3 Proceeds from repayments of policy loans and sale of other invested assets 22.7 22.8 53.6 Cost of securities available-for-sale acquired (2,828.1) (1,573.6) (1,942.4) Cost of fixed maturity securities held-to-maturity acquired - - (593.6) Cost of mortgage loans on real estate acquired (752.2) (972.8) (796.0) Cost of real estate acquired (24.9) (7.9) (10.9) Policy loans issued and other invested assets acquired (62.5) (57.7) (75.9) Short-term investments, net (354.8) 28.0 77.8 ----------- --------- -------- Net cash used in investing activities (1,959.8) (771.3) (1,725.0) ----------- --------- -------- Cash flows from financing activities: Proceeds from capital contributions 836.8 - - Cash dividends paid - (50.0) (7.5) Increase in investment product and universal life insurance product account balances 2,488.5 1,781.8 1,883.7 Decrease in investment product and universal life insurance product account balances (2,379.8) (1,784.5) (1,258.7) ----------- --------- -------- Net cash provided by (used in) financing activities 945.5 (52.7) 617.5 ----------- --------- -------- Net increase in cash 131.8 34.3 5.9 Cash, beginning of year 43.8 9.5 3.6 ----------- --------- -------- Cash, end of year $ 175.6 $ 43.8 $ 9.5 =========== ========= =========
See accompanying notes to consolidated financial statements. 6 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements December 31, 1997, 1996 and 1995 (1) ORGANIZATION AND DESCRIPTION OF BUSINESS Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was wholly owned by Nationwide Corporation (Nationwide Corp.). On that date, Nationwide Corp. contributed the outstanding shares of NLIC's common stock to Nationwide Financial Services, Inc. (NFS), a holding company formed by Nationwide Corp. in November 1996 for NLIC and the other companies within the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. On March 11 1997, NFS completed an initial public offering of its Class A common stock. During 1996 and 1997, Nationwide Corp. and NFS completed certain transactions in anticipation of the initial public offering that focused the business of NFS on long-term savings and retirement products. On September 24, 1996, NLIC declared a dividend payable to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of certain subsidiaries that do not offer or distribute long-term savings or retirement products. In addition, during 1996, NLIC entered into two reinsurance agreements whereby all of NLIC's accident and health and group life insurance business was ceded to two affiliates effective January 1, 1996. These subsidiaries, through December 31, 1996, and all accident and health and group life insurance business have been accounted for as discontinued operations for all periods presented. See notes 11 and 15. Additionally, NLIC paid $900.0 million of dividends, $50.0 million to Nationwide Corp. on December 31, 1996 and $850.0 million to NFS, which then made an equivalent dividend to Nationwide Corp., on February 24, 1997. NFS contributed $836.8 million to the capital of NLIC during March 1997. Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC), Nationwide Advisory Services, Inc., Nationwide Investment Services Corporation and NWE, Inc. NLIC and its subsidiaries are collectively referred to as "the Company." The Company is a leading provider of long-term savings and retirement products. The Company is subject to regulation by the Insurance Departments of states in which it is licensed, and undergoes periodic examinations by those departments. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Company that materially affect financial reporting are summarized below. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles, which differ from statutory accounting practices prescribed or permitted by regulatory authorities. Annual Statements for NLIC and NLAIC, filed with the Department of Insurance of the State of Ohio (the Department), are prepared on the basis of accounting practices prescribed or permitted by the Department. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company has no material permitted statutory accounting practices. 7 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs, valuation allowances for mortgage loans on real estate and real estate investments and the liability for future policy benefits and claims. Although some variability is inherent in these estimates, management believes the amounts provided are adequate. (a) CONSOLIDATION POLICY The consolidated financial statements include the accounts of NLIC and its wholly owned subsidiaries. Subsidiaries that are classified and reported as discontinued operations are not consolidated but rather are reported as "Investment in subsidiaries classified as discontinued operations" in the accompanying consolidated balance sheets and "Income from discontinued operations" in the accompanying consolidated statements of income. All significant intercompany balances and transactions have been eliminated. (b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES The Company is required to classify its fixed maturity securities and equity securities as either held-to-maturity, available-for-sale or trading. Fixed maturity securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity and are stated at amortized cost. Fixed maturity securities not classified as held-to-maturity and all equity securities are classified as available-for-sale and are stated at fair value, with the unrealized gains and losses, net of adjustments to deferred policy acquisition costs and deferred federal income tax, reported as a separate component of shareholder's equity. The adjustment to deferred policy acquisition costs represents the change in amortization of deferred policy acquisition costs that would have been required as a charge or credit to operations had such unrealized amounts been realized. The Company has no fixed maturity securities classified as held-to-maturity or trading as of December 31, 1997 or 1996. Mortgage loans on real estate are carried at the unpaid principal balance less valuation allowances. The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. The measurement of impaired loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered to be impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in interest income in the period received. Real estate is carried at cost less accumulated depreciation and valuation allowances. Other long-term investments are carried on the equity basis, adjusted for valuation allowances. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Estimates for valuation allowances and other than temporary declines are included in realized gains and losses on investments. 8 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (c) REVENUES AND BENEFITS INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS: Investment products consist primarily of individual and group variable and fixed annuities. Universal life insurance products include universal life insurance, variable universal life insurance and other interest-sensitive life insurance policies. Revenues for investment products and universal life insurance products consist of net investment income, asset fees, cost of insurance, policy administration and surrender charges that have been earned and assessed against policy account balances during the period. Policy benefits and claims that are charged to expense include interest credited to policy account balances and benefits and claims incurred in the period in excess of related policy account balances. TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies. Premiums for traditional life insurance products are recognized as revenue when due. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contract. This association is accomplished by the provision for future policy benefits and the deferral and amortization of policy acquisition costs. (d) DEFERRED POLICY ACQUISITION COSTS The costs of acquiring new business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable sales expenses have been deferred. For investment products and universal life insurance products, deferred policy acquisition costs are being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, asset fees, cost of insurance, policy administration and surrender charges. For years in which gross profits are negative, deferred policy acquisition costs are amortized based on the present value of gross revenues. Deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(b). For traditional life insurance products, these deferred policy acquisition costs are predominantly being amortized with interest over the premium paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue was estimated using the same assumptions as were used for computing liabilities for future policy benefits. (e) SEPARATE ACCOUNTS Separate Account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. For all but $365.5 million of separate account assets, the investment income and gains or losses of these accounts accrue directly to the contractholders. The activity of the Separate Accounts is not reflected in the consolidated statements of income and cash flows except for the fees the Company receives. (f) FUTURE POLICY BENEFITS Future policy benefits for investment products in the accumulation phase, universal life insurance and variable universal life insurance policies have been calculated based on participants' contributions plus interest credited less applicable contract charges. Future policy benefits for traditional life insurance policies have been calculated using a net level premium method based on estimates of mortality, morbidity, investment yields and withdrawals which were used or which were being experienced at the time the policies were issued, rather than the assumptions prescribed by state regulatory authorities. See note 4. 9 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (g) PARTICIPATING BUSINESS Participating business represents approximately 50% in 1997 (52% in 1996 and 54% in 1995) of the Company's life insurance in force, 77% in 1997 (78% in 1996 and 79% in 1995) of the number of life insurance policies in force, and 27% in 1997 (40% in 1996 and 47% in 1995) of life insurance statutory premiums. The provision for policyholder dividends is based on current dividend scales and is included in "Future policy benefits and claims" in the accompanying consolidated balance sheets. (h) FEDERAL INCOME TAX The Company files a consolidated federal income tax return with Nationwide Mutual Insurance Company (NMIC), the majority shareholder of Nationwide Corp. The members of the consolidated tax return group have a tax sharing arrangement which provides, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. The Company utilizes the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized. (i) REINSURANCE CEDED Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. All of the Company's accident and health and group life insurance business is ceded to affiliates and is accounted for as discontinued operations. See notes 11 and 15. (j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - REPORTING COMPREHENSIVE INCOME was issued in June 1997 and is effective for fiscal years beginning after December 15, 1997. The statement establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. Comprehensive income includes all changes in equity during a period except those resulting from investments by shareholders and distributions to shareholders and includes net income. Comprehensive income would be reported in addition to earnings amounts currently presented. The Company will adopt the statement and begin reporting comprehensive income in the first quarter of 1998. (k) RECLASSIFICATION Certain items in the 1996 and 1995 consolidated financial statements have been reclassified to conform to the 1997 presentation. 10 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (3) INVESTMENTS The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale as of December 31, 1997 and 1996 were:
Gross Gross Amortized unrealized unrealized Estimated (in millions of dollars) cost gains losses fair value -------------- ------------ ------------- ------------ December 31, 1997: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 305.1 $ 8.6 $ - $ 313.7 Obligations of states and political subdivisions 1.6 - - 1.6 Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8 Corporate securities 8,698.7 355.5 (11.5) 9,042.7 Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3 ------------ --------- --------- ----------- Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1 Equity securities 67.8 12.9 (0.3) 80.4 ------------ --------- --------- ----------- $ 12,800.7 $ 498.3 $ (14.5) $ 13,284.5 ============ ========= ========= =========== December 31, 1996: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 275.7 $ 4.8 $ (1.3) $ 279.2 Obligations of states and political subdivisions 6.2 0.5 - 6.7 Debt securities issued by foreign governments 100.7 2.1 (0.9) 101.9 Corporate securities 7,999.3 285.9 (33.7) 8,251.5 Mortgage-backed securities 3,589.0 91.4 (15.1) 3,665.3 ------------ --------- --------- ----------- Total fixed maturity securities 11,970.9 384.7 (51.0) 12,304.6 Equity securities 43.9 15.6 (0.4) 59.1 ------------ --------- --------- ----------- $ 12,014.8 $ 400.3 $ (51.4) $ 12,363.7 ============ ========= ========= ===========
The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 1997, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated (in millions of dollars) cost fair value -------------- ---------- Fixed maturity securities available for sale: Due in one year or less $ 419.2 $ 422.1 Due after one year through five years 4,573.5 4,708.4 Due after five years through ten years 2,772.6 2,879.7 Due after ten years 1,333.4 1,443.6 ----------- ----------- 9,098.7 9,453.8 Mortgage-backed securities 3,634.2 3,750.3 ----------- ----------- $ 12,732.9 $ 13,204.1 =========== ===========
11 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31:
(in millions of dollars) 1997 1996 ----------- ---------- Gross unrealized gains $ 483.8 $349.0 Adjustment to deferred policy acquisition costs (103.7) (81.9) Deferred federal income tax (133.0) (93.5) -------- ------- $ 247.1 $173.6 ======== =======
An analysis of the change in gross unrealized gains (losses) on securities available-for-sale and fixed maturity securities held-to-maturity follows for the years ended December 31:
(in millions of dollars) 1997 1996 1995 ----------- ------------- ----------- Securities available-for-sale: Fixed maturity securities $137.5 $(289.2) $876.3 Equity securities (2.7) 8.9 - Fixed maturity securities held-to-maturity - - 75.6 ------- ------- ------- $134.8 $(280.3) $ 951.9 ======= ======= =======
Proceeds from the sale of securities available-for-sale during 1997, 1996 and 1995 were $574.5 million, $299.6 million and $107.3 million, respectively. During 1997, gross gains of $9.9 million ($6.6 million and $4.8 million in 1996 and 1995, respectively) and gross losses of $18.0 million ($6.9 million and $2.1 million in 1996 and 1995, respectively) were realized on those sales. In addition, gross gains of $15.1 million and gross losses of $0.7 million were realized in 1997 when the Company paid a dividend to NFS, which then made an equivalent dividend to Nationwide Corp., consisting of securities having an aggregate fair value of $850.0 million. During 1995, the Company transferred fixed maturity securities classified as held-to-maturity with amortized cost of $25.4 million to available-for-sale securities due to evidence of a significant deterioration in the issuer's creditworthiness. The transfer of those fixed maturity securities resulted in a gross unrealized loss of $3.5 million. As permitted by the Financial Accounting Standards Board's Special Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November 1995, the Company transferred nearly all of its fixed maturity securities previously classified as held-to-maturity to available-for-sale. As of December 14, 1995, the date of transfer, the fixed maturity securities had amortized cost of $3.32 billion, resulting in a gross unrealized gain of $155.9 million. The recorded investment of mortgage loans on real estate considered to be impaired as of December 31, 1997 was $19.9 million ($51.8 million as of December 31, 1996), which includes $3.9 million ($41.7 million as of December 31, 1996) of impaired mortgage loans on real estate for which the related valuation allowance was $0.1 million ($8.5 million as of December 31, 1996) and $16.0 million ($10.1 million as of December 31, 1996) of impaired mortgage loans on real estate for which there was no valuation allowance. During 1997, the average recorded investment in impaired mortgage loans on real estate was approximately $31.8 million ($39.7 million in 1996) and interest income recognized on those loans was $1.0 million ($2.1 million in 1996), which is equal to interest income recognized using a cash-basis method of income recognition. 12 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Activity in the valuation allowance account for mortgage loans on real estate is summarized for the years ended December 31:
(in millions of dollars) 1997 1996 ------------- ------------- Allowance, beginning of year $51.0 $49.1 (Reductions) additions charged to operations (1.2) 4.5 Direct write-downs charged against the allowance (7.3) (2.6) ------ ------ Allowance, end of year $42.5 $51.0 ====== ======
Real estate is presented at cost less accumulated depreciation of $45.1 million as of December 31, 1997 ($30.3 million as of December 31, 1996) and valuation allowances of $11.1 million as of December 31, 1997 ($15.2 million as of December 31, 1996). Investments that were non-income producing for the twelve month period preceding December 31, 1997 amounted to $19.4 million ($26.8 million for 1996) and consisted of $3.0 million ($0.2 million in 1996) in securities available-for-sale, $16.4 million ($20.6 million in 1996) in real estate and none ($5.9 million in 1996) in other long-term investments. An analysis of investment income by investment type follows for the years ended December 31:
(in millions of dollars) 1997 1996 1995 ----------- --------- --------- Gross investment income: Securities available-for-sale: Fixed maturity securities $ 911.6 $ 917.1 $ 685.8 Equity securities 0.8 1.3 1.3 Fixed maturity securities held-to-maturity - - 201.8 Mortgage loans on real estate 457.7 432.8 395.5 Real estate 42.9 44.3 38.3 Short-term investments 22.7 4.2 10.6 Other 21.0 4.0 7.2 -------- -------- -------- Total investment income 1,456.7 1,403.7 1,340.5 Less investment expenses 47.5 45.9 46.5 -------- -------- -------- Net investment income $1,409.2 $1,357.8 $1,294.0 ======== ======== ========
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
(in millions of dollars) 1997 1996 1995 --------- --------- -------- Securities available-for-sale: Fixed maturity securities $ 3.6 $(3.5) $ 4.2 Equity securities 2.7 3.2 3.4 Mortgage loans on real estate 1.6 (4.1) (7.1) Real estate and other 3.2 4.1 (2.2) ------ ------ ------ $11.1 $(0.3) $(1.7) ====== ====== ======
Fixed maturity securities with an amortized cost of $6.2 million as of December 31, 1997 and 1996 were on deposit with various regulatory agencies as required by law. 13 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (4) FUTURE POLICY BENEFITS AND CLAIMS The liability for future policy benefits for investment contracts represents approximately 86% and 87% of the total liability for future policy benefits as of December 31, 1997 and 1996, respectively. The average interest rate credited on investment product policies was approximately 6.1%, 6.3% and 6.6% for the years ended December 31, 1997, 1996 and 1995, respectively. The liability for future policy benefits for traditional life insurance policies has been established based upon the following assumptions: INTEREST RATES: Interest rates vary by issue year and were 6.9% and 6.6% in 1997 and 1996, respectively. Interest rates have generally ranged from 6.0% to 10.5% for previous issue years. WITHDRAWALS: Rates, which vary by issue age, type of coverage and policy duration, are based on Company experience. MORTALITY: Mortality and morbidity rates are based on published tables, modified for the Company's actual experience. The Company has entered into a reinsurance contract to cede a portion of its general account individual annuity business to The Franklin Life Insurance Company (Franklin). Total recoveries due from Franklin were $220.2 million and $240.5 million as of December 31, 1997 and 1996, respectively. The contract is immaterial to the Company's results of operations. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. Under the terms of the contract, Franklin has established a trust as collateral for the recoveries. The trust assets are invested in investment grade securities, the market value of which must at all times be greater than or equal to 102% of the reinsured reserves. The Company has reinsurance agreements with certain affiliates as described in note 11. All other reinsurance agreements are not material to either premiums or reinsurance recoverables. (5) FEDERAL INCOME TAX The Company's current federal income tax liability was $60.1 million and $30.2 million as of December 31, 1997 and 1996, respectively. 14 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 1997 and 1996 are as follows:
(in millions of dollars) 1997 1996 ---------- ---------- Deferred tax assets: Future policy benefits $200.1 $183.0 Liabilities in Separate Accounts 242.0 188.4 Mortgage loans on real estate and real estate 19.0 23.4 Other assets and other liabilities 59.2 53.7 ------- ------ Total gross deferred tax assets 520.3 448.5 Less valuation allowance (7.0) (7.0) ------- ------ Net deferred tax assets 513.3 441.5 ------- ------ Deferred tax liabilities: Deferred policy acquisition costs 480.5 399.3 Fixed maturity securities 193.3 133.2 Deferred tax on realized investment gains 40.1 37.6 Equity securities and other long-term investments 7.5 8.2 Other 22.2 25.4 ------- ------ Total gross deferred tax liabilities 743.6 603.7 ------- ------ Net deferred tax liability $230.3 $162.2 ======= ======
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the total gross deferred tax assets will not be realized. Nearly all future deductible amounts can be offset by future taxable amounts or recovery of federal income tax paid within the statutory carryback period. There has been no change in the valuation allowance for the years ended December 31, 1997, 1996 and 1995. Federal income tax expense attributable to income from continuing operations for the years ended December 31 was as follows:
(in millions of dollars) 1997 1996 1995 --------- --------- --------- Currently payable $121.7 $116.5 $88.7 Deferred tax expense (benefit) 28.5 (5.6) 11.1 ------ ------ ------ $150.2 $110.9 $99.8 ====== ====== ======
Total federal income tax expense for the years ended December 31, 1997, 1996 and 1995 differs from the amount computed by applying the U.S. federal income tax rate to income before tax as follows:
1997 1996 1995 ---------------------- ---------------------- ---------------------- (in millions of dollars) Amount % Amount % Amount % ---------------------- ------------- -------- ------------- -------- Computed (expected) tax expense $150.5 35.0 $110.4 35.0 $100.6 35.0 Tax exempt interest and dividends received deduction - 0.0 (0.2) (0.1) - 0.0 Other, net (0.3) (0.1) 0.7 0.3 (0.8) (0.3) ------ ---- ------ ---- ------ ---- Total (effective rate of each year) $150.2 34.9 $110.9 35.2 $ 99.8 34.7 ====== ==== ====== ==== ====== ====
Total federal income tax paid was $91.8 million, $115.8 million and $51.8 million during the years ended December 31, 1997, 1996 and 1995, respectively. 15 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures summarize the carrying amount and estimated fair value of the Company's financial instruments. Certain assets and liabilities are specifically excluded from the disclosure requirements of financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The fair value of a financial instrument is defined as the amount at which the financial instrument could be exchanged in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is to be based on estimates using present value or other valuation techniques. Many of the Company's assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by management using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instruments. Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from the disclosure requirements, estimated fair value of policy reserves on life insurance contracts is provided to make the fair value disclosures more meaningful. The tax ramifications of the related unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following methods and assumptions were used by the Company in estimating its fair value disclosures: FIXED MATURITY AND EQUITY SECURITIES: The fair value for fixed maturity securities is based on quoted market prices, where available. For fixed maturity securities not actively traded, fair value is estimated using values obtained from independent pricing services or, in the case of private placements, is estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities is based on quoted market prices. MORTGAGE LOANS ON REAL ESTATE, NET: The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair value for mortgage loans in default is the estimated fair value of the underlying collateral. POLICY LOANS, SHORT-TERM INVESTMENTS AND CASH: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets held in Separate Accounts is based on quoted market prices. The fair value of liabilities related to Separate Accounts is the amount payable on demand, which includes certain surrender charges. INVESTMENT CONTRACTS: The fair value for the Company's liabilities under investment type contracts is disclosed using two methods. For investment contracts without defined maturities, fair value is the amount payable on demand. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. 16 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are disclosures for individual life insurance, universal life insurance and supplementary contracts with life contingencies for which the estimated fair value is the amount payable on demand. Also included are disclosures for the Company's limited payment policies, which the Company has used discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value. COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have nominal fair value because of the short-term nature of such commitments. See note 13. Carrying amount and estimated fair value of financial instruments subject to disclosure requirements and policy reserves on life insurance contracts were as follows as of December 31:
1997 1996 ------------------------------ ------------------------------- Carrying Estimated Carrying Estimated (in millions of dollars) amount fair value amount fair value ------------------------------ --------------- --------------- Assets: Investments: Securities available-for-sale: Fixed maturity securities $13,204.1 $13,204.1 $12,304.6 $12,304.6 Equity securities 80.4 80.4 59.1 59.1 Mortgage loans on real estate, net 5,181.6 5,509.7 5,272.1 5,397.9 Policy loans 415.3 415.3 371.8 371.8 Short-term investments 358.4 358.4 4.8 4.8 Cash 175.6 175.6 43.8 43.8 Assets held in Separate Accounts 37,724.4 37,724.4 26,926.7 26,926.7 Liabilities: Investment contracts 14,708.2 14,322.1 13,914.4 13,484.5 Policy reserves on life insurance contracts 3,345.4 3,182.4 3,392.8 3,197.5 Liabilities related to Separate Accounts 37,724.4 36,747.0 26,926.7 26,164.2
(7) RISK DISCLOSURES The following is a description of the most significant risks facing life insurers and how the Company mitigates those risks: LEGAL/REGULATORY RISK: The risk that changes in the legal or regulatory environment in which an insurer operates will result in increased competition, reduce demand for a company's products, or create additional expenses not anticipated by the insurer in pricing its products. The Company mitigates this risk by offering a wide range of products and by operating throughout the United States, thus reducing its exposure to any single product or jurisdiction, and also by employing underwriting practices which identify and minimize the adverse impact of this risk. CREDIT RISK: The risk that issuers of securities owned by the Company or mortgagors on mortgage loans on real estate owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible. 17 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued INTEREST RATE RISK: The risk that interest rates will change and cause a decrease in the value of an insurer's investments. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business through management of its investment portfolio. These financial instruments include commitments to extend credit in the form of loans. These instruments involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. Commitments to fund fixed rate mortgage loans on real estate are agreements to lend to a borrower, and are subject to conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a deposit. Commitments extended by the Company are based on management's case-by-case credit evaluation of the borrower and the borrower's loan collateral. The underlying mortgage property represents the collateral if the commitment is funded. The Company's policy for new mortgage loans on real estate is to lend no more than 75% of collateral value. Should the commitment be funded, the Company's exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amounts of these commitments less the net realizable value of the collateral. The contractual amounts also represent the cash requirements for all unfunded commitments. Commitments on mortgage loans on real estate of $341.4 million extending into 1998 were outstanding as of December 31, 1997. The Company also had $63.9 million of commitments to purchase fixed maturity securities outstanding as of December 31, 1997. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly commercial mortgage loans on real estate to customers throughout the United States. The Company has a diversified portfolio with no more than 20% (21% in 1996) in any geographic area and no more than 2% (2% in 1996) with any one borrower as of December 31, 1997. As of December 31, 1997, 46% (44% in 1996) of the remaining principal balance of the Company's commercial mortgage loan portfolio financed retail properties. The Company had a significant reinsurance recoverable balance from one reinsurer as of December 31, 1997 and 1996. See note 4. (8) PENSION PLAN The Company is a participant, together with other affiliated companies, in a pension plan covering all employees who have completed at least one year of service. Benefits are based upon the highest average annual salary of a specified number of consecutive years of the last ten years of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work efforts benefit the Company. Effective January 1, 1995, the plan was amended to provide enhanced benefits for participants who met certain eligibility requirements and elected early retirement no later than March 15, 1995. The entire cost of the enhanced benefit was borne by NMIC and certain of its property and casualty insurance company affiliates. 18 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Effective December 31, 1995, the Nationwide Insurance Companies and Affiliates Retirement Plan was merged with the Farmland Mutual Insurance Company Employees' Retirement Plan and the Wausau Insurance Companies Pension Plan to form the Nationwide Insurance Enterprise Retirement Plan (the Retirement Plan). Immediately prior to the merger, the plans were amended to provide consistent benefits for service after January 1, 1996. These amendments had no significant impact on the accumulated benefit obligation or projected benefit obligation as of December 31, 1995. Pension costs charged to operations by the Company during the years ended December 31, 1997, 1996 and 1995 were $7.5 million, $7.4 million and $10.5 million, respectively. The Company had no net accrued pension expense as of December 31, 1997 ($1.1 million as of December 31, 1996). The net periodic pension cost for the Retirement Plan as a whole for the years ended December 31, 1997 and 1996 and for the Nationwide Insurance Companies and Affiliates Retirement Plan as a whole for the year ended December 31, 1995 follows:
(in millions of dollars) 1997 1996 1995 ----------- ----------- ----------- Service cost (benefits earned during the period) $ 77.3 $ 75.5 $ 64.5 Interest cost on projected benefit obligation 118.6 105.5 95.3 Actual return on plan assets (328.0) (210.6) (249.3) Net amortization and deferral 196.4 101.8 143.4 -------- -------- -------- $ 64.3 $ 72.2 $ 53.9 ======== ======== ========
Basis for measurements, net periodic pension cost:
1997 1996 1995 ----------- ----------- ----------- Weighted average discount rate 6.50% 6.00% 7.50% Rate of increase in future compensation levels 4.75% 4.25% 6.25% Expected long-term rate of return on plan assets 7.25% 6.75% 8.75%
Information regarding the funded status of the Retirement Plan as a whole as of December 31, 1997 and 1996 follows:
(in millions of dollars) 1997 1996 ----------- ----------- Accumulated benefit obligation: Vested $1,547.5 $1,338.6 Nonvested 13.5 11.1 -------- --------- $1,561.0 $1,349.7 ======== ========= Net accrued pension expense: Projected benefit obligation for services rendered to date $2,033.8 $1,847.8 Plan assets at fair value 2,212.9 1,947.9 --------- --------- Plan assets in excess of projected benefit obligation 179.1 100.1 Unrecognized prior service cost 34.7 37.9 Unrecognized net gains (330.7) (202.0) Unrecognized net asset at transition 33.3 37.2 --------- --------- $ (83.6) $ (26.8) ========= =========
19 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Basis for measurements, funded status of plan:
1997 1996 ----------- ----------- Weighted average discount rate 6.00% 6.50% Rate of increase in future compensation levels 4.25% 4.75%
Assets of the Retirement Plan are invested in group annuity contracts of NLIC and Employers Life Insurance Company of Wausau (ELICW). (9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to the defined benefit pension plan, the Company, together with other affiliated companies, participates in life and health care defined benefit plans for qualifying retirees. Postretirement life and health care benefits are contributory and generally available to full time employees who have attained age 55 and have accumulated 15 years of service with the Company after reaching age 40. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Company's portion of the per-participant cost of the postretirement health care benefits. These caps can increase annually, but not more than three percent. The Company's policy is to fund the cost of health care benefits in amounts determined at the discretion of management. Plan assets are invested primarily in group annuity contracts of NLIC. The Company elected to immediately recognize its estimated accumulated postretirement benefit obligation (APBO), however, certain affiliated companies elected to amortize their initial transition obligation over periods ranging from 10 to 20 years. The Company's accrued postretirement benefit expense as of December 31, 1997 and 1996 was $36.5 million and $34.9 million, respectively, and the net periodic postretirement benefit cost (NPPBC) for 1997, 1996 and 1995 was $3.0 million, $3.3 million and $3.1 million, respectively. Information regarding the funded status of the plan as a whole as of December 31, 1997 and 1996 follows:
(in millions of dollars) 1997 1996 ----------- ----------- Accrued postretirement benefit expense: Retirees $ 93.3 $ 93.0 Fully eligible, active plan participants 31.6 23.7 Other active plan participants 113.0 84.0 -------- -------- Accumulated postretirement benefit obligation 237.9 200.7 Plan assets at fair value 69.2 63.0 -------- -------- Plan assets less than accumulated postretirement benefit obligation (168.7) (137.7) Unrecognized transition obligation of affiliates 1.5 1.7 Unrecognized net losses (gains) 1.6 (23.2) -------- -------- $(165.6) $(159.2) ======== ========
20 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The amount of NPPBC for the plan as a whole for the years ended December 31, 1997, 1996 and 1995 was as follows:
(in millions of dollars) 1997 1996 1995 ----------- ------------ ------------ Service cost (benefits attributed to employee service during the year) $ 7.0 $ 6.5 $ 6.2 Interest cost on accumulated postretirement benefit obligation 14.0 13.7 14.2 Actual return on plan assets (3.6) (4.3) (2.7) Amortization of unrecognized transition obligation of affiliates 0.2 0.2 3.0 Net amortization and deferral (0.5) 1.8 (1.6) ------- ------ ------ $17.1 $17.9 $19.1 ======= ====== ======
Actuarial assumptions used for the measurement of the APBO and the NPPBC for 1997, 1996 and 1995 were as follows:
1997 1996 1995 ----------- ----------- ----------- APBO: Discount rate 6.70% 7.25% 6.75% Assumed health care cost trend rate: Initial rate 12.13% 11.00% 11.00% Ultimate rate 6.12% 6.00% 6.00% Uniform declining period 12 Years 12 Years 12 Years NPPBC: Discount rate 7.25% 6.65% 8.00% Long term rate of return on plan assets, net of tax 5.89% 4.80% 8.00% Assumed health care cost trend rate: Initial rate 11.00% 11.00% 10.00% Ultimate rate 6.00% 6.00% 6.00% Uniform declining period 12 Years 12 Years 12 Years
For the plan as a whole, a one percentage point increase in the assumed health care cost trend rate would increase the APBO as of December 31, 1997 by $0.4 million and have no impact on the NPPBC for the year ended December 31, 1997. (10) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS AND DIVIDEND RESTRICTIONS Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. NLIC and NLAIC each exceed the minimum risk-based capital requirements. 21 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The statutory capital and surplus of NLIC as of December 31, 1997, 1996 and 1995 was $1.13 billion, $1.00 billion and $1.36 billion, respectively. The statutory net income of NLIC for the years ended December 31, 1997, 1996 and 1995 was $111.7 million, $73.2 million and $86.5 million, respectively. As a result of the $850.0 million dividend paid on February 24, 1997, any dividend paid by NLIC during the twelve-month period immediately following the $850.0 million dividend would be an extraordinary dividend under Ohio insurance laws. Accordingly, no such dividend could be paid without prior regulatory approval. The Company has no reason to believe that any reasonably foreseeable dividend to be paid by NLIC would not receive the required approval. In addition, the payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of New York that limit the amount of statutory profits on NLIC's participating policies (measured before dividends to policyholders) that can inure to the benefit of the Company and its shareholder. The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses and shareholder dividends in the future. (11) TRANSACTIONS WITH AFFILIATES As part of the restructuring described in note 1, NLIC paid a dividend valued at $485.7 million to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of ELICW, National Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC). Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid an equivalent dividend to Nationwide Corp., consisting of securities having an aggregate fair value of $850.0 million. The Company recognized a gain of $14.4 million on the transfer of securities. The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 1997, 1996 and 1995, the Company made lease payments to NMIC and its subsidiaries of $8.4 million, $9.1 million and $9.0 million, respectively. Pursuant to a cost sharing agreement among NMIC and certain of its direct and indirect subsidiaries, including the Company, NMIC provides certain operational and administrative services, such as sales support, advertising, personnel and general management services, to those subsidiaries. Expenses covered by this agreement are subject to allocation among NMIC, the Company and other affiliates. Amounts allocated to the Company were $85.8 million, $101.6 million and $107.1 million in 1997, 1996 and 1995, respectively. The allocations are based on techniques and procedures in accordance with insurance regulatory guidelines. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commissions expense and other methods agreed to by the participating companies that are within industry guidelines and practices. The Company believes these allocation methods are reasonable. In addition, the Company does not believe that expenses recognized under the inter-company agreements are materially different than expenses that would have been recognized had the Company operated on a stand alone basis. Amounts payable to NMIC from the Company under the cost sharing agreement were $20.5 million and $15.1 million as of December 31, 1997 and 1996, respectively. The Company also participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or a stated period, the securities will be repurchased by the seller at the original sales price plus a price differential. Transactions under the agreements during 1997 and 1996 were not material. The Company believes that the terms of the repurchase agreements are materially consistent with what the Company could have obtained with unaffiliated parties. 22 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Intercompany reinsurance agreements exist between NLIC and, respectively, NMIC and ELICW whereby all of NLIC's accident and health and group life insurance business is ceded on a modified coinsurance basis. NLIC entered into the reinsurance agreements during 1996 because the accident and health and group life insurance business was unrelated to the Company's long-term savings and retirement products. Accordingly, the accident and health and group life insurance business has been accounted for as discontinued operations for all periods presented. Under modified coinsurance agreements, invested assets are retained by the ceding company and investment earnings are paid to the reinsurer. Under the terms of the Company's agreements, the investment risk associated with changes in interest rates is borne by ELICW or NMIC, as the case may be. Risk of asset default is retained by the Company, although a fee is paid by ELICW or NMIC, as the case may be, to the Company for the Company's retention of such risk. The agreements will remain in force until all policy obligations are settled. However, with respect to the agreement between NLIC and NMIC, either party may terminate the contract on January 1 of any year with prior notice. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. The Company believes that the terms of the modified coinsurance agreements are consistent in all material respects with what the Company could have obtained with unaffiliated parties. Amounts ceded to NMIC and ELICW for the years ended December 31, 1997 and 1996 were:
1997 1996 ---------------------------- ---------------------------- (in millions of dollars) NMIC ELICW NMIC ELICW -------------- ------------- ---------------------------- Premiums $ 91.4 $199.8 $ 97.3 $224.2 Net investment income and other revenue $ 10.7 $ 13.4 $ 10.9 $ 14.8 Benefits, claims and other expenses $100.7 $225.9 $100.5 $246.6
The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC), an affiliate, under which NCMC acts as a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC were $211.0 million and $4.8 million as of December 31, 1997 and 1996, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. On March 1, 1995, Nationwide Corp. contributed all of the outstanding shares of common stock of Farmland Life Insurance Company (Farmland) to NLIC. Farmland merged into WCLIC effective June 30, 1995. The contribution resulted in a direct increase to consolidated shareholder's equity of $46.9 million. As discussed in note 15, WCLIC is accounted for as discontinued operations. Certain annuity products are sold through three affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the three years ended December 31, 1997 were $66.1 million, $76.9 million and $57.3 million, respectively. (12) BANK LINES OF CREDIT In August 1996, NLIC, along with NMIC, entered into a $600.0 million revolving credit facility which provides for a $600.0 million loan over a five year term on a fully revolving basis with a group of national financial institutions. The credit facility provides for several and not joint liability with respect to any amount drawn by either NLIC or NMIC. NLIC and NMIC pay facility and usage fees to the financial institutions to maintain the revolving credit facility. All previously existing line of credit agreements were canceled. In September 1997, the credit agreement was amended to include NFS as a party to and borrower under the agreement. 23 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (13) CONTINGENCIES The Company is a defendant in various lawsuits. In the opinion of management, the effects, if any, of such lawsuits are not expected to be material to the Company's financial position or results of operations. (14) SEGMENT INFORMATION The Company has three product segments: Variable Annuities, Fixed Annuities and Life Insurance. The Variable Annuities segment consists of annuity contracts that provide the customer with the opportunity to invest in mutual funds managed by the Company and independent investment managers, with the investment returns accumulating on a tax-deferred basis. The Fixed Annuities segment consists of annuity contracts that generate a return for the customer at a specified interest rate, fixed for a prescribed period, with returns accumulating on a tax-deferred basis. The Fixed Annuities segment also includes the fixed option under the Company's variable annuity contracts. The Life Insurance segment consists of insurance products that provide a death benefit and may also allow the customer to build cash value on a tax-deferred basis. In addition, the Company reports corporate expenses and investments, and the related investment income supporting capital not specifically allocated to its product segments in a Corporate and Other segment. In addition, all realized gains and losses and investment management fees and other revenue earned from mutual funds, other than the portion allocated to the variable annuities and life insurance segments, are reported in the Corporate and Other segment. The following table summarizes revenues and income from continuing operations before federal income tax expense for the years ended December 31, 1997, 1996 and 1995 and assets as of December 31, 1997, 1996 and 1995, by segment.
(in millions of dollars) 1997 1996 1995 ------------- ------------ ------------ Revenues: Variable Annuities $ 404.0 $ 284.6 $ 189.1 Fixed Annuities 1,141.4 1,092.6 1,052.0 Life Insurance 473.1 435.6 409.1 Corporate and Other 198.9 180.1 148.5 ----------- ---------- ---------- $ 2,217.4 $ 1,992.9 $ 1,798.7 =========== ========== ========== Income from continuing operations before federal income tax expense: Variable Annuities $ 150.9 $ 90.3 $ 50.8 Fixed Annuities 169.5 135.4 137.0 Life Insurance 70.9 67.2 67.6 Corporate and Other 38.6 22.6 32.2 ----------- ---------- ---------- $ 429.9 $ 315.5 $ 287.6 =========== ========== ========== Assets: Variable Annuities $ 35,278.7 $ 25,069.7 $ 17,333.0 Fixed Annuities 14,436.3 13,994.7 13,250.4 Life Insurance 3,901.4 3,353.3 3,027.4 Corporate and Other 6,174.3 5,348.6 4,896.8 ----------- ---------- ---------- $ 59,790.7 $ 47,766.3 $ 38,507.6 =========== ========== ==========
24 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (15) DISCONTINUED OPERATIONS As discussed in note 1, NFS is a holding company for NLIC and certain other companies within the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. Prior to the contribution by Nationwide Corp. of the outstanding common stock of NLIC to NFS, NLIC effected certain transactions with respect to certain subsidiaries and lines of business that were unrelated to long-term savings and retirement products. On September 24, 1996, NLIC's Board of Directors declared a dividend payable to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group accident and health and group life insurance business and maintains it offices in Wausau, Wisconsin. NCC is a property and casualty company with offices in Scottsdale, Arizona that serves as a fronting company for a property and casualty subsidiary of NMIC. WCLIC writes high dollar term life insurance policies and is located in San Francisco, California. ELICW, NCC and WCLIC have been accounted for as discontinued operations in the accompanying consolidated financial statements through December 31, 1996. The Company did not recognize any gain or loss on the disposal of these subsidiaries. Also, during 1996, NLIC entered into two reinsurance agreements whereby all of NLIC's accident and health and group life insurance business was ceded to ELICW and NMIC, effective January 1, 1996. See note 11 for a complete discussion of the reinsurance agreements. The Company has discontinued its accident and health and group life insurance business and in connection therewith has entered into reinsurance agreements to cede all existing and any future writings to other affiliated companies. NLIC's accident and health and group life insurance business is accounted for as discontinued operations for all periods presented. The Company did not recognize any gain or loss on the disposal of the accident and health and group life insurance business. The assets, liabilities, results of operations and activities of discontinued operations are distinguished physically, operationally and for financial reporting purposes from the remaining assets, liabilities, results of operations and activities of the Company. A summary of the results of operations of discontinued operations for the years ended December 31, 1997, 1996 and 1995 is as follows:
(in millions of dollars) 1997 1996 1995 -------------- ------------- ------------ Revenues $ - $ 668.9 $ 776.9 Net income $ - $ 11.3 $ 24.7
A summary of the assets and liabilities of discontinued operations as of December 31, 1997, 1996 and 1995 is as follows:
(in millions of dollars) 1997 1996 1995 -------------- ------------- ------------- Assets, consisting primarily of investments $247.3 $3,288.5 $3,206.7 Liabilities, consisting primarily of policy benefits and claims $247.3 $2,802.8 $2,700.0
61 1 SCHEDULE I NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES (in millions of dollars) As of December 31, 1997
- ----------------------------------------------------------------------------- ------------- -------------- --------------- Column A Column B Column C Column D - ----------------------------------------------------------------------------- ------------- -------------- --------------- Amount at which shown in the Market consolidated Type of Investment Cost value balance sheet - ----------------------------------------------------------------------------- ------------- -------------- --------------- Fixed maturity securities available-for-sale: Bonds: U.S. Government and government agencies and authorities $ 3,859.7 $ 3,981.7 $ 3,981.7 States, municipalities and political subdivisions 1.6 1.6 1.6 Foreign governments 93.3 95.8 95.8 Public utilities 1,555.3 1,609.8 1,609.8 All other corporate 7,223.0 7,515.2 7,515.2 ---------- ---------- ---------- Total fixed maturity securities available-for-sale 12,732.9 13,204.1 13,204.1 ---------- ---------- ---------- Equity securities available-for-sale: Common stocks: Industrial, miscellaneous and all other 67.8 78.0 78.0 Non-redeemable preferred stock - 2.4 2.4 ---------- ---------- ---------- Total equity securities available-for-sale 67.8 80.4 80.4 ---------- ---------- ---------- Mortgage loans on real estate, net 5,228.1 5,181.6 (1) Real estate, net: Investment properties 254.9 235.7 (1) Acquired in satisfaction of debt 82.6 75.7 (1) Policy loans 415.3 415.3 Other long-term investments 27.9 25.2 (2) Short-term investments 358.4 358.4 ---------- ---------- Total investments $19,167.9 $19,576.4 ========== ==========
- ---------- (1) Difference from Column B is primarily due to valuation allowances due to impairments on mortgage loans on real estate and due to accumulated depreciation and valuation allowances due to impairments on real estate. See note 3 to the consolidated financial statements. (2) Difference from Column B is primarily due to operating gains (losses) of investments in limited partnerships. See accompanying independent auditors' report. 2 SCHEDULE III NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION (in millions of dollars) As of December 31, 1997, 1996 and 1995 and for each of the years then ended
- -------------------------------- ----------------- -------------------- ------------------- ------------------ --------------- Column A Column B Column C Column D Column E Column F - -------------------------------- ----------------- -------------------- ------------------- ------------------ --------------- Deferred Future policy Other policy policy benefits, losses, Unearned claims and acquisition claims and premiums benefits payable Premium Segment costs loss expenses (1) (1) revenue - ------------------------------- ------------------ -------------------- ------------------- ------------------ --------------- 1997: Variable Annuities $1,018.4 $ - $ - Fixed Annuities 277.9 14,103.1 27.3 Life Insurance 472.9 2,683.4 178.1 Corporate and Other (103.8) 1,916.3 - -------- ------------- --------- Total $1,665.4 $18,702.8 $ 205.4 ======== ============= ========= 1996: Variable Annuities $ 792.1 $ - $ - Fixed Annuities 242.0 13,388.9 24.0 Life Insurance 414.4 2,391.5 174.6 Corporate and Other (82.0) 1,820.2 - -------- ------------- --------- Total $1,366.5 $17,600.6 $ 198.6 ======== ============= ========= 1995: Variable Annuities $ 569.8 $ - $ - Fixed Annuities 220.7 12,759.3 32.8 Life Insurance 366.9 2,282.6 166.3 Corporate and Other (136.9) 1,730.0 - -------- ------------- --------- Total $1,020.5 $ 16,771.9 $ 199.1 ======== ============= ========= - ---------------------------------------------------- -------------------- ------------------- ------------------ --------------- Column A Column G Column H Column I Column J Column K - ---------------------------------------------------- -------------------- ------------------- ------------------ ---------------- Net investment Benefits, claims, Amortization Other income losses and of deferred policy operating Premiums Segment (2) settlement expenses acquisition costs expenses written (2) - ---------------------------------------------------- -------------------- ------------------- ------------------ --------------- 1997: Variable Annuities $ (26.8) $ 5.9 $ 87.8 $ 159.4 Fixed Annuities 1,098.2 846.7 39.8 85.4 Life Insurance 189.1 227.5 39.6 94.5 Corporate and Other 148.7 114.7 - 45.6 -------- ---------- ------- ------- Total $1,409.2 $ 1,194.8 $ 167.2 $ 384.9 ======== ========== ======= ======= 1996: Variable Annuities $ (21.4) $ 4.6 $ 57.4 $ 132.3 Fixed Annuities 1,050.6 838.5 38.6 79.7 Life Insurance 174.0 211.4 37.4 79.0 Corporate and Other 154.6 106.1 - 51.4 -------- ---------- ------- ------- Total $1,357.8 $ 1,160.6 $ 133.4 $ 342.4 ======== ========== ======= ======= 1995: Variable Annuities $ (17.6) $ 2.9 $ 26.3 $ 109.1 Fixed Annuities 1,002.7 805.0 29.5 80.3 Life Insurance 171.2 202.0 31.0 68.8 Corporate and Other 137.7 105.6 (4.1) 14.8 -------- ---------- ------- ------- Total $1,294.0 $ 1,115.5 $ 82.7 $ 273.0 ======== ========== ======= =======
- ---------- (1) Unearned premiums and other policy claims and benefits payable are included in Column C amounts. (2) Allocations of net investment income and certain operating expenses are based on a number of assumptions and estimates, and reported operating results would change by segment if different methods were applied. See accompanying independent auditors' report. 3 SCHEDULE IV NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES REINSURANCE (in millions of dollars) As of December 31, 1997, 1996 and 1995 and for each of the years then ended
- ----------------------------------------------- --------------- -------------- ------------- ------------- ------------ Column A Column B Column C Column D Column E Column F - ----------------------------------------------- --------------- -------------- ------------- ------------- ------------ Percentage Ceded to Assumed of amount Gross other from other Net assumed amount companies companies amount to net --------------- -------------- ------------- ------------- ------------ 1997: Life insurance in force $ 52,648.4 $13,678.7 $ 289.7 $ 39,259.4 0.7% =========== ========= ======== =========== ======= Premiums: Life insurance $ 235.9 $ 32.7 $ 2.2 $ 205.4 1.1% Accident and health insurance 261.2 272.6 11.4 - N/A ----------- ---------- --------- ----------- ------- Total $ 497.1 $ 305.3 $ 13.6 $ 205.4 6.6% =========== ========= ========= =========== ======= 1996: Life insurance in force $47,150.6 $11,164.6 $ 288.6 $ 36,274.6 0.8% =========== ========= ======== =========== ======= Premiums: Life insurance $ 225.6 $ 29.3 $ 2.3 $ 198.6 1.2% Accident and health insurance 291.9 305.8 13.9 - N/A ----------- --------- -------- ----------- ------- Total $ 517.5 $ 335.1 $ 16.2 $ 198.6 8.2% =========== ========= ======== =========== ======= 1995: Life Insurance in force $41,087.9 $ 8,935.7 $ 391.2 $ 32,543.4 1.2% =========== ========= ======== =========== ======= Premiums: Life insurance $ 221.3 $ 24.4 $ 2.2 $ 199.1 1.1% Accident and health insurance 298.0 313.0 15.0 - N/A ----------- --------- -------- ----------- ------- Total $ 519.3 $ 337.4 $ 17.2 $ 199.1 8.6% =========== ========= ======== =========== =======
- ---------- Note: The life insurance caption represents principally premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on investment products and universal life insurance products. See accompanying independent auditors' report. 4 SCHEDULE V NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (in millions of dollars) Years ended December 31, 1997, 1996 and 1995
- ---------------------------------------------------------------------------------------------------- ------------- ------------- Column A Column B Column C Column D Column E - --------------------------------------------------- ----------------------------------------------- ------------- ------------- Balance at Charged to Charged to Balance at beginning costs and other Deductions end of Description of period expenses accounts (1) period - --------------------------------------------------- -------------------------------- ------------- ------------- ------------- 1997: Valuation allowances - fixed maturity securities $ - $ 16.2 $ - $ 16.2 $ - Valuation allowances - mortgage loans on real estate 51.0 (1.2) - 7.3 42.5 Valuation allowances - real estate 15.2 (4.1) - - 11.1 -------- ------ ------- ------- ------- Total $ 66.2 $ 10.9 $ - $ 23.5 $ 53.6 ======== ====== ======= ======= ======= 1996: Valuation allowances - mortgage loans on real estate $ 49.1 $ 4.5 $ - $ 2.6 $ 51.0 Valuation allowances - real estate 25.8 (10.6) - - 15.2 -------- ------ ------- ------- ------- Total $ 74.9 $ (6.1) $ - $ 2.6 $ 66.2 ======== ====== ======= ======= ======= 1995: Valuation allowances - fixed maturity securities $ - $ 8.9 $ - $ 8.9 $ - Valuation allowances - mortgage loans on real estate 46.4 7.4 - 4.7 49.1 Valuation allowances - real estate 27.3 (1.5) - - 25.8 -------- ------ ------- ------- ------- Total $ 73.7 $ 14.8 $ - $ 13.6 $ 74.9 ======== ====== ======= ======= =======
- ---------- (1) Amounts represent direct write-downs charged against the valuation allowance. See accompanying independent auditors' report. 62 PART C. OTHER INFORMATION Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: PAGE (1) Financial statements included in Prospectus (Part A). Condensed Financial Information N/A (Part B). Those financial statements required by 59 Item 23 to be included in Part B have been incorporated therein by reference to the Prospectus (Part A). Nationwide Variable Account-9: Independent Auditors' Report. 59 Statement of Assets, Liabilities and Contract 60 Owners' Equity as of December 31, 1997. Statements of Operations and Changes in 62 Contract Owners' Equity for the period November 3, 1997 (commencement of operations) through December 31, 1997. Notes to Financial Statements. 67 Nationwide Life Insurance Company: Independent Auditors' Report. 80 Consolidated Balance Sheets as of December 81 31, 1997 and 1996. Consolidated Statements of Income for the 82 years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Shareholder's 83 Equity for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for 84 the years ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. 85 Schedule I - Consolidated Summary of Investments - Other Than Investments in Related Parties (Included in Part C) 104 Schedule III - Supplementary Insurance Information (Included in Part C) 105 Schedule IV - Reinsurance (Included in Part C) 106 Schedule V - Valuation and Qualifying Accounts (Included in Part C) 107
108 of 126 63 Item 24. (b) Exhibits (1) Resolution of the Depositor's Board of Directors authorizing the establishment of the Registrant - Attached hereto. (2) Not Applicable (3) Underwriting or Distribution of contracts between the Registrant and Principal Underwriter - Attached hereto. (4) The form of the variable annuity contract - Attached hereto. (5) Variable Annuity Application - Attached hereto. (6) Articles of Incorporation of Depositor - Attached hereto. (7) Not Applicable (8) Not Applicable (9) Opinion of Counsel -Attached hereto. (10) Not Applicable (11) Not Applicable (12) Not Applicable (13) Performance Advertising Calculation Schedule - Attached hereto. 109 of 126 64 Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR Lewis J. Alphin Director 519 Bethel Church Road Mount Olive, NC 28365 A. I. Bell Director 4121 North River Road West Zanesville, OH 43701 Keith W. Eckel Director 1647 Falls Road Clarks Summit, PA 18411 Willard J. Engel Director 300 East Marshall Street Marshall, MN 56258 Fred C. Finney Director 1558 West Moreland Road Wooster, OH 44691 Charles L. Fuellgraf, Jr. Director 600 South Washington Street Butler, PA 16001 Joseph J. Gasper President and Chief Operating Officer One Nationwide Plaza and Director Columbus, OH 43215 Dimon R. McFerson Chairman and Chief Executive Officer- One Nationwide Plaza Nationwide Insurance Enterprise Columbus, OH 43215 and Director David O. Miller Chairman of the Board and Director 115 Sprague Drive Hebron, OH 43025 Yvonne L. Montgomery Director 2859 Paces Ferry Road Atlanta, GA 30339 James F. Patterson Director 8765 Mulberry Road Chesterland, OH 44026
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NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR Arden L. Shisler Director 1356 North Wenger Road Dalton, OH 44618 Robert L. Stewart Director 88740 Fairview Road Jewett, OH 43986 Nancy C. Thomas Director 10835 Georgetown Street NE Louisville, OH 44641 Harold W. Weihl Director 14282 King Road Bowling Green, OH 43402 Dennis W. Click Vice President and Secretary One Nationwide Plaza Columbus, OH 43215 Robert A. Oakley Executive Vice President- One Nationwide Plaza Chief Financial Officer Columbus, OH 43215 Robert J. Woodward Jr. Executive Vice President One Nationwide Plaza Chief Investment Officer Columbus, OH 43215 W. Sidney Druen Senior Vice President and General One Nationwide Plaza Counsel and Assistant Secretary Columbus, OH 43215 Harvey S. Galloway, Jr. Senior Vice President-Chief Actuary- One Nationwide Plaza Life, Health and Annuities Columbus, OH 43215 Richard A. Karas Senior Vice President - Sales - One Nationwide Plaza Financial Services Columbus, OH 43215 Susan A. Wolken Senior Vice President - Life One Nationwide Plaza Company Operations Columbus, OH 43215 Michael D. Bleiweiss Vice President- One Nationwide Plaza Individual Annuity Operations Columbus, OH 43215
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NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR Matthew S. Easley Vice President - One Nationwide Plaza Life Marketing and Administrative Services Columbus, OH 43215 Timothy E. Murphy Vice President- One Nationwide Plaza Strategic Marketing Columbus, Ohio 43215 R. Dennis Noice Vice President- One Nationwide Plaza Retail Operations Columbus, OH 43215 Joseph P. Rath One Nationwide Plaza Vice President Columbus, OH 43215
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT. * Subsidiaries for which separate financial statements are filed ** Subsidiaries included in the respective consolidated financial statements *** Subsidiaries included in the respective group financial statements filed for unconsolidated subsidiaries **** other subsidiaries 112 of 126 67
NO. VOTING SECURITIES STATE (SEE ATTACHED OF CHART) UNLESS COMPANY ORGANIZATION OTHERWISE PRINCIPAL BUSINESS INDICATED Affiliate Agency, Inc. Delaware Life Insurance Agency Affiliate Agency of Ohio, Inc. Ohio Life Insurance Agency Allnations, Inc. Ohio Promotes cooperative insurance corporations worldwide American Marine Underwriters, Inc. Florida Underwriting Manager Auto Direkt Insurance Company Germany Insurance Company The Beak and Wire Corporation Ohio Radio Tower Joint Venture California Cash Management Company California Inactive Colonial County Mutual Insurance Texas Insurance Company Company Colonial Insurance Company of Wisconsin Insurance Company Wisconsin Columbus Insurance Brokerage and Germany Insurance Broker Service GMBH Companies Agency, Inc. Wisconsin Insurance Broker Companies Agency Insurance Services California Insurance Broker of California Companies Agency of Alabama, Inc. Alabama Insurance Broker Companies Agency of Georgia, Inc. Georgia Insurance Broker Companies Agency of Idaho, Inc. Idaho Insurance Broker Companies Agency of Kentucky, Inc. Kentucky Insurance Broker Companies Agency of Massachusetts, Massachusetts Insurance Broker Inc. Companies Agency of New York, Inc. New York Insurance Broker Companies Agency of Pennsylvania, Inc. Pennsylvania Insurance Broker Companies Agency of Phoenix, Inc. Arizona Insurance Broker Companies Agency of Texas, Inc. Texas Local Recording Agent (P&C) Companies Annuity Agency of Texas, Texas Group and Variable Contract Agent Inc. Cooperative Service Company Nebraska Insurance Agency Countrywide Services Corporation Delaware Products Liability, Investigative and Claims Management Services EMPLOYERS INSURANCE OF WAUSAU A Wisconsin Mutual Insurance Company Mutual Company
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NO. VOTING SECURITIES STATE (SEE ATTACHED OF CHART) UNLESS COMPANY ORGANIZATION OTHERWISE PRINCIPAL BUSINESS INDICATED ** Employers Life Insurance Company of Wisconsin Life Insurance Company Wausau F & B, Inc. Iowa Insurance Agency Farmland Mutual Insurance Company Iowa Mutual Insurance Company Financial Horizons Distributors Alabama Life Insurance Agency Agency of Alabama, Inc. Financial Horizons Distributors Ohio Life Insurance Agency Agency of Ohio, Inc. Financial Horizons Distributors Oklahoma Life Insurance Agency Agency of Oklahoma, Inc. Financial Horizons Distributors Texas Life Insurance Agency Agency of Texas, Inc. * Financial Horizons Investment Trust Massachusetts Investment Company Financial Horizons Securities Oklahoma Broker Dealer Corporation Gates, McDonald & Company Ohio Cost Control Business Gates, McDonald & Company of Nevada Nevada Self-Insurance Administration Claims Examinations and Data Processing Services Gates, McDonald & Company of New New York Workers Compensation Claims Administration York, Inc. Gates McDonald Health Plus, Inc. Ohio Managed Care Organization Greater La Crosse Health Plans, Inc. Wisconsin Commercial Health and Medicare Supplement Insurance Insurance Intermediaries, Inc. Ohio Insurance Broker and Insurance Agency Irvin L. Schwartz and Associates, Inc. Ohio Insurance Agency Key Health Plan, Inc. California Pre-paid Health Plans Landmark Financial Services of New New York Life Insurance Agency York, Inc. Leben Direkt Insurance Company Germany Life Insurance Company Lone Star General Agency, Inc. Texas Insurance Agency ** MRM Investments, Inc. Ohio Owns and Operates a Recreational Ski Facility ** National Casualty Company Wisconsin Insurance Company National Casualty Company of America, Great Britain Insurance Company Ltd. ** National Premium and Benefit Delaware Insurance Administrative Services Administration Company ** Nationwide Advisory Services, Inc. Ohio Registered Broker-Dealer, Investment Manager and Administrator
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NO. VOTING SECURITIES STATE (SEE ATTACHED OF CHART) UNLESS COMPANY ORGANIZATION OTHERWISE PRINCIPAL BUSINESS INDICATED Nationwide Agency, Inc. Ohio Insurance Agency Nationwide Agribusiness Insurance Iowa Insurance Company Company Nationwide Asset Allocation Trust Massachusetts Investment Company Nationwide Cash Management Company Ohio Investment Securities Agent Nationwide Community Urban Ohio Redevelopment of blighted areas within the Redevelopment Corporation City of Columbus, Ohio Nationwide Corporation Ohio Organized for the purpose of acquiring, holding, encumbering, transferring, or otherwise disposing of shares, bonds, and other evidences of indebtedness, securities, and contracts of other persons, associations, corporations, domestic or foreign and to form or acquire the control of other corporations Nationwide/Dispatch LLC Ohio Engaged in related Arena development Activity Nationwide Financial Institution Delaware Insurance Agency Distributors Agency, Inc. Nationwide Financial Services Capital Delaware Statutory Business Trust Trust Nationwide Financial Services, Ohio Organized for the purpose of acquiring, Inc. holding, encumbering, transferring, or otherwise disposing of shares, bonds, and other evidences of indebtedness, securities, and contracts of other persons, associations, corporations, domestic or foreign and to form or acquire the control of other corporations Nationwide General Insurance Company Ohio Insurance Company Nationwide Global Holdings, Inc. Ohio Holding Company for Enterprise International Operations Nationwide Health Plans, Inc. Ohio Health Maintenance Organization * Nationwide Indemnity Company Ohio Reinsurance Company Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation Foundation Nationwide Insurance Enterprise Ohio Performs shares services functions for the Services, Ltd. Enterprise Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation Inc. Nationwide Investing Foundation Michigan Investment Company * Nationwide Investing Massachusetts Investment Company Foundation II Nationwide Investing Foundation III Ohio Investment Company
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NO. VOTING SECURITIES STATE (SEE ATTACHED OF CHART) UNLESS COMPANY ORGANIZATION OTHERWISE PRINCIPAL BUSINESS INDICATED Nationwide Investment Services Oklahoma Registered Broker-Dealer in Deferred Corporation Compensation Market Nationwide Investors Services, Inc. Ohio Stock Transfer Agent ** Nationwide Life and Annuity Insurance Ohio Life Insurance Company Company ** Nationwide Life Insurance Company Ohio Life Insurance Company Nationwide Lloyds Texas Texas Lloyds Company Nationwide Management Systems, Inc. Ohio Offers Preferred Provider Organization and Other Related Products and Services Nationwide Mutual Fire Insurance Ohio Mutual Insurance Company Company Nationwide Mutual Insurance Company Ohio Mutual Insurance Company Nationwide Properties, Ltd. Ohio Develops, owns and operates real estate and real estate investments Nationwide Property and Casualty Ohio Insurance Company Insurance Company Nationwide Realty Investors, Ltd. Ohio Develops, owns and operates real estate and real estate investments * Nationwide Separate Account Trust Massachusetts Investment Company NEA Valuebuilder Investor Services, Delaware Life Insurance Agency Inc. NEA Valuebuilder Investor Services of Alabama Life Insurance Agency Alabama, Inc. NEA Valuebuilder Investor Services of Arizona Life Insurance Agency Arizona, Inc. NEA Valuebuilder Investor Services of Montana Life Insurance Agency Montana, Inc. NEA Valuebuilder Investor Services of Nevada Life Insurance Agency Nevada, Inc. NEA Valuebuilder Investor Services of Ohio Life Insurance Agency Ohio, Inc. NEA Valuebuilder Investor Services of Oklahoma Life Insurance Agency Oklahoma, Inc. NEA Valuebuilder Investor Services of Texas Life Insurance Agency Texas, Inc. NEA Valuebuilder Investor Services of Wyoming Life Insurance Agency Wyoming, Inc. NEA Valuebuilder Services Insurance Massachusetts Life Insurance Agency Agency, Inc. Neckura General Insurance Company Germany Insurance Company Neckura Holding Company Germany Administrative Service for Neckura Insurance Group Neckura Insurance Company Germany Insurance Company Neckura Life Insurance Company Germany Life Insurance Company
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NO. VOTING SECURITIES STATE (SEE ATTACHED OF CHART) UNLESS COMPANY ORGANIZATION OTHERWISE PRINCIPAL BUSINESS INDICATED NWE, Inc. Ohio Special Investments PEBSCO of Massachusetts Insurance Massachusetts Markets and Administers Deferred Compensation Agency, Inc. Plans for Public Employees PEBSCO of Texas, Inc. Texas Markets and Administers Deferred Compensation Plans for Public Employees Pension Associates of Wausau, Inc. Wisconsin Pension plan administration, record keeping and consulting and compensation consulting Physicians Plus Insurance Corporation Wisconsin Health Maintenance Organization Prevea Health Insurance Plan, Inc. Wisconsin Health Maintenance Organization Public Employees Benefit Services Delaware Markets and Administers Deferred Compensation Corporation Plans for Public Employees Public Employees Benefit Services Alabama Markets and Administers Deferred Compensation Corporation of Alabama Plans for Public Employees Public Employees Benefit Services Arkansas Markets and Administers Deferred Compensation Corporation of Arkansas Plans for Public Employees Public Employees Benefit Services Montana Markets and Administers Deferred Compensation Corporation of Montana Plans for Public Employees Public Employees Benefit Services New Mexico Markets and Administers Deferred Compensation Corporation of New Mexico Plans for Public Employees Scottsdale Indemnity Company Ohio Insurance Company Scottsdale Insurance Company Ohio Insurance Company Scottsdale Surplus Lines Insurance Arizona Excess and Surplus Lines Insurance Company Company SVM Sales GmbH, Neckura Insurance Germany Sales support for Neckura Insurance Group Group TIG Countrywide Insurance Group California Independent Agency Personal Lines Underwriter Wausau (Bermuda) Ltd. Bermuda Rent-a-captive Reinsurer Wausau Business Insurance Company Wisconsin Insurance Company Wausau General Insurance Company Illinois Insurance Company Wausau Insurance Company (U.K.) United Kingdom Insurance and Reinsurance Company Limited Wausau International Underwriters California Special Risks, Excess and Surplus Lines Insurance Underwriting Manager ** Wausau Preferred Health Insurance Wisconsin Insurance and Reinsurance Company Company Wausau Service Corporation Wisconsin Holding Company Wausau Underwriters Insurance Company Wisconsin Insurance Company
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NO. VOTING SECURITIES STATE (SEE ATTACHED OF CHART) UNLESS COMPANY ORGANIZATION OTHERWISE PRINCIPAL BUSINESS INDICATED * MFS Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * NACo Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide DC Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account Nationwide DCVA-II Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Separate Account No. 1 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Multi-Flex Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide VA Separate Account-A Ohio Nationwide Life and Annuity Issuer of Annuity Contracts Separate Account * Nationwide VA Separate Account-B Ohio Nationwide Life and Annuity Issuer of Annuity Contracts Separate Account * Nationwide VA Separate Account-C Ohio Nationwide Life and Annuity Issuer of Annuity Contracts Separate Account Nationwide VA Separate Account-Q Ohio Nationwide Life and Annuity Issuer of Annuity Contracts Separate Account * Nationwide Variable Account Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-II Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-3 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-4 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-5 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Fidelity Advisor Variable Ohio Nationwide Life Separate Issuer of Annuity Contracts Account Account * Nationwide Variable Account-6 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account Nationwide Variable Account-8 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide Variable Account-9 Ohio Nationwide Life Separate Issuer of Annuity Contracts Account * Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Account-A Separate Account Policies Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Account-B Separate Account Policies Nationwide VL Separate Ohio Nationwide Life and Annuity Issuer of Life Insurance Account-C Separate Account Policies * Nationwide VLI Separate Account Ohio Nationwide Life Separate Issuer of Life Insurance Account Policies * Nationwide VLI Separate Account-2 Ohio Nationwide Life Separate Issuer of Life Insurance Account Policies
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* Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance Account Policies Nationwide VLI Separate Account-4 Ohio Nationwide Life Separate Issuer of Life Insurance Account Policies
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(left side) - ------------------------ | NATIONWIDE INSURANCE | | GOLF CHARITIES, INC. | | | | MEMBERSHIP | | NONPROFIT | | CORPORATION | - ------------------------ ------------------------------------------ | EMPLOYERS INSURANCE OF WAUSAU | | A MUTUAL COMPANY | | (EMPLOYERS) | | |======================================== | Contribution Note Cost | | ----------------- ---- | | Casualty $400,000,000 | ------------------------------------------ | ----------------------------------------------------------------------- | | | - --------------------------- --------------------------- ---------------------------- --------------------------- | KEY HEALTH PLAN, INC. | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | | | | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS | |Common Stock: 1,000 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | | |------------ Shares | |------------ Shares | |------------ | | | | | | | | |=========| | | Cost | | Cost | | Cost | || | A TEXAS LLOYDS | | ---- | | ---- | | ---- | || | | |Employers- | |Employers- | |Employers- | || | | | 80% $1,828,478 | |100% $18,683,300| |100% $176,763,000| || | | - --------------------------- --------------------------- ---------------------------- || --------------------------- | || --------------------------------------------------------------------- || | | | || - --------------------------- | --------------------------- | ---------------------------- | || --------------------------- | WAUSAU BUSINESS | | | COMPANIES AGENCY | | | COUNTRYWIDE SERVICES | | || | | | INSURANCE COMPANY | | | OF KENTUCKY, INC. | | | CORPORATION | | || | | |Common Stock: 10,900,000 | | |Common Stock: 1,000 | | |Common Stock: 100 Shares | | || | COMPANIES | |------------ Shares | | |------------ Shares | | |------------ | | || | AGENCY OF | | |---|---| | |---| | | ||==| TEXAS, INC. | | Cost | | | Cost | | | Cost | | || | | | ---- | | | ---- | | | ---- | | || | | |WSC-100% $33,800,000| | |WSC-100% $1,000 | | |WSC-100% $145,852 | | || | | - --------------------------- | --------------------------- | ---------------------------- | || --------------------------- | | | || - --------------------------- | --------------------------- | ---------------------------- | || --------------------------- | WAUSAU UNDERWRITERS | | | COMPANIES AGENCY | | | WAUSAU GENERAL | | || | | | INSURANCE COMPANY | | | OF MASSACHUSETTS, INC. | | | INSURANCE COMPANY | | || | | |Common Stock: 8,750 | | |Common Stock: 1,000 | | |Common Stock: 200,000 | | || | COMPANIES ANNUITY | |------------ Shares | | |------------ Shares | | |------------ Shares | | || | AGENCY OF | | |---|---| | |---| | | ====| TEXAS, INC. | | Cost | | | Cost | | | Cost | | | | | ---- | | | ---- | | | ---- | | | | |WSC-100% $69,560,006| | |WSC-100% $1,000 | | |WSC-100% $39,000,000 | | | | - --------------------------- | --------------------------- | ---------------------------- | --------------------------- | | | - --------------------------- | --------------------------- | ---------------------------- | --------------------------- | GREATER LA CROSSE | | | COMPANIES AGENCY | | | WAUSAU INTERNATIONAL | | | AMERICAN MARINE | | HEALTH PLANS, INC. | | | OF NEW YORK, INC. | | | UNDERWRITERS | | | UNDERWRITERS, INC. | |Common Stock: 3,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 20 | |------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares | | |---|---| | |---| | |------| | | Cost | | | Cost | | | Cost | | | Cost | | ---- | | | ---- | | | ---- | | | ---- | |WSC-33.3% $1,461,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 | - --------------------------- | --------------------------- | ---------------------------- | --------------------------- | | | - --------------------------- | --------------------------- | ---------------------------- | --------------------------- | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES | | OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | AGENCY, INC. | | | | | | | | OF CALIFORNIA | | | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 100 | |------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares | | |---|---| | | | | | | | Cost | | | Cost | | | Cost | | Cost | | ---- | | | ---- | | | ---- | | ---- | |WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | |WSC-100% $10,000 | - --------------------------- | --------------------------- | ---------------------------- --------------------------- | | | - --------------------------- | --------------------------- | ---------------------------- --------------------------- | COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | PENSION ASSOCIATES | | OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | OF WAUSAU, INC. | | | | | | | | CORPORATION | |Common Stock: 1,000 | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | |------------ Shares | |------------ Shares | | |------------ Shares | | |------------ Shares | | | | |-------| | |---|Preferred Stock: 11,540 | | | | | | | | | |--------------- Shares | |Companies Cost | | | | | | | | | |Agency, Inc. ---- | | Cost | | | Cost | | | Cost | |(Wisconsin)-100% $10,000 | | ---- | | | ---- | | | ---- | | | |WSC-100% $1,000 | | |WSC-100% $1,000 | | |WSC-33-1/3% $6,215,459| | | - --------------------------- | --------------------------- | ---------------------------- --------------------------- | | | --------------------------- | ---------------------------- | | WAUSAU | | | PREVEA HEALTH | | | (BERMUDA) LTD. | | | INSURANCE PLAN, INC. | | | Common Stock: 120,000 | | |Common Stock: 3,000 Shares| | | ------------- Shares | | |------------ | ----| | ----| | | | | | | Cost | | Cost | | ---- | | ---- | | WSC-100% $5,000,000| |WSC-33-1/3% $500,000 | --------------------------- ----------------------------
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NATIONWIDE INSURANCE ENTERPRISE(R) (middle) ----------------------------------------------------------------------------- | | | | | NATIONWIDE MUTUAL | =======| INSURANCE COMPANY |================================================ | (CASUALTY) | | | | | ----------------------------------------------------------------------------- | || | | || ------------------------------------------------------------- | || --------------------------------------------------------------------------------------- | || | | - -------------------------------- || | -------------------------------- -------------------------------- | ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING | |Common Stock: 10,330 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) | |------------ | || | | | | | | Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 | | ---- | || | |------------ Shares | |------------ Shares | |Casualty-18.6% $88,320 | || | | Cost | | Cost | |Fire-18.6% $88,463 | || | | ---- | | ---- | |Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 | |--------------- | || | | | | | | | Cost | || | | | | | | | ---- | || | | | | | | |Casualty-6.8% $100,000 | || | | | | | | |Fire-6.8% $100,000 | || | | | | | | - -------------------------------- || | -------------------------------- | -------------------------------- || | | - -------------------------------- || | -------------------------------- | -------------------------------- | FARMLAND MUTUAL | || | | NATIONWIDE PROPERTY | | | NECKURA | | INSURANCE COMPANY | || | | AND CASUALTY | | | INSURANCE COMPANY | |Guaranty Fund | || | | INSURANCE COMPANY | | | | |------------ |========= |----|Common Stock: 60,000 | |--------|Common Stock: 6,000 | |Certificate |-------- | |------------ Shares | | |------------ Shares | |----------- Cost | | | | Cost | | | Cost | | ---- | | | | ---- | | |Neckura- ---- | |Casualty $500,000 | | | |Casualty-100% $6,000,000 | | |100% DM 6,000,000 | - -------------------------------- | | -------------------------------- | -------------------------------- | | | | - -------------------------------- | | -------------------------------- | -------------------------------- | F & B, INC. | | | | COLONIAL INSURANCE | | | NECKURA LIFE | | | | | | COMPANY OF WINCONSIN | | | INSURANCE COMPANY | |Common Stock: 1 Share | | | | (COLONIAL) | | | | |------------ | ------| |----|Common Stock: 1,750 | |--------|Common Stock: 4,000 | | Cost | | | |------------ Shares | | |------------ Shares | | ---- | | | | Cost | | | Cost | |Farmland | | | | ---- | | | ---- | |Mutual-100% $10 | | | |Casualty-100% $41,750,000 | | |Neckura-100% DM 15,825,681 | - -------------------------------- | | -------------------------------- | -------------------------------- | | | - -------------------------------- | | -------------------------------- | -------------------------------- | COOPERATIVE SERVICE | | | | SCOTTSDALE | | | NECKURA GENERAL | | COMPANY | | | | INSURANCE COMPANY | | | INSURANCE COMPANY | |Common Stock: 600 Shares | | | | (SIC) | | | | |------------ | | | |Common Stock: 30,136 | | |Common Stock: 1,500 | | Cost |-------- |----|------------ Shares | ---- |--------|------------ Shares | | ---- | | | Cost | | | | Cost | |Farmland $3,506,173 | | | ---- | | | | ---- | |Mutual-100% | | |Casualty-100% $150,000,000 | | | |Neckura-100% DM 1,656,925 | | | | | | | | | | | | | | | | | | | - -------------------------------- | -------------------------------- | | -------------------------------- | | | - -------------------------------- | -------------------------------- | | -------------------------------- | NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | | COLUMBUS INSURANCE | | INSURANCE COMPANY | | | SURPLUS LINES | | | | BROKERAGE AND SERVICE | |Common Stock: 1,000,000 | | | INSURANCE COMPANY | | | | GmbH | |------------ Shares |------------ | | Common Stock: 100,000 | | | |Common Stock: 1 Share | | | | | ------------ Shares | ---| |--------|------------ | | Cost | | | | | | | Cost | |Casualty-99.9% ---- | | | Cost | | | | ---- | |Other Capital: $26,714,335 | | | ---- | | | |Neckura-100% DM 51,639 | |------------- | | | SIC-100% $6,000,000 | | | | | |Casualty-Ptd. $ 713,576 | | | | | | | | - -------------------------------- | -------------------------------- | | -------------------------------- | | | - -------------------------------- | -------------------------------- | | -------------------------------- | NATIONAL CASUALTY | | | NATIONAL PREMIUM & | | | | LEBEN DIREKT | | COMPANY | | | BENEFIT ADMINISTRATION | | | | INSURANCE COMPANY | | (NC) | | | COMPANY | | | | | |Common Stock: 100 Shares | | |Common Stock: 10,000 | | | |Common Stock: 4,000 Shares | |------------ |------------- |------------ Shares |----- ---------|------------ | | Cost | | Cost | | | Cost | | ---- | | ---- | | | ---- | |Casualty-100% $67,442,439 | |Scottsdale-100% $10,000 | | |Neckura-100% DM 4,000,000 | | | | | | | | | | | | | | | - -------------------------------- -------------------------------- | -------------------------------- | | - -------------------------------- -------------------------------- | -------------------------------- | NCC OF AMERICA, LTD. | | SVM SALES | | | AUTO DIREKT | | (INACTIVE) | | GmbH | | | INSURANCE COMPANY | | | | | | | | | | |Common Stock: 50 Shares | | |Common Stock: 1,500 Shares | | | |------------ |----------------- |------------ | | | | Cost | | Cost | |NC-100% | | ---- | | ---- | | | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 | | | | | | | | | | | | | - -------------------------------- -------------------------------- --------------------------------
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(right side) ------------------------ | NATIONWIDE INSURANCE | | ENTERPRISE FOUNDATION| | | | MEMBERSHIP | | NONPROFIT | | CORPORATION | ------------------------ ----------------------------------------------------------------------------- | | | | | NATIONWIDE MUTUAL | =======| FIRE INSURANCE COMPANY | | (FIRE) | | | | | ----------------------------------------------------------------------------- | - --------------- -------------------------------------------------- | | - ----------------------------------------------------------------------------------------------------------------- | | | | | | -------------------------------- | -------------------------------- ---------------------------------- | | SCOTTSDALE | | | NATIONWIDE | | NATIONWIDE | | | INDEMNITY COMPANY | | | COMMUNITY URBAN | | CORPORATION | | | | | | REDEVELOPMENT | | | | | | | | CORPORATION | |Common Stock: Control: | | |Common Stock: 50,000 | | |Common Stock: 10 Shares | |------------ ------- | |-----|------------ Shares | |----|------------ | |$13,642,432 100% | | | Cost | | | Cost | | Shares Cost | | | ---- | | | ---- | | ------ ---- | | |Casualty-100% $8,800,000 | | |Casualty-100% $1,000 | |Casualty 12,992,922 $751,352,485| | | | | | | |Fire 649,510 24,007,936| | | | | | | | (See Page 2) | | -------------------------------- | -------------------------------- ---------------------------------- | | | -------------------------------- | -------------------------------- | | NATIONWIDE | | | INSURANCE | | | INDEMNITY COMPANY | | | INTERMEDIARIES, INC. | | | | | | | |-----|Common Stock: 28,000 | |----|Common Stock: 1,615 | | |------------ Shares | | |------------ Shares | | | Cost | | | Cost | | | ---- | | | ---- | | |Casualty-100% $294,529,000 | | |Casualty-100% $1,615,000 | | -------------------------------- | -------------------------------- | | | -------------------------------- | -------------------------------- | | LONE STAR | | | NATIONWIDE CASH | | | GENERAL AGENCY, INC. | | | MANAGEMENT COMPANY | | | | | |Common Stock: 100 Shares | ------|Common Stock: 1,000 | |----|------------ | | |------------ Shares | | | Cost | | | Cost | | | ---- | | | ---- | | |Casualty-90% $9,000 | | |Casualty-100% $5,000,000 | | |NW Adv. Serv. 1,000 | | -------------------------------- | -------------------------------- | || | | -------------------------------- | -------------------------------- | | COLONIAL COUNTY MUTUAL | | | CALIFORNIA CASH | | | INSURANCE COMPANY | | | MANAGEMENT | | | | | | (Inactive) | | |Surplus Debentures | | | | | |------------------ | |----| | | | Cost | | | | | | ---- | | | | | |Colonial $500,000 | | |Casualty-100% | | |Lone Star 150,000 | | | | | -------------------------------- | -------------------------------- | | | -------------------------------- | -------------------------------- | | TIG COUNTRYWIDE | | | THE BEAK AND | | | INSURANCE COMPANY | | | WIRE CORPORATION | | |Common Stock 12,500 | | | | -----|------------ Shares | | |Common Stock: 750 Shares | | | | -----|------------ | | | Cost | | | Cost | | | ---- | | | ---- | | |Casualty-100% $215,273,000 | | |Casualty-100% $1,419,000 | | | | | | | | -------------------------------- | | | | | -------------------------------- | | | -------------------------------- | -------------------------------- | | NATIONWIDE INSURANCE | | | NATIONWIDE/DISPATCH LLC | | | ENTERPRISE SERVICES, LTD. | | | | | | | | | | | |Single Member Limited | | | | - - - |Liability Company | - - -| | | | | | | | | | |Casualty-100% | |Casualty-90% | | | | | -------------------------------- | | -------------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Lines Limited Liability Company -- Dotted Line December 31, 1997
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(Left Side) ------------------------------------------------ | EMPLOYERS INSURANCE | | OF WAUSAU |========================================== | A MUTUAL COMPANY | ------------------------------------------------ ------------------------------------------------------------------------------------------------------ | | | --------------------------- --------------------------- --------------------------- | NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | NATIONWIDE FINANCIAL | | COMPANY (NW LIFE) | | FINANCIAL SERVICES | | INSTITUTION DISTRIBUTORS | | | | CAPITAL TRUST | | AGENCY, INC. (NFIDAI) | | Common Stock: 3,814,779 | | Preferred Stock: | | Common Stock: 1,000 | | ------------ Shares | | --------------- | | ------------ Shares | | | | | | | | NFS--100% | | NFS--100% | | NFS--100% | --------------------------- --------------------------- --------------------------- | || --------------------------- | --------------------------- --------------------------- || -------------------------- | NATIONWIDE LIFE AND | | | NATIONWIDE | | FINANCIAL HORIZONS | || | | | ANNUITY INSURANCE COMPANY | | | ADVISORY SERVICES, INC. | | DISTRIBUTORS AGENCY | || | | | | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | | | Common Stock: 66,000 | | | Common Stock: 7,676 | | Common Stock: 10,000 | || | FINANCIAL HORIZONS | | ------------ Shares |--|--| ------------ Shares |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY | | | | | | || | | || | OF OHIO, INC. | | Cost | | | Cost | || | Cost | || | | | ---- | | | ---- | || | ---- | || | | | NW Life -100% $58,070,003 | | | NW Life -100% $5,996,261 | || | NFIDAI -100% $100 | || | | --------------------------- | --------------------------- || --------------------------- || -------------------------- | || || --------------------------- | --------------------------- || --------------------------- || -------------------------- | NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | | | | | | INVESTORS SERVICES, INC. | || | SERVICES OF | || | | | | | | | || | NEW YORK, INC. | || | | | Common Stock: 100 | | | Common Stock: 5 Shares | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS | | ------------ Shares |--| | ------------ |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY | | | | | | || | | || | OF OKLAHOMA, INC. | | Cost | | | Cost | || | Cost | || | | | ---- | | | ---- | || | ---- | || | | | NW Life -100% $35,971,375 | | | NW Adv. Serv. -100% $5,000| || | NFIDAI -100% $10,100 | || | | --------------------------- | --------------------------- || --------------------------- || -------------------------- | || || --------------------------- | --------------------------- || --------------------------- || -------------------------- | NATIONWIDE INVESTMENT | | | FINANCIAL HORIZONS | || | FINANCIAL HORIZONS | || | | | SERVICES CORPORATION | | | INVESTMENT TRUST | || | SECURITIES CORP. | || | | | | | | | || | | || | | | Common Stock: 5,000 | | | | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS | | ------------ Shares |--| | |==|| | ------------ Shares |--||==| DISTRIBUTORS AGENCY | | | | | | || | | || | OF TEXAS, INC. | | Cost | | | | || | Cost | || | | | ---- | | | | || | ---- | || | | | NW Life -100% $529,728 | | | COMMON LAW TRUST | || | NFIDAI -100% $153,000 | || | | --------------------------- | --------------------------- || --------------------------- || -------------------------- | || || --------------------------- | --------------------------- || --------------------------- || -------------------------- | NATIONWIDE REALTY | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | | | PROPERTIES, LTD. | | | INVESTING | || | | || | | | | | | FOUNDATION | || | | || | | | Units: | | | | || | Common Stock: 100 | || | AFFILIATE | | ------ - -| | |==|| | ------------ Shares |--||==| AGENCY OF | | | | | | || | | | OHIO, INC. | | | | | | || | Cost | | | | NW Life -90% | | | | || | ---- | | | | NW Mutual-10% | | | COMMON LAW TRUST | || | NFIDAI -100% $100 | | | --------------------------- | --------------------------- || --------------------------- -------------------------- | || --------------------------- | --------------------------- || | NATIONWIDE | | | NATIONWIDE | || | PROPERTIES, LTD. | | | INVESTING | || | | | | FOUNDATION II | || | Units: - -| | | || | ------ | | |==|| | | | | || | | | | || | NW Life -97.6% | | | || | NW Mutual -2.4% | | COMMON LAW TRUST | || --------------------------- --------------------------- || || --------------------------- || | NATIONWIDE | || | SEPARATE ACCOUNT | || | TRUST | || | | || | |__|| | | | | | | | COMMON LAW TRUST | ---------------------------
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(Center) NATIONWIDE INSURANCE ENTERPRISE (R) ------------------------------------------------ | NATIONWIDE MUTUAL | ========================================| INSURANCE COMPANY |========================================== | (CASUALTY) | ------------------------------------------------ | | ---------------------------------------------------------- | | --------------------------------------- | NATIONWIDE CORPORATION (NW CORP) | | Common Stock: Control | | ------------ ------- | | 13,642,432 100% | | Shares Cost | | ------ ---- | | Casualty 12,992,922 $751,352,485 | | Fire 649,510 24,007,936 | --------------------------------------- |----------------------------------------------------------------- --------------------------- | | NATIONWIDE FINANCIAL | | | SERVICES, INC. (NFS) | | | | | | Common Stock: Control | | | ------------ ------- | | | | | | | | | Class A Public--100% | | | Class B NW Corp--100% | | --------------------------- | | | ---------------------------------------------------------------------- | | | | | --------------------------- --------------------------- --------------------------- | ------------------------- | IRVIN L. SCHWARTZ | | PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | | NATIONWIDE GLOBAL | | & ASSOCIATES | | SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | | HOLDINGS, INC. | | | | (PEBSCO) | | (NEA) | | | | | Common Stock: Control | | Common Stock: 236,494 |==|| | Common Stock: 500 |= || | | Common Stock: 1 Share | | ------------ ------- | | ------------ Shares | || | ------------ Shares | || |--| ------------ | | | | | || | | || | | | | | | | || | | || | | Cost | | Class A Other -100% | | | || | | || | | ---- | | Class B NFS -100% | | NFS -100% | || | NFS -100% | || | | NW Corp-100% $7,000,00 | - ---------------------------- ---------------------------- || ---------------------------- || | -------------------------- --------------------------- || --------------------------- || | | PEBSCO OF | || | NEA VALUEBUILDER | || | -------------------------- | ALABAMA | || | INVESTOR SERVICES | || | | MRM INVESTMENT, INC. | | | || | OF ALABAMA, INC. | || | | | | Common Stock: 100,000 | || | Common Stock: 500 | || | | | | ------------ Shares |--|| | ------------ Shares |--|| __ | Common Stock: 1 Share | | | || | | || | ----------- | | Cost | || | Cost | || | | | ---- | || | ---- | || | Cost | | PEBSCO -100% $1,000 | || | NEA -100% $5,000 | || | ---- | --------------------------- || --------------------------- || | NW Corp.-100% $7,000,000| || || -------------------------- --------------------------- || --------------------------- || | PEBSCO OF | || | NEA VALUEBUILDER | || | ARKANSAS | || | INVESTOR SERVICES | || | | || | OF ARIZONA, INC. | || | Common Stock: 50,000 | || | Common Stock: 100 | || | ------------ Shares |--|| | ------------ Shares |--|| | | || | | || | Cost | || | Cost | || | ---- | || | ---- | || | PEBSCO -100% $500 | || | NEA -100% $1,000 | || --------------------------- || --------------------------- || || || --------------------------- || --------------------------- || | PEBSCO OF MASSACHUSETTS | || | NEA VALUEBUILDER | || | INSURANCE AGENCY, INC. | || | INVESTOR SERVICES | || | | || | OF MONTANA, INC. | || | Common Stock: 1,000 | || | Common Stock: 500 | || | ------------ Shares |--|| | ------------ Shares |--|| | | || | | || | Cost | || | Cost | || | ---- | || | ---- | || | PEBSCO -100% $1,000 | || | NEA -100% $500 | || --------------------------- || --------------------------- || || || --------------------------- || --------------------------- || ------------------------- | PEBSCO OF | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER | | MONTANA | || | INVESTOR SERVICES | || | INVESTOR SERVICES | | | || | OF NEVADA, INC. | || | OF OHIO, INC. | | Common Stock: 500 | || | Common Stock: 500 | || | | | ------------ Shares |--|| | ------------ Shares |--||====| | | | || | | || | | | Cost | || | Cost | || | | | ---- | || | ---- | || | | | PEBSCO -100% $500 | || | NEA -100% $500 | || | | --------------------------- || --------------------------- || -------------------------- || || --------------------------- || --------------------------- || ------------------------- | PEBSCO OF | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER | | NEW MEXICO | || | INVESTOR SERVICES | || | INVESTOR SERVICES | | | || | OF WYOMING, INC. | || | OF OKLAHOMA, INC. | | Common Stock: 1,000 | || | Common Stock: 500 | || | | | ------------ Shares |--|| | ------------ Shares |--||====| | | | || | | || | | | Cost | || | Cost | || | | | ---- | || | ---- | || | | | PEBSCO -100% $1,000 | || | NEA -100% $500 | || | | --------------------------- || --------------------------- || -------------------------- || || --------------------------- || --------------------------- || -------------------------- | | || | NEA VALUEBUILDER | || | NEA VALUEBUILDER | | | || | SERVICES INSURANCE | || | INVESTOR SERVICES | | PEBSCO OF | || | AGENCY, INC. | || | OF TEXAS, INC. | | TEXAS, INC. | || | Common Stock: 100 | || | | | |==|| | ------------ Shares |--||=== | | | | | | | | | | | Cost | | | | | | ---- | | | | | | NEA -100% $1,000 | | | --------------------------- --------------------------- --------------------------
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(Right) ------------------------------------------------ | NATIONWIDE MUTUAL | ========================================| FIRE INSURANCE COMPANY | | (FIRE) | ------------------------------------------------ | - -----------------------------------------------------------------| - ---------------------------------------------------------------------------------------------- | | | --------------------------- ------------------------------ ------------------------------ | GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE | | & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | HEALTH PLANS, INC. (NHP) | | | | | | | | Common Stock: 254 | | Common Stock: 250,000 | | Common Stock: 100 | |-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares | | | | | | | | | | | | Cost | | | Cost | | | Cost | | | ---- | | | ---- | | | ---- | | | NW CORP. -100% $25,683,532 | | | NW CORP. -100% $126,509,480 | | | NW CORP. -100% $14,603,732 | | ----------------------------- | ------------------------------ | ------------------------------ | | | | --------------------------- | ------------------------------ | ------------------------------ | | GATES, MCDONALD & COMPANY | | | WAUSAU PREFERRED | | | NATIONWIDE MANAGEMENT | | | OF NEW YORK, INC. | | | HEALTH INSURANCE CO. | | | SYSTEMS, INC. | | | | | | | | | | | | Common Stock: 3 | | | Common Stock: 200 | | | Common Stock: 100 | |-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares | | | | | | | | | | | Cost | | Cost | | | NHP Cost | | | ---- | | ---- | | | ---- | | | GATES -100% $106,947 | | ELIOW -100% $57,413,193 | | | Inc. -100% $25,149 | | ----------------------------- ------------------------------ | ------------------------------ | | | ----------------------------- | ------------------------------ | | GATES, MCDONALD & COMPANY | | | NATIONWIDE | | | OF NEVADA | | | AGENCY, INC. | | | | | | | | | Common Stock: 40 | | | Common Stock: 100 | |-- | ------------ Shares | |--| ------------ Shares | | | | | | | | Cost | | Cost | | | ---- | | NHP ---- | | | Gates -100% $93,750 | | Inc. -99% $116,077 | | ----------------------------- ------------------------------ | | ----------------------------- | | GATESMCDONALD | | | HEALTH PLUS, INC. | | | | | | Common Stock: 200 | |-- | ------------ Shares | | | | Cost | | ---- | | Gates -100% $2,000,000 | ----------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line December 31, 1997 Page 2
80 Item 27. NUMBER OF CONTRACT OWNERS Not applicable. Item 28. INDEMNIFICATION Provision is made in the Company's Amended and Restated Code of Regulations and expressly authorized by the General Corporation Law of the State of Ohio, for indemnification by the Company of any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director, officer or employee of the Company, against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, to the extent and under the circumstances permitted by the General Corporation Law of the State of Ohio. Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Act") may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 29. PRINCIPAL UNDERWRITER (a) Nationwide Advisory Services, Inc. ("NAS") acts as principal underwriter and general distributor for the Nationwide Multi-Flex Variable Account, Nationwide DC Variable Account, Nationwide DCVA II, Nationwide Variable Account-II, Nationwide Variable Account-5, Nationwide Variable Account-8, Nationwide Variable Account-9, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate Account-C, Nationwide VL Separate Account-A, Nationwide VL Separate Account-B, Nationwide VL Separate Account-C, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4, NACo Variable Account and the Nationwide Variable Account, all of which are separate investment accounts of the Company or its affiliates. NAS also acts as principal underwriter for Nationwide Separate Account Trust, Nationwide Asset Allocation Trust and Nationwide Investing Foundation III, which are open-end management investment companies. (b) NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS
POSITIONS AND OFFICES NAME AND BUSINESS ADDRESS WITH UNDERWRITER Joseph J. Gasper President and Director One Nationwide Plaza Columbus, OH 43215 Dimon R. McFerson Chairman of the Board of Directors and One Nationwide Plaza Chairman and Columbus, OH 43215 Chief Executive Officer--Nationwide Insurance Enterprise and Director Robert A. Oakley Executive Vice President - Chief Financial One Nationwide Plaza Officer and Director Columbus, OH 43215
122 of 126 81 (b) NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS
Susan A. Wolken Director One Nationwide Plaza Columbus, OH 43215 Robert J. Woodward, Jr. Executive Vice President - Chief Investment One Nationwide Plaza Officer and Director Columbus, OH 43215 Elizabeth A. Davin Assistant Secretary One Nationwide Plaza Columbus, OH 43215 W. Sidney Druen Senior Vice President and One Nationwide Plaza General Counsel and Columbus, OH 43215 Assistant Secretary Dennis W. Click Secretary One Nationwide Plaza Columbus, OH 43215 Peter J. Neckermann Vice President One Nationwide Plaza Columbus, OH 43215 James F. Laird, Jr. Vice President and General One Nationwide Plaza Manager Columbus, OH 43215 Edwin P. Mc Causland Senior Vice President-Fixed Income One Nationwide Plaza Securities Columbus, OH 43215 William G. Goslee One Nationwide Plaza Vice President Columbus, OH 43215 Charles Bath One Nationwide Plaza Vice President - Investments Columbus, OH 43215 Joseph P. Rath Vice President - Compliance One Nationwide Plaza Columbus, OH 43215 Christopher A. Cray Treasurer One Nationwide Plaza Columbus, OH 43215 David E. Simaitis Assistant Secretary One Nationwide Plaza Columbus, OH 43215 Patricia J. Smith Assistant Secretary One Nationwide Plaza Columbus, OH 43215
(c)NAME OF NET UNDERWRITING COMPENSATION ON PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION Nationwide N/A N/A N/A N/A Advisory Services, Inc.
123 of 126 82 Item 30. LOCATION OF ACCOUNTS AND RECORDS Robert O. Cline Nationwide Life Insurance Company One Nationwide Plaza Columbus, OH 43215 Item 31. MANAGEMENT SERVICES Not Applicable Item 32. UNDERTAKINGS The Registrant hereby undertakes to: (a) file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted; (b) include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information; and (c) deliver any Statement of Additional Information and any financial statements required to be made available under this form promptly upon written or oral request. The Registrant represents that any of the Contracts which are issued pursuant to Section 403(b) of the Code, are issued by the Company through the Registrant in reliance upon, and in compliance with, a no-action letter issued by the Staff of the Securities and Exchange Commission to the American Council of Life Insurance (publicly available November 28, 1988) permitting withdrawal restrictions to the extent necessary to comply with Section 403(b)(11) of the Code. The Company represents that the fees and charges deducted under the Contract in the aggregate are reasonable in relation to the services rendered, the expenses expected to be incurred and risks assumed by the Company. 124 of 126 83 INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULES The Board of Directors of Nationwide Life Insurance Company: The audits referred to in our report on Nationwide Life Insurance Company (the Company) dated January 30, 1998 included the related financial statement schedules as of December 31, 1997, and for each of the years in the three-year period ended December 31, 1997, included in the registration statement. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the heading "Services" in the Statement of Additional Information. KPMG Peat Marwick LLP Columbus, Ohio June 3, 1998 125 of 126 84 As required by the Securities Act of 1933, and the Investment Company Act of 1940, has caused this Registration Statement to be signed on its behalf in the City of Columbus, and State of Ohio, on this 3rd day of June, 1998. NATIONWIDE VARIABLE ACCOUNT-9 -------------------------------------------------------- (Registrant) NATIONWIDE LIFE INSURANCE COMPANY -------------------------------------------------------- (Depositor) By/s/JOSEPH P. RATH -------------------------------------------------------- Joseph P. Rath Vice President - Office of Product and Market Compliance As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on the 3rd day of June, 1998.
SIGNATURE TITLE LEWIS J. ALPHIN Director - ------------------------------------------------- Lewis J. Alphin A. I. BELL Director - ------------------------------------------------- A. I. Bell KEITH W. ECKEL Director - ------------------------------------------------- Keith W. Eckel WILLARD J. ENGEL Director - ------------------------------------------------- Willard J. Engel FRED C. FINNEY Director - ------------------------------------------------- Fred C. Finney CHARLES L. FUELLGRAF, JR. Director - ------------------------------------------------- Charles L. Fuellgraf, Jr. JOSEPH J. GASPER President and Chief - ------------------------------------------------- Operating Office and Director Joseph J. Gasper DIMON R. McFERSON Chairman and Chief Executive Officer - ------------------------------------------------- Nationwide Insurance Enterprise and Director Dimon R. McFerson DAVID O. MILLER Chairman of the Board and Director - ------------------------------------------------- David O. Miller YVONNE L. MONTGOMERY Director - ------------------------------------------------- Yvonne L. Montgomery ROBERT A. OAKLEY Executive Vice President- - ------------------------------------------------- Chief Financial Officer Robert A. Oakley JAMES F. PATTERSON Director By/s/JOSEPH P. RATH - ------------------------------------------------- ---------------------------- James F. Patterson Joseph P. Rath Attorney-in-Fact ARDEN L. SHISLER Director - ------------------------------------------------- Arden L. Shisler ROBERT L. STEWART Director - ------------------------------------------------- Robert L. Stewart NANCY C. THOMAS Director - ------------------------------------------------- Nancy C. Thomas HAROLD W. WEIHL Director - ------------------------------------------------- Harold W. Weihl
126 of 126 85 NATIONWIDE LIFE INSURANCE COMPANY NATIONWIDE VARIABLE ACCOUNT - 9 MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS EXHIBITS TO FORM N-4 SEC FILE NO. _____________ EX-1 2 EXHIBIT 1 1 EXHIBIT NO. 1 BOARD OF DIRECTORS RESOLUTION OF THE DEPOSITOR 2 NATIONWIDE LIFE INSURANCE COMPANY --------------------------------- I, Dennis W. Click, Assistant Secretary of NATIONWIDE LIFE INSURANCE COMPANY, hereby certify that the following is a true and correct copy of a resolution duly adopted by the BOARD OF DIRECTORS of NATIONWIDE LIFE INSURANCE COMPANY, at a meeting duly convened and held on the 22nd day of May, 1977, at which a quorum was present and acting throughout: RESOLVED, that the Company, pursuant to the provisions of Ohio Revised Code Section 3907.15, hereby establishes a separate account, designated Nationwide Variable Account-9 (hereinafter the Variable Account) for the following use and purposes, and subject to such conditions as hereafter set forth: RESOLVED FURTHER, that the Variable Account shall be established for the purpose of providing for the issuance of variable annuity contracts (hereinafter the Contracts), which Contracts provide that part or all of the annuity benefits and cash value will reflect the investment experience of one or more designated underlying securities; and RESOLVED FURTHER, that the fundamental investment policy of the Variable Account shall be to invest or reinvest the assets of the Variable Account in securities issued by investment companies registered under the Investment Company Act of 1940, as may be specified in the respective Contracts; and RESOLVED FURTHER, that the proper officers of the Company be, and they hereby are, authorized to take all action they deem necessary or appropriate to: (a) register the Variable Account as a unit investment trust under the Investment Company Act of 1940, as amended; (b) register the Contracts in such amounts as the officers of the Company shall from time to time deem appropriate under the Securities Act of 1933 and to prepare and file amendments to such registration as they may deem necessary or desirable; and (c) take all other action necessary to comply with: the Investment Company Act of 1940, including the filing of applications for such exemptions from the Investment Company Act of 1940 as the officers of the Company shall deem necessary or desirable; the Securities Exchange Act of 1934; the Securities Act of 1933; and all other applicable state and federal laws in connection with offering said Contracts for sale and the operation of the Variable Accounts; and RESOLVED FURTHER, that the proper officers of the Company, as appointed by a duly executed Power of Attorney, each of them with full power to act without the others, hereby are severally authorized and empowered to execute and cause to be filed with the Securities and Exchange Commission on behalf of the Variable 3 Account and by the Company as sponsor and depositor any required Registration Statement and Notice thereof registering the Variable Account as an investment company under the Investment Company Act of 1940; and a Registration Statement under the Securities Act of 1933, registering the Contracts and any and all amendments to the foregoing on behalf of and as attorneys for the Variable Account and the Company and on behalf of and as attorneys for the principal executive officer and/or the principal financial officer and/or the principal accounting officer and/or any other officer of the Variable Account and the Company; and RESOLVED FURTHER, that the proper officers of the Company by, and they hereby are, authorized on behalf of the Variable Account and on behalf of the Company to take any and all action which they may deem necessary or advisable in order to sell the Contracts and, if necessary, to register or qualify Contracts for offer and sale under the insurance and securities laws of any of the states of the United States of America and in connection therewith to execute, deliver and fill all such applications, reports, covenants, resolutions and other papers and instruments as may be required under such laws, and to take any and all further action which said officers or counsel of the Company may deem necessary or desirable in order to maintain such registration or qualification for as long as said officers or counsel deem it to be in the best interests of the Variable Account and the Company; and RESOLVED FURTHER, that the proper officers of the Company be, and they hereby are, authorized in the name and on behalf of the Variable Account and the Company to execute and file irrevocable written consents on the part of the Variable Account and of the Company to be used in such states wherein such consents to service of process may be requisite under the insurance or qualification of Contracts and appoint the appropriate state official, or such other persons as may be allowed by said insurance or securities laws, agent or the Variable Account and of the Company for the purpose of receiving and accepting process; and RESOLVED FURTHER, that the appropriate officers of the Company be, and they hereby are, authorized to establish procedures under which the Company will provide sales and administrative functions with respect to the Contracts issued in connection therewith, including, but not limited to procedures for providing any voting rights required by the federal securities laws for owners of such Contracts with respect to securities owned by the Variable Account, adding additional underlying investment series to the Variable Account, and permitting conversion or exchange of the Contract values or benefits among the various series. 4 I further certify that the foregoing resolution has not been amended, altered, or repealed and is now in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and caused the corporate seal of NATIONWIDE LIFE INSURANCE COMPANY to be hereunto affixed this 29th day of May, 1997. /s/ DENNIS W. CLICK ------------------------------ Dennis W. Click Assistant Secretary (seal) EX-3 3 EXHIBIT 3 1 EXHIBIT NO. 3 UNDERWRITING OR DISTRIBUTION OF CONTRACTS BETWEEN THE REGISTRANT AND PRINCIPAL UNDERWRITER 2 MARKETING COORDINATION AND ADMINISTRATIVE SERVICES AGREEMENT This Agreement entered into this ____ day of May, 1997, between Nationwide Life Insurance Company, Nationwide Life and Annuity Insurance Company (collectively "Nationwide"), and Nationwide Advisory Services, Inc. ("NAS") and restates and confirms all earlier agreements between the parties concerning marketing coordination and administrative services. Nationwide proposes to develop, issue and administer, and NAS proposes to provide the exclusive national distribution services for variable annuity contracts and variable life insurance policies (the "Products"). The parties hereby agree as follows: A. ADMINISTRATION OF PRODUCTS -------------------------- 1. Appointment of Product Administration ------------------------------------- Nationwide is hereby appointed Product Administrator for the Products. 2. Duties of Nationwide -------------------- Nationwide shall perform in a proper and timely manner, those functions enumerated in the column marked "Nationwide" in the "Analysis of Administrative Functions," attached hereto as EXHIBIT A, and incorporated herein by reference. 3. Duties of NAS ------------- NAS shall perform in a proper and timely manner, those functions enumerated in the column marked "NAS" in the "Analysis of Administrative Functions," attached hereto as EXHIBIT A, and incorporated herein by reference. B. MARKETING COORDINATION AND SALES ADMINISTRATION ----------------------------------------------- 1. Distribution of Products ------------------------ The Products will be distributed through registered representatives of NASD broker-dealer firms, appointed by Nationwide, who shall be duly qualified and licensed as agents (the "Agents"), in accordance with applicable state insurance authority. 2. NAS shall be the exclusive National Distributor of the Products. 3 3. Appointment and Termination of Agents ------------------------------------- Appointment and termination of Agents shall be processed and executed by Nationwide. NAS reserves the right to require Nationwide to consult with it regarding licensing decisions. 4. Advertising ----------- NAS shall not print, publish or distribute any advertisement, circular or document relating to the Products or relating to Nationwide unless such advertisement, circular or document has been approved in writing by Nationwide. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within three (3) business days. Neither Nationwide nor any of its affiliates shall print, publish or distribute any advertisement, circular or document relating to the Products or relating to NAS unless such advertisement, circular or document has been approved in writing by NAS. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within three (3) business days. However, nothing herein shall prohibit any person from advertising the Products on a generic basis. 5. Marketing Conduct ----------------- The parties will jointly develop standards, practices and procedures respecting the marketing of the Products. Such standards, practices and procedures are intended to help Nationwide meet its obligations as an issuer under the securities laws, to assure compliance with state insurance laws, and to help NAS meet its obligations under the securities laws as National Distributor. These standards, practices and procedures are subject to continuing review and neither Nationwide nor NAS shall object unreasonably to changes to such standards, practices and procedures recommended by the other to comply with the intent of this provision. 6. Sales Material and Other Documents ---------------------------------- a. Sales Material -------------- 1) Nationwide shall develop and prepare all promotional material to be used in the distribution of the Products, in consultation with NAS. 2) Nationwide is responsible for the printing and the expense of providing such promotional material. 3) Nationwide is responsible for approval of such promotional material by state insurance regulators, where required. 4) NAS and Nationwide agree to abide by the Advertising and Sales Promotion Material Guidelines, attached hereto as EXHIBIT B, and incorporated herein by reference. 4 b. Prospectuses ------------ 1) Nationwide is responsible for the preparation and regulatory clearance of any required registration statements and prospectuses for the Products. NAS is responsible for the preparation and regulatory clearance of any underlying mutual fund registration statements and prospectuses. 2) Nationwide is responsible for the printing of Product prospectuses in such quantities as the parties agree are necessary to assure sufficient supplies. 3) Nationwide will bear the cost of providing the required supply of mutual fund prospectuses. 4) Nationwide is responsible for supplying Agents with sufficient quantities of Product prospectuses. c. Contracts, Applications and Related Forms ----------------------------------------- 1) Nationwide, in consultation with NAS, is responsible for the design and printing of adequate supplies of Product applications, contracts, related forms, and such service forms as the parties agree are necessary. 2) Nationwide is responsible for supplying adequate quantities of all such forms to the Agents. 7. Appointment of Agents --------------------- a. NAS shall assist Nationwide in facilitating the appointment of Agents by Nationwide. b. Nationwide shall forward all appointment forms and applications to the appropriate states and maintain all contacts with the states. c. Nationwide shall maintain appointment files on Agents, and NAS shall have access to such files as needed. 8. Licensing and Appointment Guide ------------------------------- Nationwide shall provide to NAS a Licensing and Appointment Guide (as well periodic updates thereto), setting forth the requirements for licensing and appointment, in such quantities as NAS may reasonably require. 5 9. Other ----- a. Product Training ---------------- Nationwide is responsible for any Product training for the Agents. b. Field Sales Material -------------------- 1) Nationwide, in consultation with NAS, is responsible for the development, printing and distribution of non-public field sales material to be used by Agents. 2) NAS shall have the right to review all field sales materials and to require any modification mandated by regulatory requirements. c. Production Reports ------------------ Nationwide shall deliver to NAS the items listed in Production Reports to be Provided, attached hereto as EXHIBIT C, and incorporated herein by reference. d. Customer Service ---------------- Each party will notify the other of all material pertinent inquiries and complaints it receives, from whatever source and to whomever directed, and will consult with the other in responding to such inquiries and complaints. 10. Auditing -------- NAS shall maintain all records relating to the mutual funds or other investment options in accordance with generally accepted accounting procedures. Any such records shall be made available to Nationwide or its accountants or auditors upon reasonable written request. Nationwide shall provide NAS with any records, reports or other materials relative to the distribution of the Products as may reasonably be required by NAS or as may be required by any governmental agency having jurisdiction. C. GENERAL PROVISIONS ------------------ 1. Waiver ------ The forbearance or neglect or either party to insist upon strict compliance by the other with any of the provisions of this Agreement, whether continuing or not, or to declare a forfeiture of termination against the other, shall not be construed as a waiver of any rights or privileges of the forbearing party in the event of a further default or failure of performance. 6 2. Limitations ----------- Neither party shall have authority on behalf of the other to: make, alter or discharge any contractual terms of the Products; waive any forfeiture; extend the time of making any contributions to the products; guarantee dividends; alter the forms which either may prescribe; nor substitute other forms in place of those prescribed by the other. 3. Binding Effect -------------- This Agreement shall be binding on and shall inure to the benefit of the parties to it and their respective successors and assigns, provided that neither party shall assign or sub-contract this Agreement or any rights or obligations hereunder without prior written consent of the other. 4. Indemnification --------------- Each party ("Indemnifying Party") hereby agrees to release, indemnify and hold harmless the other party, its offices, directors, employers, agents, servants, predecessors or successors from any claims or liability arising out of the acts or omissions of the Indemnifying Party not authorized by this Agreement, including the violation of any federal or state law or regulation. 5. Notices ------- All notices, requests, demands and other communication under this Agreement shall be in writing and shall be deemed to have been given on the date of service if served personally on the party to whom notice is to be given, or on the date of mailing if sent postage prepaid by First Class Mail, Registered or Certified mail, by overnight mail, properly addressed as follows: TO NATIONWIDE: Nationwide Life Insurance Company Richard A. Karas, Senior Vice President-Sales-Financial Services One Nationwide Plaza Columbus, Ohio 43216 TO NAS: Nationwide Advisory Services, Inc. Joseph P. Rath, Vice President-Compliance One Nationwide Plaza Columbus, Ohio 43216 7 6. Governing Law ------------- This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio. 7. Arbitration ----------- The parties agree that misunderstandings or disputes arising from this Agreement shall be decided by arbitration, conducted upon request of either party before three arbitrators (unless the parties agree on a single arbitrator) designated by the American Arbitration Association, and in accordance with the rules of such Association. The expenses of the arbitration proceedings conducted hereunder shall be borne equally by both parties. 8. Confidentiality --------------- Any information, documents and materials, whether printed or oral, furnished by either party or its agents or employees to the other shall be held in confidence. No such information shall be given to any third party, other than to such sub-contractors of NAS as may be permitted herein, or under requirements of a lawful authority, without the express written consent of the other party. D. TERM OF AGREEMENT ----------------- This Agreement, including the Exhibits attached hereto, shall remain in full force and effect until terminated, and may be amended only by mutual agreement of the parties in writing. Any decision by either party to cease issuance or distribution of any specific Product shall not effect a termination of the Agreement unless such termination is mutually agreed upon, or unless notice is given pursuant to Section E.2. hereof. E. TERMINATION ----------- 1. Either party may terminate this Agreement for cause at any time, upon written notice to the other, if the other knowingly and willfully: (a) fails to comply with the laws or regulations of any state or governmental agency or body having jurisdiction over the sale of insurance or securities; (b) misappropriates any money or property belonging to the other; (c) subjects the other to any actual or potential liability due to misfeasance, malfeasance, or nonfeasance; (d) commits any fraud upon the other; (e) has an assignment for the benefit of creditors; (f) incurs bankruptcy; or (g) commits a material breach of this Agreement. 2. Either party may terminate this Agreement, without regard to cause, upon six months prior written notice to the other. 3. In the event of termination of this Agreement, the following conditions shall apply: 8 a) The parties irrevocably acknowledge the continuing right to use any Product trademark that might then be associated with any Products, but only with respect to all business in force at the time of termination. b) NAS shall continue to sell to Nationwide at net asset value, shares of all mutual funds which serve as underlying investments for Products actually issued by Nationwide pursuant to this Agreement, until such time as mutually agreed upon by the parties. NAS may discontinue the sale at net asset value of such shares in connection with the issuance by Nationwide of new products after termination. c) In the event this Agreement is terminated the parties will use their best efforts to preserve in force the business issued pursuant to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first written above. NATIONWIDE LIFE INSURANCE COMPANY By /s/ RICHARD A. KARAS ------------------------- Title Senior Vice President NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY By /s/ RICHARD A. KARAS ------------------------- Title Senior Vice President NATIONWIDE ADVISORY SERVICES, INC. By /s/ JOSEPH P. ROTH ------------------------- Title Vice President 9 EXHIBIT A ANALYSIS OF ADMINISTRATIVE FUNCTIONS A. PRODUCT UNDERWRITING/ISSUE
NATIONWIDE NAS - - Establishes underwriting criteria for - Consults with regard to new business application processing and rejections. procedures and processing. - - Reviews the completed application. Applies underwriting/issue criteria to application. - - Notifies Agent and/or customer of any error or missing data necessary to underwrite application and establish records for owner of Product ("Contract Owner"). - - Prepares policy data page for approved business and mails with policy to Contract Owner. - - Establishes and maintains all records required for each Contract Owner, as applicable. - - Prepares and mails confirmation and other statements to Contract Owners and Agents, as required. - - Prints, provides all forms ancillary to issue of contract/policy forms for Products. - - Maintains supply of approved specimen policy forms and all ancillary forms, distributes same to Agents.
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B. BILLING AND COLLECTION NATIONWIDE - - Receives premium/purchase payments and reconciles amount received with remittance media. - - Updates Contract Owner records to reflect receipt of premium/purchase payment and performs accounting/ investment allocation of each payment received. - - Deposits all cash received under the Products in accordance with the terms of the Products. C. BANKING NATIONWIDE - - Balances, edits, endorses and prepares daily deposit. - - Places deposits in depository account. - - Transfers funds form depository account to NAS within 24 hours following underwriting approval, in accordance with investment allocation. - - Prepares daily cash journal summary reports and maintains same for review by NAS.
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D. PRICING/VALUATION/ACCOUNTING NATIONWIDE NAS - - Determines the "Net Amount Available for - Issues Fund Shares to Nationwide at Investment" in Fund Shares and places Fund net asset Value. Share purchase or redemption orders with the Fund, by facsimile each day by 10:00 - Confirms Nationwide's Fund a.m. E.T. If for any reason Nationwide is purchases and redemptions. unable to process such orders, it will provide NAS with estimates. - Transmit by facsimile Fund Share prices to Nationwide by 6:00 p.m. - - Maintains and makes available, as reasonably EST each day. requested, records used in determining "Net Amount Available for Investment." - Maintains records of all Fund Shares owned by Nationwide, including the - - Collects information needed in determining date purchased and sold, cost, and Variable Account unit values from the Funds other information maintained by NAS including daily net asset value, capital in its ordinary course of business. gains or dividend distributions, and the number of Fund Shares acquired or sold during - Cooperates in annual audit of the immediately preceding valuation period. separate account financials conducted for purposes of financial statement - - Performs daily unit valuation calculation. certification and publication.
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E. CONTRACT OWNER SERVICE/ RECORD MAINTENANCE NATIONWIDE NAS - - Receives and processes all Contract - Accommodates customer service function Owner service requests, including but not by providing any supporting information limited to informational requests, or documentation which may be in the beneficiary changes, and transfers of control of NAS. Contract Value among eligible investment options. - - Maintains daily records of all changes made to Contract Owner accounts. - - Researches and responds to all Contract - Researches and responds to Nationwide's Owner/Agent inquiries. inquiries regarding fund performance. - - Keeps all required Contract Owner records. - - Maintains adequate number of toll free lines to service Contract Owner/Agent inquiries. F. DISBURSEMENTS (SURRENDERS, DEATH CLAIMS, LOANS) NATIONWIDE NAS - - Receives and processes surrenders, loans, and death claims in accordance with established guidelines. - - Prepares checks for surrenders, loans, and death claims, and forwards to contract Owner or Beneficiary. Prepares and mails confirmation statement of disbursement to Contract Owner/ Beneficiary with copy to Agent.
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G. COMMISSIONS NATIONWIDE NAS - - Ascertains, on receipt of applications, whether writing Agent is appropriately licensed. - - Pays commissions and other fees in accordance with agreements relating to same. H. PROXY PROCESSING NATIONWIDE NAS - - Receives record date information from - Provides proxy, solicitation materials, and Funds Receives proxy solicitation record date information. materials from Funds. - - Prepares Voting Instruction cards and mails solicitation, if necessary. - - Tabulates and votes all Fund Shares in accordance with SEC requirements. I. PERIODIC REPORTS TO CONTRACT OWNERS NATIONWIDE NAS - - Prepares and mails quarterly and annual Statements of Account to Contract Owners. - - Prepares and mails all semi-annual and - Prepares and mails to Nationwide all annual reports of Variable Account(s) to required semi-annual and annual financial Contract Owners. reports to shareholder of the Funds.
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J. REGULATORY/STATEMENT REPORTS NATIONWIDE NAS - - Prepares and files Separate Account Annual Statements. - - Prepares and mails the appropriate, required IRS reports at the Contract Owner level. Files same with required regulatory agencies. - - Prepares and files form N-SAR for the - Prepares and files form N-SAR for the Separate Account. Funds. K. PREMIUM TAXES NATIONWIDE NAS - - Collects, pays and accounts for premium taxes as appropriate. - - Prepares and maintains all premium tax records by state. - - Maintains liabilities in General Account ledger for accrual of premium tax collected. - - Integrates all company premium taxes due and performs related accounting. L. FINANCIAL AND MANAGEMENT REPORTS NATIONWIDE NAS - - Provides periodic reports in accordance - Provides periodic reports in accordance with the Schedule of Reports to be with the Schedule of Reports to be prepared jointly by Nationwide and NAS. prepared jointly by Nationwide and NAS. (See EXHIBIT C) (See EXHIBIT C) M. AGENT LICENSE RECORDKEEPING NATIONWIDE NAS - - Receives, establishes, processes, and - Cooperates with Nationwide in the Agent maintains Agent appointment records. appointment process with the broker- dealer firms.
15 EXHIBIT B ADVERTISING AND SALES PROMOTION MATERIAL GUIDELINES FOR APPROVAL BY THE OFFICE OF SALES-FINANCIAL SERVICES In order to assure compliance with state and federal regulatory requirements and to maintain control over the distribution of promotional materials dealing with the Products, Nationwide and NAS require that all variable contract promotional materials be reviewed and approved by both Nationwide and NAS prior to their use. These guidelines are intended to provide appropriate regulatory and distribution controls. 1. Sufficient lead time must be allowed in the submission of all promotional material. The Office of Sales-Financial Services ("OS-FS") and NAS shall approve in writing all promotional material. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within three (3) days. 2. All promotional material will be submitted in "draft" form to permit any changes or corrections to be made prior to the printing. 3. Nationwide and NAS will provide each other with details as to each and every use of all promotional material submitted. Approval for one use will not constitute approval for any other use. Different standards of review may apply when the same advertising material is intended for different uses. The following information will be provided for each item of promotional material: a. In what jurisdiction(s) the material will be used. b. Whether distribution will be used (e.g., brochure, mailing, 482 ads, etc.). c. How the material will be used (e.g., brochure, mailing, 482 ads, etc.) d. The projected date of initial use and, if a special promotion, the projected date of last use. 4. Each party will advise the other of the date it discontinues the use of any material. 5. Any changes to previously approved promotional material must be resubmitted, following these procedures. When approved material is to be put to a different use, request for approval of the material for the new use must be submitted. 6. OS-FS and NAS will assign a form number to each item of advertising and sales promotional material. This number will appear on each piece of advertising and sales promotional material. It will be used to aid in necessary filings, and to maintain appropriate controls. 7. OS-FS and NAS will provide written approval for all material to be used. 8. Nationwide and NAS will provide each other with a minimum of 50 copies of all material in final print form to effect necessary state filings. 9. NAS will coordinate SEC/NASD filings of sales and promotional material. 10. All communication regarding promotional materials should be directed to Marketing Director, Office of Sales-Financial Services, Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio 43216 (phone (614)249-6258) or to President, Nationwide Advisory Services, Inc. Three Nationwide Plaza, Columbus, Ohio (phone (614)249-5947). 16 EXHIBIT C PRODUCTION REPORTS TO BE PROVIDED Nationwide agrees to provide the following reports to NAS: 1. Daily Receipt Report: Indicates which Agents are generating sales. 2. Daily Approval Report: Indicates which applications have been approved. 3. Daily Activity Summary: Indicates top firms' sales and liquidation by month, year-to-date as well as total assets by firm. 4. Dealer Activity Indicates top firms' sales and liquidation by Summary by Territory: month, year-to-date. 5. Summary of Sales by Indicates sales by territory/dealer branch, Territory and Dealer: including non-commissionable amounts and actual commission payments, as well as chargebacks. (Internal use only) 6. Summary of Sales by Indicates sales by territory/dealer/branch, Territory and Dealer: including chargebacks. 7. Commission Report: Indicates commissions paid and chargebacks, matched to commission checks. In addition, Nationwide shall provide reports detailing current appointments and other information, as reasonably requested by NAS. EX-4 4 EXHIBIT 4 1 EXHIBIT NO. 4 THE VARIABLE ANNUITY CONTRACT FORM 2 [NATIONWIDE LOGO] NATIONWIDE LIFE INSURANCE COMPANY One Nationwide Plaza Columbus, Ohio 43216 (Hereinafter called the Company) P.O. BOX 16609 COLUMBUS, OHIO 43218-2008 1-800-848-6331 (for any inquiries) NATIONWIDE LIFE INSURANCE COMPANY will make annuity payments to the Annuitant starting on the Annuitization Date, as set forth in the Contract. This Contract is provided in return for the Purchase Payments made as required in the Contract. TEN DAY FREE LOOK TO BE SURE THAT THE OWNER IS SATISFIED WITH THIS CONTRACT, THE OWNER HAS TEN DAYS TO EXAMINE THE CONTRACT AND RETURN IT TO THE HOME OFFICE FOR ANY REASON. WHEN THE CONTRACT IS RECEIVED IN THE HOME OFFICE, THE COMPANY, WHERE PERMITTED BY STATE LAW, WILL RETURN THE CONTRACT VALUE TO THE OWNER, WITHOUT DEDUCTION FOR ANY SALES CHARGES OR ADMINISTRATION FEES AS OF THE DATE OF CANCELLATION. FOR IRA'S, IF THE OWNER RETURNS THE CONTRACT WITHIN THE "FREE LOOK" PERIOD, THE COMPANY WILL RETURN THE PURCHASE PAYMENT. Executed for the Company on the Date of Issue. /s/ DENNIS W. CLICK /s/ JOSEPH J. GASPER Secretary President READ YOUR CONTRACT CAREFULLY Individual Deferred Variable Annuity, Non-Participating ANNUITY PAYMENTS, DEATH BENEFITS, SURRENDER VALUES, AND OTHER CONTRACT VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, OR WHEN SUBJECT TO A MARKET VALUE ADJUSTMENT, ARE VARIABLE, MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE FLUCTUATIONS IN THE NET INVESTMENT FACTOR OR APPLICATION OF A MARKET VALUE ADJUSTMENT, AS APPLICABLE, AND ARE NOT GUARANTEED AS TO FIXED-DOLLAR AMOUNT, UNLESS OTHERWISE SPECIFIED. NOTICE - The details of the variable provisions in the Contract may be found on Pages 9, 12, 13, and 26. APO-3691 (AO)5/98 3 CONTENTS DATA PAGE.................................................................INSERT CONTENTS.......................................................................2 DEFINITIONS....................................................................4 GENERAL PROVISIONS.............................................................8 ENTIRE CONTRACT NON-PARTICIPATING INCONTESTABILITY CONTRACT SETTLEMENT EVIDENCE OF SURVIVAL ALTERATION OR MODIFICATION ASSIGNMENT PROTECTION OF PROCEEDS MISSTATEMENT OF AGE OR SEX REPORTS NUMBER DEDUCTIONS AND CHARGES.........................................................9 CONTRACT MAINTENANCE FEE VARIABLE ACCOUNT CHARGE DEDUCTION FOR PREMIUM TAXES OWNERSHIP PROVISIONS..........................................................10 CONTRACT OWNERSHIP JOINT OWNERSHIP CONTINGENT OWNERSHIP ANNUITANT CONTINGENT ANNUITANT BENEFICIARY CHANGES OF PARTIES NAMED IN THE CONTRACT ACCUMULATION PROVISIONS.......................................................11 PURCHASE PAYMENTS ALLOCATION OF PURCHASE PAYMENTS FIXED ACCOUNT PROVISIONS VARIABLE ACCOUNT PROVISIONS ACCUMULATION UNIT VALUE VALUATION OF UNDERLYING MUTUAL FUND SHARES SUBSTITUTION OF UNDERLYING MUTUAL FUND SHARES NET INVESTMENT FACTOR GUARANTEED TERM OPTIONS (GTOs) MARKET VALUE ADJUSTMENT (MVA) FORMULA TRANSFERS, SURRENDERS, AND WITHDRAWALS........................................16 TRANSFER PROVISIONS SURRENDERS RESTRICTIONS ON SURRENDERS FOR CERTAIN QUALIFIED PLANS, TSAS, AND IRAS SURRENDER VALUE SUSPENSION OR DELAY OF SURRENDER CONTINGENT DEFERRED SALES CHARGE WITHDRAWALS WITHOUT CHARGE SYSTEMATIC WITHDRAWALS WAIVER OF CDSC--LONG TERM CARE ELECTION OF ADDITIONAL CDSC WAIVERS 2 4 LOANS.........................................................................20 REQUIRED DISTRIBUTION PROVISIONS..............................................21 REQUIRED DISTRIBUTION--NON-QUALIFIED CONTRACTS REQUIRED DISTRIBUTION--TSAs, IRAs, AND CONTRACTS ISSUED UNDER QUALIFIED PLANS DEATH PROVISIONS..............................................................23 DEATH OF CONTRACT OWNER DEATH OF CONTRACT OWNER/ANNUITANT DEATH OF ANNUITANT DEATH BENEFIT PAYMENT ELECTION OF DEATH BENEFIT OPTION ANNUITIZATION PROVISIONS......................................................25 ANNUITY COMMENCEMENT DATE CHANGE OF ANNUITY COMMENCEMENT DATE AND ANNUITY PAYMENT OPTION ANNUITIZATION FIXED ANNUITY PAYMENT--FIRST AND SUBSEQUENT PAYMENTS VARIABLE ANNUITY PAYMENT--FIRST PAYMENT VARIABLE ANNUITY PAYMENT--SUBSEQUENT PAYMENTS ANNUITY UNIT VALUE FREQUENCY AND AMOUNT OF PAYMENTS ANNUITY PAYMENT OPTIONS.......................................................27 SELECTION OF ANNUITY PAYMENT OPTION LIFE ANNUITY JOINT AND SURVIVOR ANNUITY LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED ANY OTHER OPTION SUPPLEMENTARY AGREEMENT ANNUITY TABLES FOR NON-QUALIFIED CONTRACTS....................................28 UNISEX GUARANTEED ANNUITY TABLES FOR QUALIFIED PLANS..........................29 3 5 DEFINITIONS ACCUMULATION UNIT - An accounting unit of measure used to calculate the Variable Account value prior to the Annuitization Date. ANNUITANT - The person upon whose continuation of life any annuity payments involving life contingencies depend. ANNUITIZATION -The period during which annuity payments are received. ANNUITIZATION DATE - The date the annuity payments actually commence. ANNUITY COMMENCEMENT DATE - The date on which annuity payments are scheduled to commence. ANNUITY PAYMENT OPTION - The chosen form of annuity payments. Several options are available under the Contract. ANNUITY UNIT - An accounting unit of measure used to calculate the value of Variable Annuity payments. BENEFICIARY - The person designated to receive certain benefits under the Contract upon the death of the Annuitant prior to the Annuitization Date. CHARITABLE REMAINDER TRUST (CRT)- A charitable remainder annuity trust or a charitable remainder unitrust as those terms are defined in Section 664 of the Code. CODE - The Internal Revenue Code of 1986, as amended. COMPANY - Nationwide Life Insurance Company. CONFINED - Confined as a patient. To be covered, confinement must commence on or after the Date of Issue and result from Sickness or Injury. Such confinement must have been based upon the written recommendation of a Physician. CONSTANT MATURITY TREASURY RATE(S) OR CMT RATE(S) - Interest rate quotations for 1, 2, 3, 5, 7 and 10 years published by the Federal Reserve Board on a regular basis. The Company uses CMT Rates in its MVA Formula because they represent a readily available and consistently reliable interest rate benchmark in financial markets. CONTINGENT ANNUITANT - The Contingent Annuitant may be the recipient of certain rights or benefits under the Contract when the Annuitant dies before the Annuitization Date. CONTINGENT BENEFICIARY - The person designated to be the Beneficiary if the named Beneficiary is not living at the time of the death of the Annuitant. CONTINGENT OWNER - A Contingent Owner succeeds to the rights of a Contract Owner if there is no Joint Owner upon the Contract Owner's death before Annuitization. CONTRACT - The document which describes a Contract Owner's rights and benefits. CONTRACT ANNIVERSARY - Each 12-month anniversary the Contract remains in force commencing with Date of Issue. CONTRACT OWNER (OWNER(S)) - The person who possesses all rights under the Contract. CONTRACT VALUE - With respect to a Contract, the sum of the value of all Accumulation Units, plus any amount attributable to the Fixed Account, plus any amount held under a Guaranteed Term Option (GTO) which may be subject to an MVA. 4 6 CONTRACT YEAR - Each year the Contract remains in force commencing with the Date of Issue. DATE OF ISSUE - The date the first Purchase Payment is applied to the Contract. DEATH BENEFIT - The benefit that is payable upon the death of the Annuitant, unless a Contingent Annuitant has been named. If the Annuitant dies after the Annuitization Date, any benefit that may be payable shall be as specified in the Annuity Payment Option elected. DISTRIBUTION - Any payment of part or all of a Contract Owner's Contract Value. ERISA - The Employee Retirement Income Security Act of 1974, as amended. FIXED ACCOUNT - The portion of the Contract which is held under the general account of the Company. FIXED ANNUITY PAYMENT - An annuity providing for payments which are guaranteed by the Company as to dollar amount during Annuitization. GUARANTEED TERM - The three, five, seven or ten year period corresponding respectively to a three, five, seven or ten year Guaranteed Term Option (GTO). Because every Guaranteed Term will end on the last day of a calendar quarter, the Guaranteed Term may last for up to 3 months beyond the 3, 5, 7 or 10 year anniversary of the allocation to the GTO. GUARANTEED TERM OPTION (GTO) - A funding option offered under the Contract which provides a guaranteed interest rate (the "Specified Interest Rate"), paid over certain maturity durations (the "Guaranteed Term"), so long as certain conditions are met. HOME OFFICE - The main office of the Company located in Columbus, Ohio. HOSPITAL - A state licensed facility which is: operated as a Hospital according to the law of the jurisdiction in which it is located; operates primarily for the care and treatment of sick or injured persons as inpatients; provides continuous 24 hours a day nursing service by or under the supervision of a registered graduate professional nurse (R.N.) or a licensed practical nurse (L.P.N.); is supervised by a staff of physicians; and has medical, diagnostic, and major surgical facilities or has access to such facilities on a prearranged basis. INDIVIDUAL RETIREMENT ANNUITY (IRA) - An annuity which qualifies for favorable tax treatment under Section 408 of the Internal Revenue Code which is established for the exclusive benefit of the Owner or the Owner's beneficiaries. INJURY - Accidental bodily injury which is sustained while this Contract is in force. INTEREST RATE GUARANTEE PERIOD - The interval of time during which an interest rate credited to the Fixed Account is guaranteed to remain the same. INTERMEDIATE CARE FACILITY - A licensed facility which is: operated as an Intermediate Care Facility according to the law of the jurisdiction in which it is located; provides continuous 24 hours a day nursing service by or under the supervision of a registered graduate professional nurse (R.N.) or a licensed practical nurse (L.P.N.); and maintains a daily medical record of each patient. INVESTMENT PERIOD - The period of time beginning with a declaration by the Company of new GTO interest rates (the different Specified interest Rates for each of the GTOs) and ending with the subsequent declaration of new Specified Interest Rates by the Company. JOINT OWNER- The Joint Owner, if any, possesses an undivided interest in the entire Contract Value in conjunction with the Contract Owner. 5 7 LONG TERM CARE FACILITY - A state Skilled Nursing Facility or Intermediate Care Facility. Long Term Care Facility does not mean: a place that primarily treats drug addicts or alcoholics; a home for the aged or mentally ill, a community living center, or a place that primarily provides domiciliary, residency, or retirement care; or a place owned or operated by a member of the Contract Owner's immediate family. MARKET VALUE ADJUSTMENT (MVA) - The upward or downward adjustment in value of amounts allocated to a GTO which prior to the Maturity Period for the GTO are: 1) distributed pursuant to a surrender; 2) reallocated to another investment option available under this Contract; 3) distributed pursuant to the death of the Contract Owner or Annuitant; or 4) annuitized under this Contract at any time other than the Maturity Period. MVA FACTOR - The value multiplied by the Specified Value, or that portion of the Specified Value being distributed from a GTO, in order to effect a MVA. MVA FORMULA - The MVA Formula is utilized when a distribution is made from a GTO during the Guaranteed Term which is subject to a MVA. MATURITY DATE - The date on which a particular GTO matures. Such date will be the last day of a calendar quarter in which the third, fifth, seventh or tenth anniversary of the date on which amounts are allocated to a three, five, seven or ten year GTO, respectively. MATURITY PERIOD - The period of time during which the value of amounts allocated under a GTO may be distributed without any MVA. The Maturity Period shall begin on the day following the Maturity Date and will end on the thirtieth day thereafter. MINIMUM DISTRIBUTION-The amount that is required to be withdrawn from Qualified Plans, Tax Sheltered Annuities and IRAs to meet distribution requirements established by the Code. MULTIPLE MATURITY ACCOUNT - A separate account of the Company established for the purpose of facilitating accounting and investment processes associated with the offering of GTOs under the Contracts. NON-QUALIFIED CONTRACT - A Contract which does not qualify for favorable tax treatment under the provisions of Sections 403(a) (qualified plans), 408 (IRAs) or 403(b) (Tax-Sheltered Annuities) or 408A (Roth IRAs) of the Code. PHYSICIAN - A doctor of medicine or osteopathy legally authorized to practice medicine and surgery by the State in which he performs such function or action. This person cannot be the Contract Owner, Contingent Owner, Annuitant, Contingent Annuitant, nor a member of the immediate family of these persons. PURCHASE PAYMENT - A deposit of new value into the Contract. The term "Purchase Payment" does not include transfers between the Variable Account and Fixed Account, among the Sub-Accounts or to or from a GTO. QUALIFIED PLAN - A retirement plan that receives favorable tax treatment under the provisions of Section 403(a) of the Code ROTH IRA- An individual retirement annuity meeting the requirements of the Code Section 408A. SICKNESS - An illness or disease which manifests itself while this Contract is in force. SKILLED NURSING FACILITY - A licensed facility which is operated as a Skilled Nursing Facility according to the law of the jurisdiction in which it is located; provides skilled nursing care under the supervision of a physician; provides continuous 24 hour a day nursing service by or under the supervision of a registered graduate professional nurse (R.N.); and maintains a daily medical record of each patient. 6 8 SPECIFIED INTEREST RATE - The interest rate guaranteed to be credited to amounts allocated under a selected GTO so long as such allocations are not distributed for any reason from the GTO prior to the GTO Maturity Period or Maturity Date. SPECIFIED VALUE - The amount of a GTO allocation minus withdrawals and transfers out of the GTO, plus interest accrued at the Specified Interest Rate. The Specified Value is subject to an MVA at all times other than during the Maturity Period. SUB-ACCOUNTS - Separate and distinct divisions of the Variable Account to which specific Underlying Mutual Fund shares are allocated and for which Accumulation Units and Annuity Units are separately maintained. TAX SHELTERED ANNUITY(TSA) - An annuity which qualifies for treatment under Code Section 403(b). TERMINAL ILLNESS - An illness which is expected to result in death within 12 months of diagnosis and which is diagnosed by a Physician. The diagnosis of "Terminal Illness" must occur after the Contract is in force. UNDERLYING MUTUAL FUNDS - The registered management investment companies in which the assets of the Sub-Accounts of the Variable Account will be invested. VALUATION DATE - Each day the New York Stock Exchange and the Company's Home Office are open for business or any other day during which there is a sufficient degree of trading of the Variable Account's Underlying Mutual Fund shares such that the current net asset value of its Accumulation Units might be materially affected. VALUATION PERIOD - The period of time commencing at the close of a Valuation Date and ending at the close of business for the next succeeding Valuation Date. VARIABLE ACCOUNT - A separate investment account of the Company into which Variable Account Purchase Payments are allocated. VARIABLE ANNUITY PAYMENT - An annuity providing for payments which are not predetermined or guaranteed as to dollar amount and which vary in amount with the investment experience of the Variable Account. 7 9 GENERAL PROVISIONS - ------------------ ENTIRE CONTRACT The Contract, riders and endorsements, if any, make up the entire agreement between the Company and the Contract Owner. Statements in the Contract are deemed representations and not warranties. The Contract is established for the exclusive benefit of the Contract Owner and the Contract Owner's beneficiaries. NON-PARTICIPATING The Contract is non-participating. It will not share in the surplus of the Company. INCONTESTABILITY The Contract, endorsements, riders and attachments will not be contested. CONTRACT SETTLEMENT The Company may require that the Contract be returned to the Home Office prior to making any payments. All sums payable to or by the Company under this Contract are payable at the Home Office. EVIDENCE OF SURVIVAL Where any payments under this Contract depend on the recipient being alive on a given date, proof that such person is living may be required by the Company. Such proof may be required prior to making the payments. ALTERATION OR MODIFICATION All changes in or to the terms of the Contract or the Contract must be made in writing and signed by the President or Secretary of the Company. No other person can alter or change any of the terms or conditions of the Contract. Provisions of the Contract may be modified or superseded as required by the terms of the Qualified Plan or applicable law. Where required, other changes to the Contract will be made only with mutual agreement of the Company and the Contract Owner. As required, a copy of the amendment will be furnished to the Contract Owner. The Company reserves the right as of a specified date to: (1) discontinue the Fixed Account option for any new Contract Owner; and (2) not accept future deposits into the Fixed Account from existing Contract Owners. ASSIGNMENT If permitted, a Contract Owner may assign some or all rights under the Contract. Such assignment must be made in writing and executed by the Contract Owner during the lifetime of the Annuitant and prior to the Annuitization Date. The assignment will take effect on the date it is recorded by the Company at its Home Office. The assignment will not be recorded until the Company has received sufficient direction from the Contract Owner and assignee as to the proper allocation of Contract rights under the assignment. The Company is not responsible for the validity of tax consequences of any assignment or for any payment or other settlement made prior to the Company's recording of the assignment. Contracts issued to fund a retirement plan pursuant to the Code Sections 403, 408 or 408A, may not be sold, discounted, assigned, pledged or transferred for the performance of any obligation to any person other than the Contract Owner or other person exercising ownership rights under the terms of the plan, or as otherwise allowed by applicable law. 8 10 PROTECTION OF PROCEEDS Proceeds under this Contract are not assignable by any Beneficiary prior to the time such proceeds become payable. To the extent permitted by applicable law, proceeds are not subject to the claims of creditors or to legal process. MISSTATEMENT OF AGE OR SEX If the age or sex of the Annuitant has been misstated, all payments and benefits under the Contract will be adjusted. Payments and benefits will be made, based on the correct age or sex. Proof of age of an Annuitant may be required at any time, in a form satisfactory to the Company. When the age or sex of an Annuitant has been misstated, the dollar amount of any overpayment will be deducted from the next payment or payments due under the Contract. The dollar amount of any underpayment made by the Company as a result of any such misstatement will be paid in full with the next payment due under the Contract. REPORTS Prior to the Annuitization Date, a report showing the Contract Value will be provided to the Contract Owner at least once each year. NUMBER Unless otherwise provided, all references in this Contract which are in the singular form will include the plural; all references in the plural form will include the singular. DEDUCTIONS AND CHARGES - ---------------------- CONTRACT MAINTENANCE FEE The Company will deduct an annual Contract Maintenance Fee of [$15] for each Contract. The fee will be assessed on each Contract Anniversary that occurs prior to the Annuitization Date. The Company will waive the fee for each year in which the Contract Value is [$25,000] or greater on the Contract Anniversary Date. If a total surrender of the Contract occurs and the Contract Value is less than [$25,000] as of the date of the surrender, the total fee will be assessed prior to surrender. This charge will be allocated between the Fixed and Variable Accounts in the same percentages as Purchase Payments are allocated to the Fixed and Variable Accounts. VARIABLE ACCOUNT CHARGE The Variable Account Charge applies to allocations made to the Sub-Accounts. The Company deducts charges from the Variable Account equal to an annual rate of [1.10%] of the daily net asset value of the Variable Account. This charge compensates the Company for administrative expenses incurred relating to the issuance and maintenance of the Contracts and for mortality risks assumed in connection with the Death Benefit and annuity features of the Contracts. DEDUCTION FOR PREMIUM TAXES The Company will charge against the Contract Value the amount of any premium taxes levied by a state or any other government entity upon Purchase Payments received by the Company. The method used to recoup premium taxes will be determined by the Company at its sole discretion and in compliance with applicable state law. The Company currently deducts such charges from a Contract Value either (1) at the time the Contract is surrendered, (2) at the Annuitization Date, or (3) at such earlier date as the Company may be subject to such taxes. 9 11 OWNERSHIP PROVISIONS - -------------------- CONTRACT OWNERSHIP Unless otherwise provided, the Contract Owner has all rights under the Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF AS CONTRACT OWNER, THE PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT. Unless the Contract Owner is a CRT, the Annuitant shall become the Contract Owner on the Annuitization Date. JOINT OWNERSHIP Joint Owners must be spouses at the time joint ownership is requested. If a Joint Owner is named, the Joint Owner will possess an undivided interest in the Contract. Unless otherwise provided, the exercise of any ownership right in the Contract (including the right to surrender or partially surrender the Contract; or to change the parties to the Contract, the Payment Option or the Annuitization Date) shall require a written request signed by both Contract Owners. If a Contract Owner who is not also the Annuitant dies before the Annuitization Date and there is a surviving Joint Owner, the Joint Owner shall become the Contract Owner. If a Contract Owner who is also the Annuitant dies before the Annuitization Date and there is a surviving Joint Owner, all benefits under the Contract are payable to the Joint Owner. Joint Owners may be selected only for a Contract issued as a Non-Qualified Contract and may not be selected when the Contract Owner is a CRT. CONTINGENT OWNERSHIP The Contingent Owner is the person who may receive certain benefits under the Contract, if the Contract Owner, who is not the Annuitant, dies prior to the Annuitization Date and there is no surviving Joint Owner. If more than one Contingent Owner survives the Contract Owner, each will share equally unless otherwise specified in the Contingent Owner designation. If no Contingent Owner survives a Contract Owner and there is no surviving Joint Owner, all rights and interest of the Contingent Owner will vest in the Contract Owner's estate. If a Contract Owner, who is also the Annuitant, dies before the Annuitization Date, then the Contingent Owner does not have any rights in the Contract. However, a surviving Contingent Owner who is also the Beneficiary will have all the rights of a beneficiary. Contingent Owners may be selected only for a Contract issued as a Non-Qualified Contract and may not be selected when the Contract Owner is a CRT. ANNUITANT The Annuitant is the person who will receive annuity payments upon Annuitization, unless the Contract is owned by a CRT. If the Contract is owned by a CRT, the payments made during Annuitization will be paid to the CRT. The Annuitant must be age 85 or younger at the time of Contract issuance unless the Company has approved a request for an Annuitant of greater age. The Annuitant may be changed prior to the Annuitization Date with the consent of the Company. For Contracts that are issued as IRAs, TSAs, or under Qualified Plans, the Contract Owner must be the Annuitant and the entire interest of the Annuitant in the Contract is nonforfeitable. 10 12 CONTINGENT ANNUITANT If the Annuitant dies before the Annuitization Date, the Contingent Annuitant becomes the Annuitant. All provisions of the Contract which are based on the death of the Annuitant prior to the Annuitization Date will be based on the death of the last survivor of the Annuitant and Contingent Annuitant. A Contingent Annuitant may be selected only for a Contract issued as a Non-Qualified Contract and may not be selected when the Contract Owner is a CRT. BENEFICIARY If there is no surviving Joint Owner, or if the Annuitant is someone other than a Contract Owner, the Beneficiary is the person who will receive benefits under the Contract if the Annuitant dies prior to the Annuitization Date. If a Contract Owner who is also the Annuitant dies before the Annuitization Date and there is a surviving Joint Owner, all benefits under the Contract are payable to the surviving Joint Owner. If more than one Beneficiary survives the Annuitant, each will share equally unless otherwise specified in the beneficiary designation. If there is no surviving Joint Owner and no Beneficiary survives the Annuitant, all rights and interests of such parties will vest in the Contingent Beneficiary, and if more than one Contingent Beneficiary survives, each will share equally unless otherwise specified in the Contingent Beneficiary designation. If no Contingent Beneficiary survives the Annuitant, all rights and interest of the Contingent Beneficiary will vest with the estate of the last surviving Contract Owner. If the Contract Owner is a CRT, upon the death of the Annuitant, all interest in the Death Benefit proceeds will accrue to the CRT. Any designation which creates a conflict with the CRT's right to such interest shall be void and of no effect. CHANGES OF PARTIES NAMED IN THE CONTRACT Notwithstanding any other provisions in the Contract, prior to the Annuitization Date, and subject to any existing assignments, the Contract Owner may request a change in the Contract Owner, Contingent Owner, Joint Owner, Annuitant, Contingent Annuitant, Beneficiary, or Contingent Beneficiary. Such change, upon receipt and recording by the Company at its Home Office, will take effect as of the time the written notice was signed, whether or not the Contract Owner or Annuitant are living at the time of record, but without further liability as to any payment or settlement made by the Company before receipt of such change. Any request for change of Contract Owner must be made in writing, may require a signature guarantee and must be signed by the Contract Owner and the person designated as the new Contract Owner. Any change to the Annuitant or Contingent Annuitant is subject to underwriting and approval by the Company. Notwithstanding any provisions in this Contract, for Non-Qualified Contracts, if any Contract Owner is not a natural person, the change of the annuitant will be treated as the death of the Contract Owner and will result in a distribution, regardless of whether a Contingent Annuitant is also named. Distributions will be made as if the Contract Owner died at the date of such change. ACCUMULATION PROVISIONS - ----------------------- PURCHASE PAYMENTS The Contract is provided in return for the initial Purchase Payment and any subsequent Purchase Payments. The cumulative total of all purchase payments under this and any other annuity contract(s) issued by the Company having the same Annuitant may not exceed $1,000,000 without the prior written consent of the Company. The initial Purchase Payment is due on the Date of Issue and may not be less than [$1,000], for Non-Qualified Plans. If periodic payments are expected by the Company, the Purchase Payment amount may be satisfied on an annualized basis. Purchase Payments, if any, after the initial Purchase Payment must be at least [$25] and may be made at any time. 11 13 If no Purchase Payments have been received in the Contract for a period of two full years and the paid-up annuity benefit at maturity would be less than [$50] a month, the Company may, at its option, terminate the Contract by payment of the accumulated value and will by such payment, be relieved of any obligation under the Contract. For Contracts issued as IRAs, except in the case of a rollover contribution (as permitted by Code Section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3)) or a contribution made in accordance with the terms of a Simplified Employee Pension (SEP) as described in Code Section 408(k), no contributions will be accepted unless: (1) they are in cash; (2) the total of such contributions shall not exceed any limits set by the Code and (3) all related transaction comply with the provisions of the Code. Additionally, any refund of Purchase Payments will be applied before the close of the calendar year following the year of the refund toward the payment of future purchase payments or the purchase of additional benefits. For Contracts issued as TSAs or under a Qualified Plan, Purchase Payments, exclusive of rollovers, made during any taxable year shall not exceed the Code section 402(g) limit for the calendar year in which such taxable year begins. The Code section 402(g) limit applies to Purchase Payments that are elective deferrals within the meaning of Code Section 402(g)(3) and made under this Contract and all other contracts, plans or arrangements of the Contract Owner's employer. However, the maximum amount of Purchase Payments that may be made by the Participant or Contract Owner may be increased or decreased under the provisions of Code sections 403(b) or 415. ALLOCATION OF PURCHASE PAYMENTS The Contract Owner elects to have the Purchase Payments allocated among the Fixed Account, the Sub-Accounts of the Variable Account, and the GTOs under the Multiple Maturity Account. The allocation of future Purchase Payments may be changed by the Contract Owner by a proper submission that is received and recorded by the Company. FIXED ACCOUNT PROVISIONS The Fixed Account Contract Value at any time will be: the sum of all amounts credited to the Fixed Account under this Contract less any amounts canceled or withdrawn for charges, deductions, or surrenders. Any paid up annuity cash surrender or death benefit that may become payable from the Fixed Account will not be less than the minimum benefits as required by the statute of any state in which the Contract is issued. The Company will credit interest to the Fixed Account Contract Value. Such interest will be credited at such rate or rates as the Company prospectively declares from time to time, at the sole discretion of the Company. Such rates will be declared to the Contract Owner in writing on the quarterly statement. Any such rate or rates so determined, for which deposits are received, will remain in effect for a period of not less than 12 months. However, the Company guarantees that it will credit interest at not less than [3.0%] per year or any lesser amount as permitted by state law. At the end of an Interest Rate Guarantee Period, a new interest rate is declared with an Interest Rate Guarantee Period starting at the end of the prior period and ending at the end of the calendar quarter one year later. For new Purchase Payments allocated to the Fixed Account or transfers from the Variable Account, this period begins upon the date of deposit or transfer and ends at the end of the calendar quarter at least one year (but not more than 15 months) from deposit or transfer. VARIABLE ACCOUNT PROVISIONS The Variable Account Contract Value is the sum of the value of all Accumulation Units under this Contract. The Company has allocated a part of its assets for the Contract and certain other contracts to the Variable Account. Such assets of the Variable Account remain the property of the Company. However, they may not be charged with the liabilities from any other business in which the Company may take part. 12 14 The Variable Account is divided into Sub-Accounts which invest in shares of the Underlying Mutual Funds Purchase Payments are allocated among one or more of these Sub-Accounts, as designated by the Contract Owner, and are subject to the terms and conditions of the Underlying Mutual Funds. ACCUMULATION UNIT VALUE The number of Accumulation Units for each Sub-Account of the Variable Account is found by dividing: (1) the net amount allocated to the Sub-Account; by (2) the Accumulation Unit value for the Sub-Account for the Valuation Period during which the Company received the Purchase Payment. When the Underlying Mutual Fund shares were first established, the value of an Accumulation Unit for each Sub-Account of the Variable Account was arbitrarily set at $10. The value for any later Valuation Period is found as follows: The Accumulation Unit value for each Sub-Account for the last prior Valuation Period is multiplied by the net investment factor for the Sub-Account for the next following Valuation Period. The result is the Accumulation Unit value. The value of an Accumulation Unit may increase or decrease from one Valuation Period to the next. The number of Accumulation Units will not change as a result of investment experience. VALUATION OF UNDERLYING MUTUAL FUND SHARES Underlying Mutual Fund shares in the Variable Account will be valued at their net asset value. SUBSTITUTION OF UNDERLYING MUTUAL FUND SHARES If the shares of the Underlying Mutual Funds should no longer be available for investment by the Separate Account or if in the judgment of the Company's management further investment in such Fund's shares should be inappropriate in view of the purposes of the Contract, the Company may substitute shares of another Underlying Mutual Fund for Underlying Mutual Fund shares already purchased or to be purchased in the future by purchase payments under the Contract. In the event of such substitution or change, the Company may, by appropriate endorsement, make such changes to this and other contracts of this class as may be necessary to reflect such substitution or change. Nothing contained herein shall prevent the separate account from purchasing other securities for other series or classes of contracts or from effecting a conversion between series or classes of contracts on the basis of requests made individually by Owners of such contracts. NET INVESTMENT FACTOR The net investment factor is an index applied to measure the investment performance of a Sub-Account from one Valuation Period to the next. The net investment factor may be greater or less than one; therefore, the value of an Accumulation Unit may increase or decrease. The net investment factor for any Sub-Account for any Valuation Period is determined by: dividing (1) by (2) and subtracting (3) from the result, where: 1. is the net of: a. the net asset value per share of the Underlying Mutual Fund held in the Sub-Account, determined at the end of the current Valuation Period; plus b. the per share amount of any dividend or capital gain Distributions made by the Underlying Mutual Fund held in the Sub-Account, if the "ex-dividend" date occurs during the current Valuation Period. 13 15 2. is the net result of: a. the net asset value per share of the Underlying Mutual Fund held in the Sub-Account, determined at the end of the last prior Valuation Period; plus or minus b. the per share credit or charge for any taxes reserved for the last prior Valuation Period, plus or minus c. a per share credit or charge for any taxes reserved for, which is determined by the Company to have resulted from the investment operations of the Sub-Account. 3. is a factor representing the Variable Account Charge plus additional charges for any riders or options which become a part of the Contract. For funds that credit dividends on a daily basis and pay such dividends once a month, the net investment factor allows for the monthly reinvestment of these daily dividends. GUARANTEED TERM OPTIONS (GTOs) At any particular time under this Contract, four GTOs will be available: a three year GTO, a five year GTO, a seven year GTO and a ten year GTO. Amounts allocated to a three year GTO will have a Guaranteed Term of three years, a five year GTO will have a Guaranteed Term of five years, and so on. Regardless of the source from which a GTO allocation is made, the minimum for each allocation is $1,000. GTOs are not available as funding options if the Contract is annuitized. All investment amounts allocated to a GTO must be transferred to other investment options at the time of Annuitization. If a variable annuity Contract is annuitized while a GTO is in effect, and prior to the Maturity Date of the GTO, a Market Value Adjustment (MVA) will apply to amounts transferred to other investment options under the Contract which may be used during Annuitization. For the duration of the Guaranteed Term of a GTO, the Company will credit a Specified Interest Rate on amounts remaining allocated under the GTO. The interest rates in effect during any particular Investment Period will be guaranteed for GTO allocations (made during the Investment Period) for the duration of the Guaranteed Term associated with the GTO. Each GTO in the same Investment Period has its own Specified Interest Rate for the Guaranteed Term relating to the selected GTO. The Company, however, reserves the right to change the Specified Interest Rate at any time for prospective allocations to GTOs. A MVA will apply against all amounts which are transferred or surrendered from allocations under a GTO prior to the Maturity Period for the particular GTO. During the Maturity Period, allocations under a GTO may be transferred, surrendered, or distributed for any other reason without any MVA (a CDSC may apply on amounts surrendered). At all times other than during a Maturity Period, a MVA will apply to amounts distributed from allocations under a GTO. At least 15 days and at most 30 days prior to the end of each calendar quarter, variable annuity Contract Owners having GTOs with Maturity Dates coinciding with the end of the calendar quarter will be notified of the impending expiration of the GTO. Contract Owners will then have the option of directing the withdrawal or transfer of the GTO without application of any MVA during the Maturity Period. Withdrawals or transfers during the Maturity Period, beginning the day after the Maturity Date and ending thirty days after the Maturity Date, will not be subject to a MVA. For the period commencing with the first day after the Maturity Date and ending on the thirtieth day following the Maturity Date, the GTO will be credited with the same Specified Interest Rate in effect before the Maturity Date. If no such direction is received by the thirtieth day following the Maturity Date, amounts in the GTO will be automatically transferred to a money market sub-account of the variable annuity. The Company reserves the right to restrict transfers into and out of the Multiple Maturity Account to one per calendar year at all times other than during a Maturity Period. 14 16 MARKET VALUE ADJUSTMENT (MVA) FORMULA The MVA Formula is a calculation expressing the relationship between three factors: (1) CMT Rate for a period equivalent to the Guaranteed Term at the time of deposit in the GTO; (2) the CMT Rate at the time of distribution for a period of time equivalent to the time remaining in the GTO; and (3) the number of days remaining until the Maturity Date of the GTO. An MVA generally reflects the relationship between the prevailing interest rates at the time of investment, prevailing interest rates at the time of distribution, and the amount of time remaining in the Guaranteed Term of the GTO selected. Generally, if the Specified Interest Rate is lower than prevailing interest rates, application of the MVA will result in a downward adjustment of amounts allocated to a GTO. If the Specified Interest Rate is higher than prevailing interest rates, application of the MVA will result in an upward adjustment of amounts allocated to a GTO. The MVA is applied only when amounts allocated to a GTO are distributed from the GTO prior to a Maturity Period. The result of the MVA Formula is the MVA Factor. The formula for determining the MVA Factor is: 1 + a t ( ------------------ ) 1 + b + .0025 Where: a = the CMT Rate for a period equivalent to the Guaranteed Term at the time of deposit in the GTO; b = the CMT Rate at the time of distribution for a period of time with maturity equal to the time remaining in the Guaranteed Term. In determining the number of years to maturity, any partial year will be counted as a full year, unless this would cause the number of years to exceed the Guaranteed Term. t = the number of days until the Maturity Date, divided by 365.25. In the case of a above, the CMT Rate utilized will be the rate published by the Federal Reserve Board, the Friday preceding the Wednesday before the Investment Period during which the allocation to the GTO was made. In the case of b above, the CMT Rate utilized will be the rate published the Friday preceding the Wednesday preceding withdrawal, transfer or other distribution giving rise to the MVA. For periods which do not coincide with the available CMT periods, rates used in a and b will be linearly interpolated (where the difference in rates is proportional to the difference in years). The MVA Factor will be equal to 1 during the Investment Period. That is, for the period of time following a GTO allocation during which the Specified Interest Rate for GTOs of the same duration is not changed, the MVA Factor will be equal to 1. The MVA Formula shown above also accounts for some of the administrative and processing expenses incurred when fixed-interest investments are liquidated. This is represented in the addition of 0.0025 in the MVA Formula. The result of the MVA Formula shown above is the MVA Factor. The MVA Factor will either be greater, less than or equal to 1 and will be multiplied by the Specified Value or that portion of the Specified Value being withdrawn, transferred or distributed for any other reason. If the result is greater than 1, a gain will be realized by the Contract Owner; if less than 1, a loss will be realized. If the MVA Factor is exactly 1, no gain or loss will be realized. If the Federal Reserve Board halts publication of CMT Rates, or if, for any other reason, CMT Rates are not available to be relied upon, the Company will use appropriate rates based on treasury bond yields. 15 17 TRANSFERS, SURRENDERS, AND WITHDRAWALS - -------------------------------------- TRANSFER PROVISIONS Transfers among the Fixed Account, Variable Account and the Guaranteed Term Option(s) must be made prior to the Annuitization Date. Transfers among the Sub-Accounts may occur once daily without charges and penalties. The Company reserves the right to restrict transfers into and out of the Multiple Maturity Account to one per calendar year at all times other than during the Maturity Period. The Company also reserves the right to refuse any transfer requests submitted by individuals or firms performing market timing services on behalf of multiple Contract Owners and to suspend or delay any transfer when the New York Stock Exchange is closed or restricted or when disposal or purchase of securities are not reasonably practicable due to actions taken, or limitations imposed, independently by Underlying Mutual Fund companies. A Contract Owner may transfer annually, at the end of an Interest Rate Guarantee Period, funds from the Fixed Account to the Variable Account or to a Guaranteed Term Option without incurring a penalty or adjustment. The maximum allowable transfer amount from the Fixed Account to the Variable Account or to a Guaranteed Term Option will be determined by the Company at its sole discretion, but will not be less than [10%] of the total value of the portion of the Fixed Account at the end of an Interest Rate Guaranteed Period. Transfers to a Guaranteed Term Option must be at least $1,000. All transfers from the Fixed Account must be made within 45 days after the expiration date of the Interest Rate Guarantee Period. A Contract Owner may annually transfer a portion of the Variable Account or the Guaranteed Term Option to the Fixed Account. The Company reserves the right to limit the maximum amount transferable to the Fixed Account. This maximum will never be less than 10% of the combined value of the Variable Account and the amount allocated to the Guaranteed Term Option for any 12 month period. The Company also reserves the right to refuse transfers or Purchase Payments into the Fixed Account if the Fixed Account value is greater than or equal to 30% of the total Account Value at the time such transfer is requested. SURRENDERS Prior to the earlier of the Annuitization Date or the death of the Annuitant or any Contingent Annuitant, the Contract Owner may surrender part or all of the Contract Value. A surrender request must be in writing or in a form otherwise acceptable to the Company. The Company reserves the right to require that the signature(s) be guaranteed by a member firm of a major stock exchange or other depository institution qualified to give such a guaranty. When written application and proof of interest are received, the Company will surrender the number of Variable Account Accumulation Units, any amount from the Fixed Account; any amount from any GTO under the Multiple Maturity Account and any amount from any other options under this Contract needed to equal: (a) the dollar amount requested; plus (b) any CDSC which applies. If a partial surrender is requested, unless the Contract Owner has instructed otherwise, amounts will be surrendered as follows: (a) from the Variable Account; (b) from the Fixed Account and (c) from the GTOs under the Multiple Maturity Account. The amounts surrendered from each of these accounts will be in the same proportion that the Contract Owner's interest in each account bears to the total Contract Value. Additionally, the amount that is surrendered from each underlying Sub-Account will be in the same proportion that each Sub-Account bears to the total Variable Account. The surrender value will be paid to the Contract Owner within seven days of receipt of proper request and proof of interest satisfactory to the Company are received at the Home Office. RESTRICTIONS ON SURRENDERS FOR CERTAIN QUALIFIED PLANS, TSAs AND IRAs The surrender of Contract Value attributable to contributions made pursuant to a salary reduction agreement (within the meaning of Code Section 402(g)(3)(C)), or transfers from a Custodial Account described in Section 403(b)(7) of the Code, may be executed only- 16 18 (1) when the Contract Owner attains age 59-1/2, separates from service, dies, or becomes disabled (within the meaning of Code Section 72(m)(7)); or (2) in the case of hardship (as defined for purposes of Code Section 401(k)), provided that any surrender of Contract Value in the case of hardship may not include any income attributable to salary reduction contributions. These surrender limitations apply to the following portions of the Contract Value: (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 custodial accounts described in Code Section 403(b)(7) (except that employer contributions and earnings in such accounts as of December 31, 1988, may be withdrawn in the case of hardship). Payments pursuant to a Qualified Domestic Relations Order will not violate any surrender limitations included herein, but may be subject to restrictions found in the employer's plan or the Code. Any distribution other than the above, including exercise of a contractual free look provision may result in the immediate application of taxes and penalties under Code Section 72. A premature distribution may not be eligible for rollover treatment. To assist in preventing disqualification in the event of a surrender during the free look period, the Company will agree to transfer the proceeds to another contract which meets the requirements of Section 408 of the Code, upon proper direction by the Contract Owner. SURRENDER VALUE The surrender value is the amount that will be paid if the Contract is surrendered. The surrender value at any time will be: The Contract Value less the sum of any applicable; 1. Contingent Deferred Sales Charge (CDSC), 2. Premium taxes, and 3. Contract Maintenance Fee. SUSPENSION OR DELAY OF SURRENDER The Company has the right to suspend or delay the date of any surrender from the Variable Account for any period: 1. When the New York Stock Exchange is closed; 2. When trading on the New York Stock Exchange is restricted; 3. When an emergency exists as a result of which: disposal of securities held in the Variable Account is not reasonably practicable or it is not reasonably practicable to fairly determine the value of the net assets of the Variable Account; or 4. During any other period when the Securities and Exchange Commission, by order, so permits for the protection of security holders. Rules and regulations of the Securities and Exchange Commission may govern as to whether certain conditions set forth above exist. Payment of funds from the Variable Account and Multiple Maturity Accounts will be made within seven days of receipt of both proper written application and proof of interest satisfactory to the Company. The Company reserves the right to delay payment of a total surrender of Contract Owner's Fixed Account Value for up to six months in those states where applicable law requires the Company to reserve such right. 17 19 CONTINGENT DEFERRED SALES CHARGE (CDSC) If part or all of the Contract Value is withdrawn, a CDSC may be made by the Company. The CDSC is designed to cover expenses relating to the sale of the Contract. The CDSC is calculated by multiplying the applicable CDSC percentages noted below by the Purchase Payments that are withdrawn. For purposes of calculating the amount of the CDSC, withdrawals are considered to come first from the oldest Purchase Payment made to the Contract, then from the next oldest Purchase Payment and so forth, with any earnings attributable to such Purchase Payments considered only after all Purchase Payments have been considered. (For federal income tax purposes, a full or partial withdrawal is treated as a withdrawal of earnings first.)
Years Measured From Date of Payment: 1 2 3 4 5 6 7 Thereafter - ------------------------------------------------------------------------------------------------------------- CDSC % 7% 7% 6% 5% 4% 3% 2% 0%
CDSC, if applicable, will be assessed against full or partial surrenders from GTOs. If any such surrender occurs prior to the Maturity Date for any particular GTO, the amount surrendered will be subject to an MVA in addition to CDSC. WITHDRAWALS WITHOUT CHARGE During each Contract Year, the Contract Owner may withdraw without CDSC a total amount equal to the greater of: (1) 10% of the sum of all Purchase Payments made to the Contract or (2) the amount required to meet Minimum Distribution requirements for this Contract. This CDSC-free withdrawal privilege is non-cumulative; that is, free amounts not taken during any given Contract Year cannot be taken as free amounts in subsequent Contract Years. A CDSC will not be assessed against the withdrawal of any: (1) Purchase Payments which have been held under this Contract for at least [84] months; (2) earnings attributable to Purchase Payments made to this Contract; (3) Death Benefit payments made upon the death of the Annuitant prior to the Annuitization Date; (4) amounts applied to an Annuity Payment Option after two years from the Date of Issue; (5) amounts transferred among the Sub-Accounts or among the Fixed Account, the Variable Account and the GTOs under the Multiple Maturity Account, or (6) as otherwise noted in the Contract. In addition, when this Contract is exchanged for another contract issued by the Company or any of its affiliate insurance companies, of the type and class which the Company determines is eligible for such waiver, the Company will waive the CDSC on the first contract. A CDSC may apply to the contract received in the exchange. When a Contract is held by a CRT, the amount which may be withdrawn from this Contract without application of a CDSC, shall be the larger of (a) or (b) where (a) is: the amount which would otherwise be available for withdrawal without application of a CDSC; and where (b) is the excess of the Contract Value at the close of the day prior to the date of the withdrawal, over total Purchase Payments (reduced by previous withdrawals) attributed to the Contract as of the date of the withdrawal. The amount of CDSC may be reduced when sales of the Contract are made to a trustee, employer or similar entity pursuant to a retirement plan or when sales are made in a similar arrangement where offering the Contract to a group of individuals results in savings of sales expenses. The entitlement of such a reduction in CDSC will be determined by the Company. SYSTEMATIC WITHDRAWALS The Contract Owner may elect in writing on a form provided by the Company to take Systematic Withdrawals of a specified dollar amount (of at least $100) on a monthly, quarterly, semi-annual or annual basis. The Company will process the withdrawals as directed by surrendering on a pro-rata basis Accumulation Units from all of the Sub-Accounts in which the Contract Owner has an interest, the Fixed Account and the Multiple Maturity Account. A CDSC may apply to Systematic Withdrawals in accordance with the considerations set forth in the "CDSC" and "Withdrawals Without Charge" provisions of 18 20 the Contract. Unless otherwise directed by the Contract Owner, the Company will withhold federal income taxes from each Systematic Withdrawal. An age-based Systematic Withdrawal program (see paragraph below) will terminate automatically at the end of each Contract Year and may be reinstated only on or after the next Contract Anniversary pursuant to a new request. Unless the Contract Owner has made an irrevocable election of distributions of substantially equal periodic payments, the Systematic Withdrawals may be discontinued at any time by notification to the Company in writing. The Company reserves the right to discontinue prospective Systematic Withdrawals. If the Contract Owner withdraws amounts pursuant to a Systematic Withdrawal program, then the Contract Owner may withdraw each Contract Year without a CDSC an amount up to the greater of (1) 10% of the total sum of all Purchase Payments made to the Contract at the time of withdrawal, (2) the amount required to meet Minimum Distribution requirements for this Contract, or (3) the specified percentage of the Contract Value based on the Contract Owner's age, as shown in the following table: CONTRACT OWNER'S AGE PERCENTAGE OF CONTRACT VALUE - -------------------- ---------------------------- Under 59-1/2 5% 59-1/2 thru 61 7% 62 thru 64 8% 65 thru 74 10% 75 and over 13% If the total amounts withdrawn in any Contract Year exceed the CDSC-free amount as calculated under the Systematic Withdrawal method described above, then such total withdrawn amounts will be eligible only for CDSC-free withdrawal privilege described in the "Withdrawals Without Charge" and "Additional Withdrawal Without Charge" provision of the Contract , and the total amount of CDSC charged during the Contract Year will be determined in accordance with that provision. The Contract Value and the Contract Owner's age for purposes of applying the CDSC-free withdrawal percentage described above are determined as of the date the request for a Systematic Withdrawal program is received and recorded by the Company at its Home Office. (In the case of Joint Owners, the older Contract Owner's age will be used.) Furthermore, this CDSC-free withdrawal privilege for Systematic Withdrawals is non-cumulative, that is, free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year. Systematic Withdrawals are not available prior to the expiration of the free look provision of the Contract. The Company reserves the right to assess a processing fee for this service. WAIVER OF CDSC - LONG TERM CARE If Death Benefit Option 1 or Death Benefit Option 2 is elected by the Contract Owner, CDSC will not apply if the Owner (or Annuitant if the Contract is owned by a non-natural owner) is Confined due to Sickness or Injury to a Long Term Care Facility or Hospital for a continuous 90 day period after the third Contract Anniversary. In the case of Joint Ownership, the CDSC waiver will apply if either Joint Owner is Confined. Request for waiver must be received by the Company during the period of confinement or no later than 90 days after the confinement period ends. Also, the surrender charge will not apply if the Owner is diagnosed by a Physician to have a Terminal Illness at any time the Contract is in force. Written notice and proof of Terminal Illness or confinement must be received in a form satisfactory to the Company and recorded at the Home Office prior to the waiver of surrender charges. ELECTIONS OF ADDITIONAL CDSC WAIVERS For an additional charge, the Contract Owner may elect at the time of application additional waivers of CDSC as described below. Such elections and applicable charges, if any, will be reflected on the Contract Owner's data page. 19 21 Additional Withdrawal Without Charge and Disability Waiver - ---------------------------------------------------------- In addition to the 10% free withdrawal percentage, for an additional charge of 0.10% of the daily net asset value of the Variable Account, the Contract Owner may elect the right to withdraw without CDSC an amount equal each year to an additional 5% of the sum of all Purchase Payments made to the Contract. This additional withdrawal benefit is non-cumulative. If such an election is made, CDSC will also be waived if a Contract Owner (or Annuitant if the Contract is owned by a non-natural owner) is disabled after the Date of Issue and before attaining age 65. For purposes of this waiver, an individual is considered to be disabled if he is unable to engage in any substantial gainful activity by reason of medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. The Contract Owner may be required to provide proof of disability which is satisfactory to the Company. If this waiver becomes effective, no additional purchase payments may be made to this Contract. 10 Year and Disability Waiver (Available only for Contracts issued as TSAs) - --------------------------------------------------------------------------- For an additional charge of 0.05% of the daily net asset value of the Variable Account, the Contract Owner may elect a waiver of CDSC if the Contract Owner has been the Owner of the Contract for 10 years and has made active deferrals for at least 5 of those 10 years. Under this provision, CDSC will also be waived if the Contract Owner becomes disabled after the Date of Issue and prior to attaining age 65. For purposes of this waiver, an individual is considered to be disabled if he is unable to engage in any substantial gainful activity by reason of medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite durations. The Contract Owner may be required to provide proof of disability which is satisfactory to the Company. If this waiver becomes effective, no additional purchase payments may be made to this Contract. Hardship Waiver (Available only for Contracts issued as TSAs) - ------------------------------------------------------------- For an additional charge of 0.15% of the daily net asset value of the Variable Account, the Contract Owner may elect a waiver of CDSC if the Contract Owner experiences a hardship (as defined in Code Section 401(k)(20(B)). The Contract Owner may be required to provide proof of hardship which is satisfactory to the Company. LOANS - ----- Loans, secured by the Contract Value, are available 30 days after the Date of Issue for contracts that are issued under Qualified Plans or as TSAs. The Company will charge a loan processing fee of $25 for each loan. Specific loan terms are disclosed at the time of loan application or loan issuance. For each loan, the minimum amount that may be borrowed is $1,000. For Contracts which are not subject to ERISA and which have Contract Values up to $20,000, the maximum loan balance that may be outstanding at any time is 80% of the Contract Value, but not more than $10,000. For Contracts not subject to ERISA which have Contract Values of $20,000 or more and all Contracts that are subject to ERISA, the maximum loan balance which may be outstanding at any time is 50% of the Contract Value, but not more than $50,000. The $50,000 limit will be reduced by the highest loan balance owed during the prior one-year period. For Contracts which are Tax Sheltered Annuities and are subject to ERISA the Company reserves the right to limit a loan to 50% of the Contract Value. The aggregate of all loans may not exceed the maximum loan limitations stated above. An amount equal to the principal amount of the loan will be transferred to a collateral fixed account from the Variable Account, the Fixed Account, or the GTO pursuant to agreement between the Contract Owner and the Company. Amounts transferred from the GTO may be subject to a MVA. No withdrawal charges are deducted at the time of the loan or on the transfers to the collateral account. Loan repayments will be allocated among the Variable Account, the Fixed Account, the GTO or any other investment option that may be available under the Contract pursuant to agreement between the Contract Owner and the Company. Loan repayments allocated to the GTO must be at least $1,000. 20 22 The amount that is payable upon surrender of the Contract, the death of the Contract Owner, death of the Annuitant, or Annuitization of the Contract will be reduced by the amount of the loan outstanding, plus accrued interest. Until the loan is repaid, the Company reserves the right to restrict any transfer of the Contract which would otherwise qualify as a transfer as permitted in the Code. Loans may also be subject to additional limitations or restrictions under the terms of the employer's plan. Loans permitted under this Contract may be taxable in whole or in part as required by the Code. The Company will calculate the maximum nontaxable loan based on the information provided by the Owner/Annuitant or the employer. Loan amounts and accrued interest amounts which are in default will be treated as deemed Distributions for federal income tax purposes, to the extent required by law. REQUIRED DISTRIBUTION PROVISIONS This Contract is intended to be treated as an "annuity contract" for federal income tax purposes. Accordingly, all provisions of this Contract shall be interpreted and administered in accordance with the requirements of Section 72(s) of the Code. In no event shall any payment be deferred beyond the time limits permitted by Section 72(s) of the Code. The Company reserves the right to amend this Contract to comply with requirements set out in the Code and regulations and rulings thereunder, as they may exist from time to time. Payments will be calculated by use of the expected return multiples specified in Tables V and VI of Section 1.72-9 of the Income Tax Regulations and calculated in accordance with the calculation methods made available by the Company, prescribed by the regulations and elected by the Contract Owner. REQUIRED DISTRIBUTION--NON-QUALIFIED CONTRACTS Upon the death of any Owner, Contract Owner or Joint Contract Owner (including an Annuitant who becomes the Contract Owner of the Contract on the Annuitization Date) (each of the foregoing "a deceased Contract Owner"), certain distributions for Non-Qualified Contracts are required by Section 72(s) of the Code. Notwithstanding any provision of the Contract to the contrary, the following distributions shall be made in accordance with such requirements. 1. If any deceased Contract Owner died on or after the Annuitization Date and before the entire interest under the Contract has been distributed, then the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution in effect as of the date of such deceased Contract Owner's death. 2. If any deceased Contract Owner died prior to the Annuitization Date, then the entire interest in the Contract (consisting of either the Death Benefit or the Contract Value reduced by certain charges as set forth elsewhere in the Contract) shall be distributed within 5 years of the death of the deceased Contract Owner, provided however: (a) If any portion of such interest is payable to or for the benefit of a natural person who is a surviving Contract Owner, Contingent Contract Owner, Joint Contract Owner, Annuitant, Contingent Annuitant, Beneficiary, or Contingent Beneficiary as the case may be (each a "designated beneficiary"), such portion may, at the election of the designated Beneficiary, be distributed over the life of such designated beneficiary, or over a period not extending beyond the life expectancy of such designated beneficiary, provided that payments begin within one year of the date of the deceased Contract Owner's death (or such longer period as may be permitted by federal income tax regulations). Life expectancy and the amount of each payment will be determined as prescribed by Federal Treasury Regulations. (b) If the designated beneficiary is the surviving spouse of the deceased Contract Owner, such spouse may elect, in lieu of the Death Benefit, to become the Contract Owner of this Contract, and the distributions required under these Required Distribution Provisions will be made upon the death of such spouse. 21 23 In the event that the Contract Owner is a person that is not a natural person (e.g., a trust or corporation), then, for purposes of these distribution provisions, (i) the death of the Annuitant shall be treated as the death of any Contract Owner, (ii) any change of the Annuitant shall be treated as the death of any Contract Owner, and (iii) in either case the appropriate distribution required under these distribution rules shall be made upon such death or change, as the case may be. The Annuitant is the primary annuitant as defined in Section 72(s)(6)(B) of the Code. These distribution provisions shall not be applicable to any Contract that is not required to be subject to the provisions of 72(s) of the Code by reason of Section 72(s)(5) or any other law or rule. Such contracts include, but are not limited to, any Contract issued as a TSA, IRA, and under a Qualified Plan. REQUIRED DISTRIBUTION--TSAs, IRAs, AND CONTRACTS ISSUED UNDER QUALIFIED PLANS The entire interest of an Annuitant under a TSA, Qualified Plan, or IRA is required to be distributed in a manner consistent with the provisions of Code Section 401(a)(9), and regulations thereunder, and will be paid, as requested by the Contract Owner, notwithstanding anything else contained herein, to the Contract Owner over a period not exceeding: A. the life of the Contract Owner or the lives of the Contract Owner and the Contract Owner's designated beneficiary; or B. a period not extending beyond the life expectancy of the Contract Owner or the life expectancy of the Contract Owner and the Contract Owner's designated beneficiary. If the Contract Owner's entire interest is to be distributed in equal or substantially equal payments over a period described in A or B, then (1) for an IRA, payments are required to commence not later than the first day of April following the calendar year in which the Contract Owner attains age 70-1/2, and (2) if the Contract is issued as a TSA or under a Qualified Plan, payments are required to commence not later than the first day of April following the later of the calendar year in which the Contract Owner attains the age of 70-1/2 or the Contract Owner retires. If the Annuitant dies on or after the date Minimum Distributions have begun, the remaining Contract interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Contract Owner's death, unless otherwise permitted by the Code. If the Annuitant dies prior to the commencement of required Minimum Distributions, the interest in the Contract must be distributed by December 31 of the calendar year in which the fifth anniversary of the death occurs unless: 1. the Annuitant names the surviving spouse as the Beneficiary and such spouse elects to receive the Distribution in substantially equal payments over the surviving spouse's life (or a period not exceeding the surviving spouse's life expectancy) and commencing not later than December 31 of the year in which the deceased Annuitant would have attained 70-1/2. If such surviving spouse dies before distributions begin under this provision, this section shall be applied as if the surviving spouse were the Annuitant. 2. the Annuitant names a Beneficiary other than the surviving spouse and such Beneficiary elects to receive a Distribution in substantially equal payments over the Beneficiary's life (or a period not exceeding the Beneficiary's life expectancy) commencing not later than December 31 of the year following the year in which the deceased Annuitant died. For purposes of this requirement, any amount paid to a child of the Annuitant will be treated as if it has been paid to the surviving spouse if the remainder of the interest becomes payable to the surviving spouse when the child reaches the age of majority. If the Beneficiary under an IRA is the surviving spouse of the Annuitant, the surviving spouse may elect to treat the Contract as his or her own, whether or not distributions had commenced prior to the death of the Contract Owner. This election will be deemed to have been made if such surviving spouse makes a regular IRA contribution to the Contract, makes a rollover to or from the Contract, or fails to elect any of the above provisions. The result of such an election is that the surviving spouse will be considered the individual for whose benefit the IRA is maintained. 22 24 For TSA's these provisions apply only to the portion of the Contract Value in a 403(b) TSA which accrued after December 31, 1986. Amounts accruing prior to January 1, 1987, will be distributed in accordance with the rules in effect prior to the Tax Reform Act of 1986. DEATH PROVISIONS DEATH OF CONTRACT OWNER If any Contract Owner and the Annuitant are not the same person and such Contract Owner dies prior to the Annuitization Date, the death benefit provisions do not apply. The surviving Joint Owner, if any, becomes the new Contract Owner. If there is no surviving Joint Owner, the Contingent Owner becomes the new Contract Owner. If there is no surviving Joint Owner or Contingent Owner, the last surviving Contract Owner's estate becomes the new Contract Owner. The entire interest in the Contract Value must be distributed in accordance with the "Required Distribution" provisions. DEATH OF CONTRACT OWNER/ANNUITANT If any Contract Owner and the Annuitant are the same person, and such person dies prior to the Annuitization Date, the Death Benefit shall be payable to the surviving Joint Owner, the Beneficiary, the Contingent Beneficiary, or the last surviving Contract Owner's estate, as specified in the "Beneficiary Provisions" and distributed in accordance with the "Required Distribution" provisions. DEATH OF ANNUITANT If the Contract Owner and Annuitant are not the same person, and the Annuitant dies prior to the Annuitization Date, a Death Benefit will be payable to the Beneficiary, the Contingent Beneficiary, the Contract Owner, or the estate of the last surviving Contract Owner as specified under "Beneficiary" in the Ownership Provisions, unless there is a surviving Contingent Annuitant. In such case, the Contingent Annuitant becomes the Annuitant. If the Annuitant dies after the Annuitization Date, any benefit that may be payable shall be paid according to the Annuity Payment Option selected. DEATH BENEFIT PAYMENT The value of the Death Benefit will be determined as of the Valuation Date coincident with, or next following the date the Company receives in writing at the Home Office the following three items: (1) proper proof of the Annuitant's death; (2) an election specifying distribution method; and (3) any applicable state required form(s). Proof of death is either: (1) a copy of a certified death certificate; (2) a copy of a certified decree of a court of competent jurisdiction as to the finding of death; (3) a written statement by a medical doctor who attended the deceased; or (4) any other proof satisfactory to the Company. The Beneficiary must elect a method of distribution which complies with the "Distribution Provisions" of this Contract. The Beneficiary may elect to receive such Death Benefits in the form of: (1) a lump sum distribution; (2) an annuity payout; or (3) any distribution that is permitted under state and federal regulations and is acceptable by the Company. If such election is not received by the Company within 60 days of the Annuitant's death, the Beneficiary will be deemed to have elected a cash payment as of the last day of the 60 day period. Payment of the Death Benefit will be made or will commence within 30 days after receipt of proof of death and notification of the election. 23 25 ELECTION OF DEATH BENEFIT OPTION At the time of application, the Contract Owner shall elect one of the following death benefit options. The Contract Owner's chosen option and additional charge, if applicable, is reflected on the Contract Owner's data page. Standard Death Benefit - ---------------------- If the Annuitant dies at any time prior to the Annuitization Date, the dollar amount of the Death Benefit will be the greatest of: (1) the Contract Value; (2) the sum of all Purchase Payments, less an adjustment for amounts surrendered; or (3) the Contract Value as of the most recent five-year Contract Anniversary occurring prior to the Annuitant's 86th birthday, less an adjustment for amounts subsequently surrendered, plus Purchase Payments received after that five-year Contract Anniversary date. The adjustment for amounts surrendered will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date of the partial surrender. Death Benefit - Option 1 - ------------------------ If the Annuitant dies at any time prior to the Annuitization Date, the dollar amount of the Death Benefit will be the greatest of: (1) the Contract Value; (2) the sum of all Purchase Payments, less an adjustment for amounts surrendered; or (3) the greatest Contract Value on any Contract Anniversary prior to the Annuitant's 86th birthday, less an adjustment for amounts subsequently surrendered, plus Purchase Payments received after that Contract Anniversary. The adjustment for amounts surrendered will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date of the partial surrender. For the additional Death Benefits provided by this option, the Company will deduct a charge at an annual rate of [0.05%] of the daily net asset value of the Variable Account. Death Benefit - Option 2 - ------------------------ If the Annuitant dies at any time prior to the Annuitization Date, the dollar amount of the Death Benefit will be the greater of: (1) the Contract Value or (2) the 5% interest on Purchase Payments. The 5% interest on Purchase Payments is equal to the net of Purchase Payments and amounts surrendered, accumulated at 5% simple interest from the date of each payment or surrender to the most recent Contract Anniversary prior to the later of the Annuitant's death or the Annuitant's 86th birthday, less an adjustment for amounts subsequently surrendered, plus Purchase Payments received since that most recent Contract Anniversary. Such total accumulated amount shall not exceed 200% of the net of Purchase Payments and amounts surrendered. The adjustment for amounts subsequently surrendered after the most recent Contract Anniversary will reduce the 5% interest on Purchase Payments in the same proportion that the Contract Value was reduced on the date of the partial surrender. For the additional Death Benefits provided by this option, the Company will deduct a charge at an annual maximum rate of [0.10%] of the daily net asset value of the Variable Account. 24 26 ANNUITIZATION PROVISIONS - ------------------------ ANNUITY COMMENCEMENT DATE The Annuity Commencement Date is a date chosen by the Contract Owner and is generally the first day of a calendar month. The date must be at least two years after the Date of Issue. For those Contracts issued under Qualified Plans, TSAs, or IRAs, if the Annuity Commencement Date is not chosen, the Annuity Commencement Date established on the Date of Issue of the Contract will be the date on which the Contract Owner reaches age 70-1/2. For Non-Qualified Contracts, if the Annuity Commencement Date is not chosen, the Annuity Commencement Date established on the Date of Issue of the Contract will be the date on which the Contract Owner reaches age 90. The Annuity Commencement Date may not be later than the first day of the first calendar month after the Annuitant's 90th birthday unless otherwise agreed upon by the Contract Owner and the Company. CHANGE OF ANNUITY COMMENCEMENT DATE AND ANNUITY PAYMENT OPTION The Contract Owner may change the Annuity Commencement Date and the Annuity Payment Option prior to the Annuitization Date. Such changes must be in writing and approved by the Company, and must comply with the "Annuity Commencement Date" provision above. A change will become effective as of the date requested, but will not apply to any payment made or action taken by the Company before it is recorded at the Home Office. ANNUITIZATION Annuitization is irrevocable once payments have begun. To annuitize the Contract, the Contract Owner shall notify the Company in writing of the election of : (1) an Annuity Payment Option; and (2) either a Fixed Annuity Payment, Variable Annuity Payment, or any other combination that may be available at the time of Annuitization. If a variable payment option is elected, all amounts in the Fixed Account must be moved to a Variable Sub-Account prior to the Annuitization Date. FIXED ANNUITY PAYMENT - FIRST AND SUBSEQUENT PAYMENTS The first Fixed Annuity Payment will be determined by applying the portion of the total Contract Value specified by the Contract Owner, less applicable premium tax, to the fixed annuity table in effect on the Annuitization Date for the Annuity Payment Option elected. The purchase rates for any options guaranteed to be available will be determined on a basis not less favorable than the applicable 1983 "Table a" with ages set back six years, with minimum interest at 3.0%. The determination of the applicable "Table a" will be based upon the type of Contract issued: Non-Qualified, TSAs, IRAs, or Qualified Plan. The rates shown in the Annuity Tables are calculated on this guaranteed basis. Subsequent Fixed Annuity Payments will remain level unless the Annuity Payment Option elected dictates otherwise. 25 27 VARIABLE ANNUITY PAYMENT - FIRST PAYMENT A Variable Annuity Payment is a series of payments which are not predetermined or guaranteed as to dollar amount and which vary in amount with the investment experience of the underlying Variable Sub-Accounts selected by the Contract Owner. The first Variable Annuity Payment will be determined by applying the portion of the total Contract Value specified by the Contract Owner, less applicable premium taxes, to the variable Annuity Table in effect on the Annuitization Date for the Annuity Payment Option elected. The purchase rates for any options guaranteed to be available will be determined on a basis not less favorable than the applicable 1983 "Table a" with ages set back six years, with minimum interest at 3.5%. The determination of the applicable "Table a" will be based upon the type of Contract issued: Non-Qualified, TSA, IRA, or Qualified Plan. VARIABLE ANNUITY PAYMENT - SUBSEQUENT PAYMENTS Variable Annuity Payments after the first payment vary in amount. The payment amount changes with the investment performance of the Sub-Accounts within the Variable Account. The dollar amount of such payments is determined as follows: 1. The dollar amount of the first annuity payment is divided by the annuity unit value as of the Annuitization Date. This result establishes the fixed number of Annuity Units for each monthly annuity payment after the first. The number of Annuity Units remains fixed during the annuity payment period. 2. The fixed number of Annuity Units is multiplied by the annuity unit value for the Valuation Date for which the payment is due. This result establishes the dollar amount of the payment. The Company guarantees that the dollar amount of each payment after the first will not be affected by variations in the Company's expenses or mortality experience. ANNUITY UNIT VALUE An Annuity Unit is used to calculate the value of annuity payments. When the Underlying Mutual Fund shares were first established, the value of an Accumulation Unit for each Sub-Account of the Variable Account was arbitrarily set at $10. The value for any later Valuation Period is found as follows: 1. The Annuity Unit value for each Sub-Account for the immediately preceding Valuation Period is multiplied by the net investment factor for the Sub-Account for the Valuation Period for which the Annuity Unit Value is being calculated. 2. The result is multiplied by an interest factor because the Assumed Investment Rate of [3.5%] per year is built into the Variable annuity purchase rate basis. FREQUENCY AND AMOUNT OF PAYMENTS All annuity payments will be mailed within 10 working days of the first of the month in which they are scheduled. Payments will be made based on the Annuity Payment Option selected and frequency selected. However, if the net amount to be applied to any Annuity Payment Option at the Annuitization Date is less than [$5,000], the Company has the right to pay such amount in one lump sum in lieu of periodic annuity payments. If any payment would be or becomes less than [$50], the Company has the right to change the frequency of payments to an interval that will result in payments of at least [$50]. In no event will the Company make payments under an annuity option less frequently than annually. 26 28 ANNUITY PAYMENT OPTIONS - ----------------------- SELECTION OF ANNUITY PAYMENT OPTION The Contract Owner may select an Annuity Payment Option prior to Annuitization. If an Annuity Payment Option is not selected, a life annuity with a guarantee period of 240 months will be the automatic form of payment. Any Annuity Payment Option NOT set forth in the Contract or a combination of available options which are satisfactory to both the Company and the Annuitant may be selected. Options available for Contracts issued to IRA's, TSA's or Qualified Plans may be limited based on the age of the Annuitant and Distribution requirements under the Code. The following are the annuity payment options which are guaranteed to be available by the Company. LIFE ANNUITY The amount to be paid under this option will be paid during the lifetime of the Annuitant. Payments will cease with the last payment due prior to the death of the Annuitant. JOINT AND SURVIVOR ANNUITY The amount to be paid under this option will be paid during the joint lifetimes of the Annuitant and a designated second person. Payments will continue as long as either is living. LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED The amount to be paid under this option will be paid during the lifetime of the Annuitant. A guaranteed period of 120 or 240 months may be selected. If the Annuitant dies prior to the end of this guaranteed period, the recipient chosen by the Owner will receive the remaining guaranteed payments. ANY OTHER OPTION The amount and period under any other option will be determined by the Company. Payment options not set forth in the Certificate Agreement are available only if they are approved by both the Company and the Annuitant. SUPPLEMENTARY AGREEMENT A supplementary agreement will be issued within 30 days following the Annuitization Date. The supplementary agreement will set forth the terms of the Annuity Payment Option selected. 27 29 GUARANTEED ANNUITY TABLES FOR NON-QUALIFIED CONTRACTS FIXED MONTHLY BENEFITS PER $1000 APPLIED JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENTS ANNUITANT'S AGE LAST BIRTHDAY
FEMALE AGE ---------- 50 55 60 65 70 -- -- -- -- -- MALE AGE 50 3.36 3.46 3.56 3.64 3.71 -------- 55 3.42 3.56 3.69 3.82 3.93 60 3.47 3.64 3.82 3.99 4.16 65 3.70 3.92 4.15 4.39 70 4.00 4.30 4.61
LIFE ANNUITY: MONTHLY ANNUITY PAYMENTS
MALE GUARANTEED PERIOD FEMALE GUARANTEED PERIOD ANNUITANT'S ANNUITANT'S ATTAINED AGE 120 240 ATTAINED AGE 120 240 LAST BIRTHDAY NONE MONTHS MONTHS LAST BIRTHDAY NONE MONTHS MONTHS ------------- ---- ------ ------ ------------- ---- ------ ------ 50 3.87 3.85 3.77 50 3.59 3.58 3.55 51 3.93 3.90 3.82 51 3.64 3.63 3.59 52 3.99 3.96 3.87 52 3.68 3.67 3.63 53 4.05 4.02 3.92 53 3.74 3.72 3.68 54 4.12 4.09 3.97 54 3.79 3.78 3.72 55 4.19 4.15 4.03 55 3.85 3.83 3.77 56 4.27 4.22 4.08 56 3.90 3.89 3.82 57 4.34 4.30 4.14 57 3.97 3.95 3.88 58 4.43 4.37 4.20 58 4.03 4.01 3.93 59 4.51 4.45 4.26 59 4.10 4.08 3.99 60 4.60 4.54 4.32 60 4.18 4.15 4.04 61 4.70 4.62 4.39 61 4.25 4.22 4.11 62 4.80 4.72 4.45 62 4.34 4.30 4.17 63 4.91 4.82 4.51 63 4.42 4.38 4.23 64 5.03 4.92 4.58 64 4.52 4.47 4.30 65 5.15 5.03 4.65 65 4.61 4.56 4.37 66 5.28 5.14 4.71 66 4.72 4.66 4.44 67 5.43 5.27 4.78 67 4.83 4.76 4.51 68 5.58 5.39 4.84 68 4.95 4.87 4.58 69 5.74 5.53 4.90 69 5.08 4.98 4.65 70 5.91 5.66 4.96 70 5.21 5.10 4.72 71 6.10 5.81 5.02 71 5.36 5.22 4.79 72 6.30 5.96 5.08 72 5.51 5.36 4.86 73 6.51 6.12 5.13 73 5.67 5.50 4.93 74 6.73 6.28 5.18 74 5.85 5.65 5.00 75 6.97 6.44 5.23 75 6.04 5.80 5.06 76 7.23 6.61 5.27 76 6.25 5.97 5.12 77 7.51 6.79 5.31 77 6.47 6.14 5.18 78 7.80 6.96 5.34 78 6.71 6.32 5.23 79 8.12 7.14 5.37 79 6.98 6.50 5.28 80 8.46 7.32 5.40 80 7.26 6.69 5.32
28 30 UNISEX GUARANTEED ANNUITY TABLES FOR QUALIFIED PLANS FIXED MONTHLY BENEFITS PER $1000 APPLIED ANNUITY TABLES JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENTS ANNUITANT AGE
50 55 60 65 70 SURVIVOR AGE 50 3.29 3.37 3.43 3.48 3.52 55 3.48 3.57 3.65 3.72 60 3.71 3.84 3.94 65 4.02 4.19 70 4.44
LIFE ANNUITY: MONTHLY ANNUITY PAYMENTS GUARANTEED PERIOD ANNUITANT'S ATTAINED AGE LAST BIRTHDAY NONE 120 MONTHS 240 MONTHS 40 3.23 3.23 3.22 41 3.26 3.26 3.24 42 3.29 3.29 3.27 43 3.32 3.32 3.30 44 3.35 3.35 3.33 45 3.39 3.38 3.37 46 3.42 3.42 3.40 47 3.46 3.46 3.43 48 3.50 3.50 3.47 49 3.54 3.54 3.51 50 3.59 3.58 3.55 51 3.63 3.63 3.59 52 3.68 3.67 3.63 53 3.73 3.72 3.68 54 3.79 3.77 3.72 55 3.84 3.83 3.77 56 3.90 3.89 3.82 57 3.97 3.95 3.88 58 4.03 4.01 3.93 59 4.10 4.08 3.99 60 4.18 4.15 4.04 61 4.25 4.22 4.11 62 4.34 4.30 4.17 63 4.42 4.38 4.23 64 4.52 4.47 4.30 65 4.61 4.56 4.37 66 4.72 4.66 4.44 67 4.83 4.76 4.51 68 4.95 4.86 4.58 69 5.07 4.98 4.65 70 5.21 5.10 4.72 71 5.35 5.22 4.79 72 5.51 5.36 4.86 73 5.67 5.50 4.93 74 5.85 5.65 5.00 75 6.04 5.80 5.06 29 EX-5 5 EXHIBIT 5 1 EXHIBIT NO. 5 THE VARIABLE ANNUITY APPLICATION FORM 2 [LOGO] THE BEST OF AMERICA(R) V APPLICATION
- ------------------------------------------------------------------------------------------------------------------------------------ PLAN TYPE AN OPTION MUST BE SELECTED This contract is established as a: [ ] ROTH IRA CUSTODIAL FORM & STATEMENT OF UNDERSTANDING REQUIRED [ ] 403(b)/TSA (NON-ERISA ONLY) DISCLOSURE FORM REQUIRED [ ] SIMPLE IRA ADDITIONAL FORMS REQUIRED [ ] NON-QUALIFIED [ ] SEP IRA FORM 5305 REQUIRED [ ] CRT (Charitable Remainder Trust) TRANSMITTAL FORM REQUIRED [ ] IRA - ------------------------------------------------------------------------------------------------------------------------------------ DEATH BENEFIT OPTIONS FOR ALL PLAN TYPES ADDITIONAL OPTIONS FOR ALL PLAN TYPES [ ] STANDARD 5-YEAR ANNIVERSARY [ ] ADDITIONAL WITHDRAWAL WAIVER * [ ] 1-YEAR ANNIVERSARY* only for annuitants age 84 or less [ ] 5-YEAR CDSC SCHEDULE* [ ] 5% INTEREST ON PURCHASE PAYMENTS* only for MORE OPTIONS FOR 403(b)/TSA'S ONLY annuitants age 84 or less [ ] 10-YEAR & DISABILITY WAIVER* IF NO OPTION IS SELECTED, THE DEATH BENEFIT WILL BE THE [ ] HARDSHIP WAIVER* STANDARD 5 YEAR ANNIVERSARY *Additional charge--please see prospectus. - ------------------------------------------------------------------------------------------------------------------------------------ CONTRACT OWNER [ ] CONTINGENT OWNER [ ] JOINT OWNER Last Name or Plan Name Last Name Spouse only unless prohibited by law _____________________________________________________ _____________________________________________________ First Name or Plan Name (continued) MI First Name MI _____________________________________________________ __ _____________________________________________________ __ Address______________________________________________ Address______________________________________________ ______________________________________________ ______________________________________________ Sex M [ ] F [ ] Birthdate / / Sex M [ ] F [ ] Birthdate / / ________________________ ________________________ MM DD YYYY MM DD YYYY Soc. Sec. No. or Tax ID______________________________ Soc. Sec. No. or Tax ID______________________________ - ------------------------------------------------------------------------------------------------------------------------------------ ANNUITANT COMPLETE ONLY IF DIFFERENT FROM [ ] CONTINGENT ANNUITANT COMPLETE ONLY IF APPLICABLE. Last Name PRIMARY CONTRACT OWNER. Last Name _____________________________________________________ _____________________________________________________ First Name MI First Name MI _____________________________________________________ __ _____________________________________________________ __ Address_____________________________________________ Address______________________________________________ _____________________________________________ ______________________________________________ Maximum issue age through age 85 Sex M [ ] F [ ] Birthdate / / Sex M [ ] F [ ] Birthdate / / ________________________ ________________________ MM DD YYYY MM DD YYYY Soc. Sec. No.________________________________________ Soc. Sec. No.________________________________________ - ------------------------------------------------------------------------------------------------------------------------------------ BENEFICIARY WHOLE PERCENTAGES ONLY, MUST TOTAL 100%. Relationship Birthdate Primary Contingent Print Full Name (Last, First, MI) Allocation to Annuitant Soc. Sec. No. MM/DD/YYYY [ ] ___________________________________________ __________% ____________ _____________ ___/___/___ [ ] [ ] ___________________________________________ __________% ____________ _____________ ___/___/___ [ ] [ ] ___________________________________________ __________% ____________ _____________ ___/___/___ [ ] [ ] ___________________________________________ __________% ____________ _____________ ___/___/___
APO-3723 PRODUCT OF NATIONWIDE LIFE INSURANCE CO. ID-BOAV-AO (05/1998) 3
- ------------------------------------------------------------------------------------------------------------------------------------ ANNUITY PURCHASE PAYMENTS [ ] PAYMENT ENCLOSED [ ] TRANSFER/1035 (TRANSFER FORM REQUIRED) [ ] ROLLOVER [ ] OTHER APPLY FOR TAX YEAR_______
First Purchase Payment $_______________ submitted. A copy of this application properly signed by the producer will constitute receipt for such amount. If this application is declined by the Nationwide Life Insurance Company, there will be no liability on the part of the Company, and any payments submitted with this application will be refunded. - -------------------------------------------------------------------------------- THE UNDERLYING MUTUAL FUND OPTIONS LISTED ON THIS APPLICATION ARE ONLY AVAILABLE IN VARIABLE ANNUITY INSURANCE PRODUCTS ISSUED BY LIFE INSURANCE COMPANIES OR, IN SOME CASES, THROUGH PARTICIPATION IN CERTAIN QUALIFIED PENSION OR RETIREMENT PLANS. THEY ARE NOT OFFERED TO THE GENERAL PUBLIC DIRECTLY.
- ------------------------------------------------------------------------------------------------------------------------------------ PURCHASE PAYMENT ALLOCATION A CONTRACT CANNOT BE ISSUED UNLESS THIS SECTION IS COMPLETE. WHOLE PERCENTAGES ONLY, MUST TOTAL 100%. AMERICAN CENTURY VARIABLE NATIONWIDE(R) SEPARATE NEUBERGER & BERMAN PORTFOLIOS, INC. ACCOUNT TRUST ADVISORS MANAGEMENT TRUST _____% Capital Appreciation Fund _____% AMT Guardian Portfolio _____% VP Income & Growth _____% Government Bond Fund _____% AMT Partners Portfolio _____% VP International _____% Money Market Fund _____% AMT Mid-Cap Growth _____% VP Value _____% Total Return Fund OPPENHEIMER VARIABLE ACCOUNT FUNDS DREYFUS NATIONWIDE SUBADVISED _____% Variable Investment Fund FUNDS FUND NAME (SUBADVISOR) _____% Aggressive Growth Fund Capital Appreciation Portfolio _____% Growth Fund _____% Stock Index Fund _____% Balanced Fund (Salomon Brothers) _____% Growth & Income Fund _____% Socially Responsible Growth Fund _____% Equity Income Fund VAN ECK WORLDWIDE INSURANCE TRUST FIDELITY VARIABLE INSURANCE (Federated) PRODUCTS FUND _____% Worldwide Hard Assets Fund _____% Global Equity Fund _____% VIP Equity-Income Portfolio (JP Morgan) _____% Worldwide Emerging Markets Fund _____% VIP Growth Portfolio _____% High Income Bond Fund WARBURG PINCUS TRUST _____% VIP High Income Portfolio (Federated) _____% VIP Overseas Portfolio _____% International Equity Portfolio _____% Multi Sector Bond Fund (Salomon Brothers) _____% Growth & Income Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND II _____% Post-Venture Capital Portfolio _____% Small Cap Value Fund (Dreyfus) _____% VIP II Contrafund Portfolio NATIONWIDE LIFE INS. CO. _____% Small Company Fund FIDELITY VARIABLE INSURANCE (Multi Managers) _____% Fixed Account PRODUCTS FUND III _____% Strategic Growth Fund MVA/GUAR. TERM OPTION (GTO) _____% VIP III Growth Opportunities Portfolio (Strong) _____% 3 Year MORGAN STANLEY _____% Strategic Value Fund (Strong/Schafer) _____% 5 Year _____% Emerging Markets Debt Portfolio _____% 7 Year _____% Select Advisers Mid Cap _____% Real Estate Securities Fund (Three UAM Managers) _____% 10 Year $1,000 minimum Portfolio for each MVA/GTO option.
4 - -------------------------------------------------------------------------------- REMARKS - -------------------------------------------------------------------------------- CONTRACT OWNER SIGNATURES I hereby represent my answers to the above questions to be accurate and complete and acknowledge that I have received a copy of the current prospectus for this variable annuity contract. [ ] Yes [ ] No Do you have any reason to believe the Contract applied for is to replace existing annuities or insurance? [ ] Please send me a copy of the Statement of Additional Information to the Prospectus. STATE IN WHICH APPLICATION WAS SIGNED______________________ DATE_______________ State CONTRACT OWNER___________________________JOINT OWNER____________________________ Signature Signature - -------------------------------------------------------------------------------- PRODUCER INFORMATION [ ] Yes [ ] No Do you have any reason to believe the Contract applied for is to replace existing annuities or insurance? PRODUCER SIGNATURE_______________________________________ Signature NAME______________________________________ PRODUCER SSN__________________ FIRM NAME_________________________________ PHONE (___)___________________ ADDRESS___________________________________ ___________________________________ ___________________________________ ___________________________________
REGULAR MAIL EXPRESS MAIL ----------------------------------- ----------------------------------- -------------------------------------- Nationwide Life Insurance Co. THE BEST OF AMERICA Nationwide Life Insurance Co. P.O. Box 16609 Service Center Individual Annuity Products, 1-05-P1 Columbus, Ohio 43216-6609 1-800-321-6064 One Nationwide Plaza Columbus, Ohio 43215-2220 ----------------------------------- ----------------------------------- --------------------------------------
EX-6 6 EXHIBIT 6 1 EXHIBIT NO. 6 ARTICLES OF INCORPORATION OF THE DEPOSITOR 2 AMENDED ARTICLES OF INCORPORATION NATIONWIDE LIFE INSURANCE COMPANY First: The name of said Corporation shall be "NATIONWIDE LIFE INSURANCE COMPANY." Second: Said Corporation is to be located, and its principal office maintained in the City of Columbus, Ohio. Third: Said Corporation is formed for the purpose of (a) making insurance upon the lives of individuals and every insurance appertaining thereto or connected therewith on both participating and non-participating plans, (b) granting, purchasing or disposing of annuities on both participating and non-participating plans, (c) taking risks connected with or appertaining to making insurance on life or against accidents to persons, or sickness, temporary or permanent disability on both participating and non-participating plans, (d) investing funds, (e) borrowing money on either a secured or unsecured basis in furtherance of the foregoing, and (f) engaging in all activities permitted life insurance companies under the laws of the State of Ohio. Fourth: No holder of shares of this Corporation shall be entitled as such, as a matter of right, to subscribe for or purchase shares now or hereafter authorized. The capital stock of this Corporation shall be Five Million Dollars ($5,000,000.00) divided into Five Million (5,000,000) Common shares of the par value of One Dollar ($1.00) each, which may be subscribed and purchased, or otherwise acquired for such consideration at not less than par, and under such terms and conditions as the Board of Directors may prescribe. Fifth: Dividends may be declared and paid on the outstanding stock, subject to the restrictions herein contained. Dividends on the capital stock shall be paid only from the earned surplus of the Corporation. Unless those policyholders owning participating insurance policies or contracts shall have received an equitable dividend arising out of savings in mortality, savings in expense loadings and excess interest earnings, if any, from such participating policies, no dividend from such savings and earnings shall be declared or paid on capital stock in an amount in excess of seven percent (7%) per annum, computed on the par value of the stock from date of original issue to date of retirement or date of payment of dividend. 3 * Sixth: The corporate powers and business of the Corporation shall be exercised, conducted and controlled, and the corporate property managed by a Board of Directors consisting of not less than three (3), nor more than twenty-one (21), as may from time to time be fixed by the Code of Regulations of the Corporation. At the first election of directors one-third of the directors shall be elected to serve until the next annual meeting, one-third shall be elected to serve until the second annual meeting, and one-third shall be elected to serve until the third annual meeting; thereafter all directors shall be elected to serve for terms of three (3) years each, and until their successors are elected and qualified. Vacancies in the Board of Directors, arising from any cause, shall be filled by the remaining directors. The directors shall be elected at the annual meetings of the stockholders by a majority vote of the stockholders present in person or by proxy, provided that vacancies may be filled as herein provided for. The stockholders of the Corporation shall have the right, subject to the statutes of the State of Ohio and these Articles of Incorporation, to adopt a Code of Regulations governing the transaction of the business and affairs of the Corporation which may be altered, amended or repealed in the manner provided by law. The Board of Directors shall elect from their own number a Chairman of the Board of Directors, a General Chairman, and a President. The Board of Directors shall also elect a Vice President and a Secretary and a Treasurer, or a Secretary-Treasurer. The Board of Directors may also elect or appoint such additional vice presidents, assistant secretaries and assistant treasurers as may be deemed advisable or necessary, and may fix their duties. The Board of Directors may appoint such other officers as may be provided in the Code of Regulations. All officers, unless sooner removed by the Board of Directors, shall hold office for one (1) year, or until their successors are elected and qualified. Other than the Chairman of the Board of Directors, the General Chairman and the President, the officers need not be members of the Board of Directors. Officers shall be elected at each annual organization meeting of the Board of Directors, but elections or appointments to fill vacancies may be had at any meeting of the directors. A majority of the Board of Directors and officers shall, at all times, be citizens of the State of Ohio. * Amended Effective March 14, 1986. - 2 - 4 Seventh: The annual meeting of the stockholders of the Corporation shall be held at such time as may be fixed in the Code of Regulations of the Corporation. Any meeting of the stockholders, annual or special, may be held in or outside of the State of Ohio. Reasonable notice of all meetings of stockholders shall be given, by mail or publication, or as prescribed by the Code of Regulations or by law. Eighth: These Amended Articles of Incorporation shall supersede and take the place of the Articles of Incorporation and all amendments thereto heretofore filed with the Secretary of State by and on behalf of this Corporation. Amended Effective March 14, 1986 - 3 - EX-9 7 EXHIBIT 9 1 EXHIBIT NO. 9 OPINION OF COUNSEL 2 DRUEN, DIETRICH, REYNOLDS & KOOGLER ATTORNEYS AT LAW ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43216 (614) 249-7617 FACSIMILE: (614) 249-2418 June 4, 1998 Nationwide Life Insurance Company One Nationwide Plaza Columbus, Ohio 43215 To the Company: We have prepared the Registration Statement being filed with the Securities and Exchange Commission for the purpose of registering under the Securities Act of 1933, as amended, Deferred Variable Annuity Contracts to be sold by Nationwide Life Insurance Company ("Nationwide") and to be issued and administered through the Nationwide Variable Account-9. In connection therewith, we have examined the Articles of Incorporation, Code of Regulations and Bylaws of Nationwide, minutes of meetings of the Board of Directors, pertinent provisions of federal and Ohio laws, together with such other documents as we have deemed relevant for the purposes of this opinion. Based on the foregoing, it is our opinion that: 1. Nationwide is a stock life insurance corporation duly organized and validly existing under the laws of the State of Ohio and duly authorized to issue and sell life insurance and annuity contracts. 2. Nationwide Variable Account-9 has been properly created and is a validly existing separate account pursuant to the laws of the State of Ohio. 3. The issuance and sale of the Deferred Variable Annuity Contracts have been duly authorized by Nationwide. When issued and sold in the manner stated in the prospectus which is contained in the Registration Statement, the contracts will be legal and binding obligations of Nationwide in accordance with their terms, except that clearance must be obtained, or the contract form must be approved, prior to the issuance thereof in certain jurisdictions. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name as the firm determining the legality of the securities being registered. Very truly yours, /s/ DRUEN,DIETRICH, REYNOLDS & KOOGLER DRUEN, DIETRICH, REYNOLDS & KOOGLER EX-13 8 EXHIBIT 13 1 EXHIBIT NO. 13 COMPUTATION OF PERFORMANCE CALCULATIONS 2 PERFORMANCE ADVERTISING CALCULATION SCHEDULE The Variable Account may from time to time quote historical performance in advertisements. A yield and effective yield may be advertised for money market sub-accounts, computed according to the following formulas: 365 YIELD = [BPR X --- - 1] X 100 7 EFFECTIVE YIELD = [BPR (to the power of 365/7) - 1] X 100 Where: UVend BPR = Base Period Return = (-----) UVbeg UVbeg = Unit Value at beginning of period UVend = Unit Value at end of period Standardized average annual total return may be advertised for non-money market funds, computed according to the following general formula: ERV 1 ERV T = [(---)(to the power of -) - 1] X 100; if n > 1 T = [(---) - 1] X 100; if n < 1 P n - P
EVR = AV - CDSC 1 1 AVn < 1 = P (----- X UVend)(to the power of -) - AC UVbeg n P AC AVn > 1 = [----- - SIGMA -----] X UVend - UVbeg UVann 3 Where: T = average annual total return P = a hypothetical initial payment of $1,000 n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the quoted periods at the end of the quoted periods (or fractional portion thereof) AV = accrued value AC = administrative charge, equal to $30 per year CDSC = contingent deferred sales charge, equal to (7-n)% of the lesser of $1,000 or AV (CDSC expires after 7 completed contract years) UVbeg = Unit Value at beginning of period UVend = Unit Value at end of period UVann = Unit Value at contract anniversary Nonstandardized total return is calculated similarly to the above, except that CDSC will be equal to $0 and P will be $10,000. -----END PRIVACY-ENHANCED MESSAGE-----