-----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, Eecn4Fhl+YXgWcUao1P89QLG/qusj3e1Y/Sd52N/wh1Ahj+dYZlfE/U4jGAyt2hB zgWt92waUbjQojEsm8F/kg== 0000950152-97-004443.txt : 19970612 0000950152-97-004443.hdr.sgml : 19970612 ACCESSION NUMBER: 0000950152-97-004443 CONFORMED SUBMISSION TYPE: N-4 EL PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970611 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VARIABLE ACCOUNT 9 CENTRAL INDEX KEY: 0001040376 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: N-4 EL SEC ACT: 1933 Act SEC FILE NUMBER: 333-28995 FILM NUMBER: 97622647 FILING VALUES: FORM TYPE: N-4 EL SEC ACT: 1940 Act SEC FILE NUMBER: 811-08241 FILM NUMBER: 97622648 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 EL 1 NATIONWIDE VARIABLE ACCOUNT-9 N-4 EL 1 As filed with the Securities and Exchange Commission. `33 Act File No. `40 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 [X] 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 GORDON E. MCCUTCHAN, SECRETARY, ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215 (Name and Address of Agent for Service) The Registrant elects to register an 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. October 1, 1997 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 a date as the Commission, acting pursuant to said Section 8(a), may determine. ============================================================================== 1 of 89 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.................................................................................3 Item 2. Definitions................................................................................4 Item 3. Synopsis or Highlights....................................................................11 Item 4. Condensed Financial Information..........................................................N/A Item 5. General Description of Registrant, Depositor, and Portfolio Companies.....................12 Item 6. Deductions and Expenses...................................................................14 Item 7. General Description of Variable Annuity Contracts.........................................16 Item 8. Annuity Period............................................................................25 Item 9. Death Benefit and Distributions...........................................................26 Item 10. Purchases and Contract Value..............................................................17 Item 11. Redemptions...............................................................................20 Item 12. Taxes.....................................................................................30 Item 13. Legal Proceedings.........................................................................37 Item 14. Table of Contents of the Statement of Additional Information..............................37 Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION Item 15. Cover Page................................................................................40 Item 16. Table of Contents.........................................................................40 Item 17. General Information and History...........................................................40 Item 18. Services..................................................................................40 Item 19. Purchase of Securities Being Offered......................................................40 Item 20. Underwriters..............................................................................41 Item 21. Calculation of Performance Information....................................................41 Item 22. Annuity Payments..........................................................................42 Item 23. Financial Statements......................................................................43 Part C OTHER INFORMATION Item 24. Financial Statements and Exhibits.........................................................67 Item 25. Directors and Officers of the Depositor...................................................69 Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant................................................................................71 Item 27. Number of Contract Owners.................................................................80 Item 28. Indemnification...........................................................................80 Item 29. Principal Underwriter.....................................................................80 Item 30. Location of Accounts and Records..........................................................82 Item 31. Management Services.......................................................................82 Item 32. Undertakings..............................................................................82
2 of 89 3 NATIONWIDE LIFE INSURANCE COMPANY Home Office P.O. Box 16609 Columbus, Ohio 43216-6609, 1-800-848-6331 TDD 1-800-238-3035 INDIVIDUAL MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY THE NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-9 The Individual Modified Single Premium Deferred Variable Annuity Contracts described in this prospectus are modified single purchase payment contracts (collectively referred to as the "Contracts"). Reference throughout the prospectus to such Contracts shall also mean "Certificates" issued under Group Modified Single Premium Retirement Contracts. For such Group Contracts, references to "Owner" shall mean the "Certificate Owner" unless the Contract otherwise permits or requires the Owner to exercise contractual rights under the authority of the Contract terms. The Contracts are sold either as Non-Qualified Contracts; as Individual Retirement Annuities with contributions rolled-over or transferred from certain tax-qualified plans such as Tax Sheltered Annuity plans or Individual Retirement Annuities; or as Tax Sheltered Annuities with contributions rolled over or transferred from other Tax-Sheltered Annuity Plans. Annuity payments under the Contracts are deferred until a selected later date. Purchase Payments are allocated to the Nationwide Variable Account-9 ("Variable Account"), a separate account of Nationwide Life Insurance Company (the "Company"). The Variable Account is divided into Sub-Accounts, each of which invests in shares of one of the underlying Mutual Fund options described below: NATIONWIDE SEPARATE ACCOUNT TRUST Capital Appreciation Fund Government Bond Fund Money Market Fund Small Company Fund Total Return Fund This prospectus provides you with the basic information you should know about the Individual Modified Single Premium Deferred Variable Annuity Contracts issued by the Variable Account before investing. You should read it and keep it for future reference. A Statement of Additional Information dated October 1, 1997 containing further information about the Contracts and the Variable Account has been filed with the Securities and Exchange Commission. You can obtain a copy without charge from Nationwide Life Insurance Company by calling 1-800-848-6331, or 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 Guaranteed Term Options. Guaranteed Term Options 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 Guaranteed Term Options, as well as 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 GUARANTEED TERM OPTIONS MAY NOT BE AVAILABLE IN EVERY STATE JURISDICTION. INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY 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. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE STATEMENT OF ADDITIONAL INFORMATION, DATED OCTOBER 1, 1997, IS INCORPORATED HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION APPEARS ON PAGE 35 OF THE PROSPECTUS. THE DATE OF THIS PROSPECTUS IS OCTOBER 1, 1997. 1 3 of 89 4 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 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 actually received. ANNUITIZATION DATE- The date on which annuity payments actually commence at Annuitization. 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, and is subject to change by the Contract Owner. 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 Beneficiary is the person designated to receive certain benefits under the Contract upon the death of the Annuitant 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 Contingent Annuitant 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 Individual Retirement Annuities, or Tax Sheltered Annuities. CONTINGENT BENEFICIARY- The Contingent Beneficiary is the person designated to be the Beneficiary if the named Beneficiary is not living at the time of the death of the Annuitant. CONTINGENT OWNER- A Contingent Owner succeeds to the rights of the Contract Owner upon the Contract Owner's death before Annuitization. For Contracts issued in the State of New York, references throughout this prospectus to "Contingent Owner" shall mean "Owner's Beneficiary." A Contingent Owner may not be named for Contracts issued as Individual Retirement Annuities, or Tax Sheltered Annuities. CONTRACT- The Individual Modified Single Premium Deferred Variable Annuity Contract described in this prospectus. CONTRACT ANNIVERSARY- An anniversary of the Date of Issue of the Contract. CONTRACT OWNER (OWNER)- The Contract Owner is the person who possesses all rights under the Contract, including the right to designate and change any designations of the Owner, Contingent Owner, Annuitant, Contingent Annuitant, Beneficiary, Contingent Beneficiary, Annuity Payment Option, and the Annuity Commencement Date. The Contract Owner is the person 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 under the Contract in the Fixed Account, plus any amount held under Guaranteed Term Options, 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 Owner and Annuitant 2 4 of 89 5 are not the same person. 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 the Contract Value. ERISA- The Employee Retirement Income Security Act of 1974, as amended. FIXED ACCOUNT- The Fixed Account is made up of all assets of the Company other than those in the Variable Account or any other segregated asset account of the Company. FIXED ANNUITY- An annuity providing for payments which are guaranteed by the Company as to dollar amount during Annuitization. GUARANTEED TERM OPTION (GTOS)- GTOs are investment options offered under the Contract which provide a guaranteed interest rate paid 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 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 contingent deferred sales charges if otherwise applicable. GTOs are not available during the Annuitization phase of the Contracts and may not be available in every state 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. INDIVIDUAL RETIREMENT ANNUITY - An annuity contract which qualifies for favorable tax treatment under Section 408 of the Code. INTEREST RATE GUARANTEE PERIOD- An Interest Rate Guarantee Period is 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 Guaranteed Term Option, 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 Guaranteed Term Options. JOINT OWNER- The Joint Owner, if any, possesses an undivided interest in the entire Contract in conjunction with the Owner. If a Joint Owner is named, references to "Contract Owner" or "Owner" in this prospectus will apply to both the Owner and Joint Owner or either of them. If permitted by state law, Joint Owners must be spouses at the time Joint Ownership is requested. Joint Ownership may be selected only for Non-Qualified Plans. MARKET VALUE ADJUSTMENT (MVA)- An MVA is the upward or downward adjustment in value of amounts allocated to a GTO, which prior to maturity are: 1) distributed pursuant to a surrender; 2) reallocated to another investment option available under the Contract; 3) distributed pursuant to the death of the Owner or Annuitant; or 4) distributed for any other reason. MUTUAL FUND (FUND)- A registered management investment company in which the assets of the Sub-Accounts of the Variable Account will be invested. NON-QUALIFIED CONTRACT- A Contract which does not qualify for favorable tax treatment under the provisions of Sections 401 or 403(a) (Qualified Plans), 408 (Individual Retirement Annuities) or 403(b) (Tax-Sheltered Annuities) of the Code. 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, or among the Sub-Accounts or Guaranteed Term Options. QUALIFIED PLANS- Retirement plans which receive favorable tax treatment under Sections 401 or 403(a) of the Code. 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. 3 5 of 89 6 TAX SHELTERED ANNUITY- An annuity which qualifies for favorable tax treatment under Section 403(b) of the Code. 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 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- The 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 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. 4 6 of 89 7 Table of Contents GLOSSARY OF SPECIAL TERMS.......................................................2 SUMMARY OF CONTRACT EXPENSES....................................................7 UNDERLYING MUTUAL FUND ANNUAL EXPENSES..........................................8 SYNOPSIS........................................................................9 NATIONWIDE LIFE INSURANCE COMPANY..............................................10 THE VARIABLE ACCOUNT...........................................................10 Underlying Mutual Fund Options........................................10 Voting Rights.........................................................11 Substitution of Securities............................................12 GUARANTEED TERM OPTION ALLOCATIONS.............................................12 VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS..................................12 Expenses of Variable Account..........................................12 Mortality Risk Charge.................................................13 Expense Risk Charge...................................................13 Long Term Care Facility and Death Benefit Rider Charge................13 Contingent Deferred Sales Charge......................................13 Waiver of Contingent Deferred Sales Charge............................13 Long Term Care Facility Rider Provision......................14 Premium Taxes.........................................................14 OPERATION OF THE CONTRACT......................................................14 Investments of the Variable Account...................................14 Allocation of Purchase Payments and Contract Value....................15 Value of an Accumulation Unit.........................................15 Net Investment Factor.................................................15 Valuation of Assets...................................................16 Determining the Contract Value........................................16 Right to Revoke.......................................................16 Transfers.............................................................16 Contract Ownership Provisions.........................................17 Joint Ownership Provisions............................................18 Contingent Ownership Provisions.......................................18 Beneficiary Provisions................................................18 Surrender (Redemption)................................................18 Surrenders Under a Tax Sheltered Annuity Contract.....................19 Loan Privilege........................................................19 Assignment............................................................21 Contract Owner Services...............................................21 Asset Rebalancing............................................21 Dollar Cost Averaging........................................21 Systematic Withdrawals.......................................22 ANNUITY PAYMENT PERIOD, DEATH BENEFIT, AND OTHER DISTRIBUTIONS.................23 Annuity Commencement Date...........................................23 Change in Annuity Commencement Date.................................23 Annuity Payment Period-Variable Account.............................23 Value of an Annuity Unit............................................23 Assumed Investment Rate.............................................23 Frequency and Amount of Annuity Payments............................23 Change in Form of Annuity...........................................23 Annuity Payment Options.............................................24 Death of Contract Owner Provisions-Non-Qualified Contracts..........24 Death of Annuitant Provisions- Non-Qualified Contracts..............24 Death of the Contract Owner/Annuitant Provisions....................25 Death Benefit Payment Provisions....................................25 Standard Contractual Death Benefit...........................25 Rider Option 1...............................................25 Rider Option 2...............................................25
5 7 of 89 8 Required Distribution Provisions for Non-Qualified Contracts........26 Required Distributions For Tax Sheltered Annuities..................26 Required Distributions For Individual Retirement Annuities..........27 Generation-Skipping Transfers.......................................28 FEDERAL TAX CONSIDERATIONS.....................................................28 Federal Income Taxes................................................28 Non-Qualified Contracts-Natural Persons as Owners...................29 Non-Qualified Contracts-Non-Natural Persons as Owners...............30 Individual Retirement Annuities and Tax Sheltered Annuities.........30 Withholding.........................................................31 Non-Resident Aliens.................................................31 Federal Estate, Gift, and Generation Skipping Transfer Taxes........31 Charge for Tax Provisions...........................................32 Diversification.....................................................32 Tax Changes.........................................................32 GENERAL INFORMATION............................................................33 Contract Owner Inquiries............................................33 Statements and Reports..............................................33 Advertising.........................................................33 LEGAL PROCEEDINGS..............................................................35 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.......................35 APPENDIX.......................................................................36
6 8 of 89 9 SUMMARY OF CONTRACT EXPENSES CONTRACT OWNER TRANSACTION EXPENSES Maximum Contingent Deferred Sales Charge(1)........................ 7%
- ------------------------------------------------------------------------------- RANGE OF CONTINGENT DEFERRED SALES CHARGE OVER TIME Number of Completed Years from Contingent Deferred Sales Charge Date of Purchase Payment Percentage 0 7% 1 7% 2 6% 3 5% 4 4% 5 3% 6 2% 7 0% - -------------------------------------------------------------------------------
VARIABLE ACCOUNT ANNUAL EXPENSES(2) Mortality and Expense Risk Charges.....................................0.90% Administration Charge..................................................0.00% Total Variable Account Annual Expenses.................................0.90% Optional Long Term Care Facility and Death Benefit Riders(3)....0.15% (1) In any year the Contract Owner may withdraw without a Contingent Deferred Sales Charge, the greater of (a) an amount equal to 10% of the total of all Purchase Payments made to this Contract or (b) any amount withdrawn in order for this Contract to meet minimum distribution requirements under the Code. Withdrawals may be restricted for Contracts issued pursuant to the terms of a Tax Sheltered Annuity Plan. This CDSC-free withdrawal privilege is non-cumulative; that is, free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year (see "Contingent Deferred Sales Charge" for additional waiver provisions). (2) The Variable Account charges set forth apply exclusively to allocations made to the Sub-Account(s) of the Variable Account. Such charges do not apply to, and will not be assessed against, allocations made to the Fixed Account or Guaranteed Term Option(s). (3) At the time of application, the applicant may choose one of two Long Term Care Facility and Death Benefit Riders in lieu of receiving the Standard Contractual Death Benefit option which does not include any additional Long Term Care Facility benefits (see "Long Term Care Facility and Death Benefit Charges" provision for additional information). There is no charge deducted for the Standard Contractual Death Benefit option; however, should the applicant choose a Rider Option, the Company will deduct an additional charge equal to an annual rate of 0.15% of the daily asset value of the Variable Account. 7 9 of 89 10 UNDERLYING MUTUAL FUND ANNUAL EXPENSES(4) (AS A PERCENTAGE OF UNDERLYING MUTUAL FUND NET ASSETS)
- ------------------------------------------------------------------------------------------------------------- Management Total Mutual Fees Other Expenses Fund Expenses - ------------------------------------------------------------------------------------------------------------- NSAT-Capital Appreciation Fund 0.50% 0.02% 0.52% - ------------------------------------------------------------------------------------------------------------- NSAT-Government Bond Fund 0.50% 0.01% 0.51% - ------------------------------------------------------------------------------------------------------------- NSAT-Money Market Fund 0.50% 0.03% 0.53% - ------------------------------------------------------------------------------------------------------------- NSAT-Small Company Fund 1.00% 0.10% 1.10% - ------------------------------------------------------------------------------------------------------------- NSAT-Total Return Fund 0.50% 0.02% 0.52% - -------------------------------------------------------------------------------------------------------------
(4) The Mutual Fund expenses shown above are assessed at the underlying Mutual Fund level and are not direct charges against separate 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 prospectuses for each individual 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. The management fees and other expenses are not currently subject to fee waivers or expense reimbursements. 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.(5)
- --------------------------------------------------------------------------------------------------------------- If you surrender your If you do not surrender If you annuitize your Contract your Contract at the end Contract at the end of the of the applicable time at the end of the applicable period applicable time period time period - --------------------------------------------------------------------------------------------------------------- 1 Yr. 3 Yrs. 5 Yrs. 10 1 Yr. 3 Yrs 5 Yrs. 10 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. Yrs. Yrs. - --------------------------------------------------------------------------------------------------------------- NSAT-Capital Appreciation 79 105 124 192 16 51 88 192 * 51 88 192 Fund - --------------------------------------------------------------------------------------------------------------- NSAT-Government Bond Fund 79 105 124 191 16 51 88 191 * 51 88 191 - --------------------------------------------------------------------------------------------------------------- NSAT-Money Market Fund 80 105 125 193 17 51 89 193 * 51 89 193 - --------------------------------------------------------------------------------------------------------------- NSAT-Small Company Fund 86 124 155 256 23 70 119 256 * 70 119 256 - --------------------------------------------------------------------------------------------------------------- NSAT-Total Return Fund 79 105 124 192 16 51 88 192 * 51 88 192 - ---------------------------------------------------------------------------------------------------------------
(5) The Example above takes into consideration the additional 0.15% assessed for the election of one of two optional death benefit riders (see "Long Term Care Facility and Death Benefit Rider Charge" and "Death Benefit Payment Provisions" for additional details on the rider charges assessed). For those Contracts which have not elected a death benefit rider option, 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 Funds 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 Funds, see the underlying Mutual Fund prospectuses. Deductions for premium taxes may also apply but are not reflected in the Example shown above (see "Premium Taxes"). 8 10 of 89 11 SYNOPSIS The Individual Modified Single Premium Deferred Variable Annuity Contracts described in this prospectus are designed for use in connection with the following types of Contracts (1) Non-Qualified, (2) Individual Retirement Annuities, with contributions rolled-over or transferred from certain tax-qualified plans such as Tax Sheltered Annuity Plans, Qualified Plans or Individual Retirement Annuities, and (3) Tax Sheltered Annuities, with contributions rolled-over or transferred from other Tax Sheltered Annuity Plans. The initial first year Purchase Payment must be at least $15,000 and subsequent Purchase Payments, if any, must be at least $1,000. In addition, any amounts allocated to the Guaranteed Term Option(s) must be at least $1,000. Please refer to the prospectus for the Guaranteed Term Option(s) for additional details regarding Purchase Payments made to the Guaranteed Term Option(s) Subsequent Purchase Payments are not permitted for Contracts in the states of New York, Oregon, and Washington. The cumulative total of all Purchase Payments under Contracts issued 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 of such Contracts is surrendered, the Company will, with certain exceptions, deduct from the Contract Owner's Contract Value a Contingent Deferred Sales Charge not to exceed 7% of the lesser of the total of all Purchase Payments made within 84 months prior to the date of the request to surrender, or the amount surrendered. This charge, when applicable, is imposed to permit the Company to recover sales expenses which have been advanced by the Company (see "Contingent Deferred Sales Charge"). The Company deducts a Mortality Risk Charge equal to an annual rate of 0.80% of the daily net asset value of the Variable Account for mortality risks assumed by the Company (see "Mortality Risk Charge"). The Company deducts an Expense Risk Charge equal to an annual rate of 0.10% of the daily net asset value of the Variable Account as compensation for the Company's risk by undertaking not to increase administrative charges on the Contracts regardless of the actual administrative costs (see "Expense Risk Charge"). In addition, the Company deducts a Long Term Care Facility and Death Benefit Charge equal to an annual rate of 0.15% of the daily net asset value of the Variable Account for those contracts which have elected one of the Long Term Care Facility and Death Benefit Riders (see "Long Term Care Facility and Death Benefit Charges", "Long Term Care Facility Riders Provision" and "Death Benefit Payment Provision" for additional information.) Upon Annuitization, the selected Annuity Payment Option will begin (see "Annuity Payment Option"). However, if the net amount to be applied to any Annuity Payment Option at the Annuitization Date is less than $5,000, the Contract Value may be distributed in one lump sum in lieu of annuity payments. If any annuity payment would be less than $50, the Company shall have the right to change the frequency of payments to such intervals as will result in payments of at least $50. In no event, however, will annuity payments be made less frequently than annually (see "Frequency and Amount of Annuity Payments"). 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"). To be sure that the Contract Owner is satisfied with the Contract, the Contract Owner has a ten day free look. Within ten days of the date the Contract is received, it may be returned to the Home Office of the Company, at the address shown on page 1 of this prospectus. If a 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 state and/or federal law. State and/or federal law may provide additional free look privileges. All Individual Retirement Annuity refunds will be return of Purchase Payments (see "Right to Revoke"). 9 11 of 89 12 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 leading provider of long-term saving and retirement products to retail and institutional customers. It is admitted to do business in the District of Columbia, Puerto Rico, and in all states. THE VARIABLE ACCOUNT The Variable Account was established by the Company on May 22, 1997, pursuant to the provisions of Ohio law. The Company has caused the Variable Account to be registered with the Securities and Exchange Commission as a unit investment trust pursuant to the provisions of the Investment Company Act of 1940. Such registration does not involve supervision of the management of the Variable Account or the Company by the Securities and Exchange Commission. 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, whether or not realized, from the assets of the Variable Account are, in accordance with the Contracts, credited to or charged against the Variable Account without regard to other income, gains, or losses of the Company. Purchase Payments are allocated within the Variable Account among one or more Sub-Accounts made up of shares in the underlying Mutual Fund option(s) 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 Funds shares attributable to Accumulation Units under Individual Retirement Annuities, and Tax Sheltered Annuities and one such Sub-Account contains the underlying Mutual Funds shares attributable to Accumulation Units under Non-Qualified Contracts. UNDERLYING MUTUAL FUND OPTIONS Contract Owners may choose from among a number of different Sub-Account options. More detailed information may be found in the current prospectus for each underlying Mutual Fund offered. Such a prospectus for the underlying Mutual Fund option(s) should be read in conjunction with this prospectus. A copy of each prospectus may be obtained without charge from Nationwide Life Insurance Company by calling 1-800-848-6331, TDD 1-800-238-3035 or writing P.O. Box 16609, Columbus, Ohio 43216-6609. A summary of investment objectives is contained in the following description of each underlying Mutual Fund. There can be no assurance that the investment objectives of the underlying Mutual Funds will be achieved. NATIONWIDE SEPARATE ACCOUNT TRUST Nationwide Separate Account Trust (the "Trust") is a diversified open-end management investment company created under the laws of Massachusetts. The Trust offers shares in the five separate mutual funds listed below, each with its own investment objectives, are offered in the Contract. Currently, shares of the Trust will be sold only to life insurance company separate accounts to fund the benefits under variable life insurance policies or variable annuity contracts issued by life insurance companies. The assets of the Trust are managed by Nationwide Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary of Nationwide Life Insurance Company. -CAPITAL APPRECIATION FUND Investment Objective: The Fund is designed for investors who are interested in long-term growth. The Fund seeks to meet its objective primarily through a diversified portfolio of the common stock of companies which the investment manager determines have a better-than-average potential for sustained capital growth over the long term. 10 12 of 89 13 -GOVERNMENT BOND FUND Investment Objective: To provide as high a level of income as is consistent with the preservation of capital. It seeks to achieve its objective 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: To seek 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. -SMALL COMPANY FUND Investment Objective: The Fund seeks 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. NAS, the Fund's adviser, has employed a group of sub-advisers, each of which will manage a portion of the Fund's portfolio. These sub-advisers are the Dreyfus Corporation, Neuberger & Berman, L. P., Pictet International Management Limited, Van Eck Associates Corporation, Strong Capital Management, Inc. and Warburg Pincus Counsellors, Inc. The sub-advisers were chosen because they utilize a number of different investment styles when investing in small company stocks. By utilizing a number of investment styles, NAS hopes to increase prospects for investment return and to reduce market risk and volatility. -TOTAL RETURN FUND Investment Objective: To obtain a reasonable long-term total return (i.e., earnings growth plus potential dividend yield) on invested capital from a flexible combination of current return and capital gains through investments in common stocks, convertible issues, money market instruments and bonds with a primary emphasis on common stocks. The underlying Mutual Fund options 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 any 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 participating in the underlying Mutual Funds. A conflict may occur due to a change in law affecting the operations of variable life and variable annuity separate accounts, differences in the voting instructions of the Contract Owners and those of other companies, or some other reason. In the event of conflict, the Company will take any steps necessary to protect Contract Owners and variable annuity payees, including withdrawal of the Variable Account from participation in the underlying Mutual Fund or Mutual Funds which are involved in the conflict. VOTING RIGHTS Voting rights under the Contracts apply ONLY with respect to Purchase Payments or accumulated amounts allocated to the Variable Account. In accordance with its view of present applicable law, the Company will vote the shares of the underlying Mutual Funds held in the Variable Account at regular and special meetings of the shareholders of the underlying Mutual Funds. These shares will be voted in accordance with instructions received from Contract Owners who have an interest in the Variable Account. If the Investment Company Act of 1940 or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote the shares of the underlying Mutual Funds in its own right, it may elect to do so. The Contract Owner shall be 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 of the Variable Account by the net asset value of the underlying Mutual Fund corresponding to the Sub-Account. The number of shares which a person has the right to vote will be determined as of the date to be 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. 11 13 of 89 14 Voting instructions will be solicited by written communication at least 21 days prior to such meeting. Underlying Mutual Fund shares held in the Variable Account as 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 the shares of the underlying Mutual Fund options described in this prospectus should no longer be 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 should become 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 Securities and Exchange Commission, under such requirements as it may impose. GUARANTEED TERM OPTION ALLOCATIONS Guaranteed Term Options (GTOs) are separate investment options available under the Contract. 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. GTOs provide a guaranteed rate of interest over four different maturity durations: 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 such a Distribution occurs, the proceeds will be subject to a Market Value Adjustment, resulting in either an upward or downward adjustment in the value of the distributed proceeds, depending on interest rate fluctuations. No Market Value Adjustment shall be applied if GTO allocations are held to maturity. Because every guaranteed term will end on the final day of a calendar quarter, the guaranteed term may last for up to 3 months beyond the 3, 5, 7 or 10 year anniversary of the allocation to the GTO. The minimum amount of any allocation made to a GTO must be at least $1,000. Generally, the Market Value Adjustment 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 Market Value Adjustment should be carefully considered prior to an elected surrender of 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 Contract Owner services such as Dollar Cost Averaging and Asset Rebalancing. VARIABLE ACCOUNT CHARGES AND OTHER DEDUCTIONS EXPENSES OF VARIABLE ACCOUNT The Variable Account is responsible for a mortality risk charge associated with guaranteeing the annuity purchase rates at issue for the life of the Contracts, and an expense risk charge associated with guaranteeing that the Mortality Risk and Expense Risk Charges described in this prospectus will not change regardless of actual expenses. In addition, a charge will be deducted for those Contracts which have a Long Term Care Facility and Death Benefit Rider in lieu of the Standard Contractual Death Benefit. If these charges are insufficient to cover these expenses, the loss will be borne by the Company. Deductions from and expenses paid out of the assets of the underlying Mutual Funds are described in each underlying Mutual Fund prospectus. All of the charges described in this section apply to Variable Account (underlying Mutual Fund) allocations. Allocations to the Fixed Account or to the GTOs are subject to Contingent Deferred Sales Changes and Premium Tax deductions, if applicable, but are not subject to charges exclusive to the Variable Account; i.e., the Mortality Risk Charge and Expense Risk Charge and if applicable, the Death Benefit Option Rider Charge. 12 14 of 89 15 MORTALITY RISK CHARGE The Company assumes a "mortality risk" by virtue of annuity rates incorporated into the Contract which cannot be changed regardless of the death rates of persons receiving annuity payments or of the general population. For assuming this mortality risk, the Company deducts a Mortality Risk Charge from the Variable Account. This amount is computed on a daily basis and is equal to an annual rate of 0.80% of the daily net asset value of the Variable Account. The Company expects to generate a profit through assessing this charge. EXPENSE RISK CHARGE The Company will not increase charges for administration of the Contracts regardless of its actual expenses. For assuming this expense risk, the Company deducts an Expense Risk Charge from the Variable Account. This amount is computed on a daily basis and is equal to an annual rate of 0.10% of the daily net asset value of the Variable Account. The Company expects to generate a profit through assessing this charge. LONG TERM CARE FACILITY AND DEATH BENEFIT RIDER CHARGE For those Contracts which have a Long Term Care Facility and Death Benefit Rider as chosen at the time of application, the Company will deduct a charge equal to an annual rate of 0.15% of the daily net asset value of the Variable Account. The Long Term Care Facility and Death Benefit Rider is designed to reimburse the Company for increases in the mortality and expense risks. The Company may generate a profit through assessing this charge. CONTINGENT DEFERRED SALES CHARGE No deduction for a sales charge is made from the Purchase Payments for these Contracts. However, if any part of the Contract Value of such Contracts is surrendered, the Company will, with certain exceptions, (see "Waiver of Contingent Deferred Sales Charge" section) deduct a Contingent Deferred Sales Charge not to exceed 7% of the lesser of the total of all Purchase Payments made within 84 months prior to the date of the request to surrender, or the amount surrendered. The CDSC, when it is applicable, will be used to cover expenses relating to the sale of the Contracts, including commissions paid to sales personnel, the costs of preparation of sales literature and other promotional activity. The Company attempts to recover its distribution costs relating to the sale of the Contracts from the CDSC. Any shortfall will be made up from the general account of the Company, which may indirectly include portions of the Mortality and Expense Risk Charges, since the Company expects to generate a profit from these charges. The maximum amount that may be paid to a selling agent on the sale of these Contracts is 6% of Purchase Payments. The CDSC is calculated by multiplying the applicable CDSC percentages noted below by the Purchase Payments that are surrendered. For purposes of calculating the CDSC, surrenders are considered to come first from the oldest Purchase Payment made to the Contract, then the next oldest Purchase Payment and so forth. For tax purposes, a surrender is usually treated as a withdrawal of earnings first. The CDSC applies to Purchase Payments as follows:
NUMBER OF COMPLETED CONTINGENT DEFERRED NUMBER OF COMPLETED CONTINGENT DEFERRED YEARS FROM DATE OF SALES CHARGE YEARS FROM DATE OF SALES CHARGE PURCHASE PAYMENT PERCENTAGE PURCHASE PAYMENT PERCENTAGE 0 7% 4 4% 1 7% 5 3% 2 6% 6 2% 3 5% 7 0%
WAIVER OF CONTINGENT DEFERRED SALES CHARGE In any 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 from this Contract to meet minimum distribution requirements under the Code. 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 a subsequent Contract Year. 13 15 of 89 16 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 Guaranteed Term Options, 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 determined is eligible for such exchange, the Company may waive the CDSC on the first Contract. A CDSC may apply to the contract received in the exchange. When a Contract is held by a Charitable Remainder Trust, the amount which may be withdrawn from this Contract without application of a CDSC, 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 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 "FEDERAL TAX CONSIDERATIONS- Non-Qualified Contracts-Natural Persons as Owners"). In no event will elimination of Contingent Deferred Sales Charges be permitted where such elimination will be unfairly discriminatory to any person, or where it is prohibited by state law. LONG TERM CARE FACILITY RIDERS PROVISION Beginning at the third Contract Anniversary Date, for those Contracts which have elected an Optional Long Term Care Facility and Death Benefit Rider at the time of application, surrender charges on withdrawals will not apply if a Contract Owner is confined to a Long Term Care Facility or Hospital, as defined by the applicable endorsement to the Contract, and has been confined in such facility for a continuous 90 day period. In addition, upon receipt of a physician's letter at the Company's Home Office, no surrender charges will be deducted upon withdrawals if the Contract Owner has been diagnosed by that physician to have a terminal illness, as defined by the applicable endorsement to the Contract. The Contract Owner may be subject to income tax on all or a portion of any such withdrawals and to a tax penalty if the Contract Owner takes withdrawals prior to age 59 1/2 (see "FEDERAL TAX CONSIDERATIONS - Non-Qualified Contracts-Natural Persons as Owners"). PREMIUM TAXES The Company will charge against the Contract Value the amount of any premium taxes levied by a state or any other governmental entity upon Purchase Payments received by the Company. Premium taxes currently imposed by certain jurisdictions range from 0% to 3.5%. This range is subject to change. The method used to recoup premium tax expense 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 Owner's Contract Value either: (1) at the time the Contract is surrendered, (2) at Annuitization, or (3) at such earlier date as the Company may become subject to such taxes. OPERATION OF THE CONTRACT INVESTMENTS OF THE VARIABLE ACCOUNT The Contract Owner elects to have Purchase Payments attributable to his or her participation in the Variable Account allocated among one or more of the Sub-Accounts which consist of shares in the underlying Mutual Funds. Shares of the respective underlying Mutual Funds 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 election as to allocation of Purchase Payments or may elect to exchange amounts among the Sub-Account options pursuant to such terms and conditions applicable to such transactions as may be imposed by each of the underlying Mutual Funds, in addition to those set forth in the Contracts. 14 16 of 89 17 ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE Purchase Payments are allocated to the Fixed Account, Guaranteed Term Options, or to one or more Sub-Accounts within the Variable Account in accordance with the designation of the underlying Mutual Funds by the Contract Owner and converted into Accumulation Units. The initial Purchase Payment must be at least $15,000. Subsequent Purchase Payments, if any, must be at least $1,000 each. In addition, any amounts allocated to the Guaranteed Term Option(s) must be at least $1,000. Please refer to the prospectus for the Guaranteed Term Option(s) for additional details regarding Purchase Payments made to the Guaranteed Term Option(s). Subsequent Purchase Payments are not permitted in the states of New York, Oregon, and Washington. The cumulative total of all Purchase Payments under Contracts issued on the life of any one Annuitant may not exceed $1,000,000 without prior consent of the Company. The initial Purchase Payment allocated to designated Sub-Accounts of the Variable Account will be priced no later than 2 business days after receipt of an order to purchase if all information necessary for processing the purchase order is complete. The Company may, however, retain the Purchase Payment for up to 5 business days while attempting to complete an order to purchase. If it is not complete within 5 days, the prospective purchaser will be informed of the reasons for the delay and the Purchase Payment will be returned immediately unless the prospective purchaser specifically consents to the Company retaining the Purchase Payment until the order to purchase is complete. Thereafter, subsequent Purchase Payments will be priced on the basis of the Accumulation 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, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. VALUE OF AN ACCUMULATION UNIT The value of an Accumulation Unit for each Sub-Account was arbitrarily set initially at $10 when underlying Mutual Fund shares in that Sub-Account were available for purchase. The value for any subsequent 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. The value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period. The number of Accumulation Units will not change as a result of investment experience. 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, plus (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 of: (1) 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, plus or minus (2) the per share charge or credit, if any, for any taxes reserved for in the immediately preceding Valuation Period (see "Charge For Tax Provisions"). (c) is a factor representing the daily Mortality Risk Charge and Expense Risk Charge deducted from the Variable Account. Such factor is equal to an annual rate of 0.90% of the daily net asset value of the Variable Account. 15 17 of 89 18 For underlying Mutual Fund options that credit dividends on a daily basis and pay such dividends once a month (the Nationwide Separate Account Trust - Money Market Fund), the Net Investment Factor allows for the monthly reinvestment of these daily dividends. 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 Mortality Risk Charge and Expense Risk Charge and any charge or credit for tax reserves. VALUATION OF ASSETS Underlying Mutual Fund shares in the Variable Account will be valued at their net asset value. DETERMINING THE CONTRACT VALUE The Contract Value is the sum of: 1) all Accumulation Units, 2) amounts allocated and credited to the Fixed Account, and 3) amounts allocated and credited to a Guaranteed Term Option which may be subject to a Market Value Adjustment. 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 from the Variable Account and an appropriate amount from the Fixed Account and Guaranteed Term Options will be deducted in the same proportion that the Contract Owner's interest in each of the Variable Account, Fixed Account and Guaranteed Term Option(s) bears to the total Contract Value. Guaranteed Term Options are not subject to Variable Account charges (Mortality Charge and Expense Risk Charge), but may be subject to contingent deferred sales charges and a Market Value Adjustment. RIGHT TO REVOKE Unless otherwise required by state and/or federal law, the Contract Owner may revoke the Contract 10 days after receipt of the Contract and receive a refund of the Contract Value. All Individual Retirement Annuity refunds will be a return of Purchase Payments. In order to revoke the Contract, it must be mailed or delivered to the Home Office of the Company at the mailing address shown on page 1 of this prospectus. Mailing or delivery must occur on or before 10 days after receipt of the Contract for revocation to be effective. In order to revoke the Contract, if it has not been received, written notice must be mailed or delivered to the Home Office of the Company at the mailing address shown on page 1 of this prospectus. 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 Transfers between and among the Fixed Account, Variable Account, and the Guaranteed Term Options must be made prior to the Annuitization Date. 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 Guaranteed Term Option prior to maturity are, however, subject to a Market Value Adjustment). However, the Company reserves the right to restrict transfers from the Variable Account to the Fixed Account to 10% of the combined value of any Guaranteed Term Option 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. Transfers must also be made prior to the Annuitization Date. 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. 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 Guaranteed Term Option. The amount that may be transferred 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 16 18 of 89 19 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 Guaranteed Term Options) 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 shall be borne by the Contract Owner. Contracts described in this prospectus may in some cases 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 (the underlying Mutual Funds) on the basis of perceived market trends. Because of the unusually large transfers of funds associated with some of these transactions, the ability of the Company or underlying Mutual Funds to process such transactions may be compromised, and the execution of such transactions may possibly disadvantage or work to the detriment of other Contract Owners not utilizing market timing services. Accordingly, the right to exchange Contract Values among the Sub-Accounts may be subject to modification if such rights are exercised by a market timing firm or any other third party authorized to initiate transfer or exchange transactions on behalf of multiple Contract Owners. THE RIGHTS OF INDIVIDUAL CONTRACT OWNERS TO EXCHANGE CONTRACT VALUES, WHEN INSTRUCTIONS ARE SUBMITTED DIRECTLY BY THE CONTRACT OWNER, OR BY THE CONTRACT OWNER'S REPRESENTATIVE OF RECORD AS AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company may, among other things, not accept (1) the transfer or exchange instructions of any agent acting under a power of attorney on behalf of more than one Contract Owner, or (2) the transfer or exchange instructions of individual Contract Owners who have executed preauthorized transfer or exchange forms which are submitted by market timing firms or other third parties on behalf of more than one Contract Owner at the same time. The Company will not impose any such restrictions or otherwise modify exchange rights unless such action is reasonably intended to prevent the use of such rights in a manner that will disadvantage or potentially impair the contract rights of other Contract Owners. CONTRACT OWNERSHIP PROVISIONS Unless otherwise provided, the Contract Owner has all rights under the Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF OR HERSELF AS OWNER, THE PURCHASER 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 received and recorded by the Company, the change will become effective as of the date the written request is recorded. A change of 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 received and recorded by the Company. 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 both the Contract Owner and the person to be named as Annuitant, Contingent Annuitant, or Contingent Owner, as applicable. Such request must be received by the Company at its Home Office prior to the Annuitization Date. Any such change is subject to underwriting and approval by the Company. If the Contract Owner is not a natural person and there is a change of the Annuitant, such change 17 19 of 89 20 shall be treated as the death of a Contract Owner and Distributions shall be made as if the Contract Owner died at the time of such change. On the Annuitization Date, the Annuitant shall become the Contract Owner. JOINT OWNERSHIP PROVISIONS Where permitted by state law, 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, to change the Contract Owner, the Contingent Owner, the Annuitant, the Contingent Annuitant, the Beneficiary, the Contingent Beneficiary, the Annuity Payment Option or the Annuitization Date) shall 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 the Owner or Joint Owner. CONTINGENT OWNERSHIP PROVISIONS 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 and there is no surviving Joint Owner, then the Contingent Owner does not have any rights in the Contract; however, if the Contingent Owner is also the Beneficiary, the Contingent Owner will have all the rights of a 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. The change will take effect upon receipt and recording by the Company at its Home Office, whether or not the Contract Owner is living at the time of recording, but without further liability as to any payment or settlement made by the Company before receipt of such change. BENEFICIARY PROVISIONS The Beneficiary is the person or persons who may receive certain benefits under the Contract in the event the Annuitant dies prior to the Annuitization Date. If more than one Beneficiary survives the Annuitant, each will share equally unless otherwise specified in the Beneficiary designation. If no Beneficiary survives the Annuitant, all rights and interest of the Beneficiary shall 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 Beneficiaries survive the Annuitant, all rights and interest of the Contingent Beneficiary will vest with the Contract Owner or the estate of the last surviving Contract Owner. Subject to the terms of any existing assignment, the Contract Owner may change the Beneficiary or Contingent Beneficiary during the lifetime of the Annuitant, by written notice to the Company. The change will take effect upon receipt and recording by the Company at its Home Office, 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) While the Contract is in force and prior to the earlier of the Annuitization Date or the death of the Annuitant, the Company will, upon proper written application by the Contract Owner deemed by the Company to be in good order, allow the Contract Owner to surrender a portion or all of the Contract Value. "Proper written application" means that the Contract Owner must request the surrender in writing and include the Contract. In some cases (for example, requests by a corporation, partnership, agent, fiduciary, or surviving spouse), the Company will require additional documentation of a customary nature. 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 Guaranteed Term Options to equal the gross dollar amount requested, less any applicable Contingent Deferred Sales Charge (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 Guaranteed Term Options. The number of Accumulation Units surrendered from 18 20 of 89 21 each Sub-Account and the amount surrendered from the Fixed Account and Guaranteed Term Options will be in the same proportion that the Contract Owner's interest in the Sub-Accounts, Fixed Account and Guaranteed Term Options bears to the total Contract Value. The Company will pay any funds applied for from the Variable Account within 7 days of receipt of such application in the Company's Home Office. However, the Company reserves the right to suspend or postpone the date of any payment of any benefit or values for any Valuation Period (1) when the New York Stock Exchange ("Exchange") is closed, (2) when trading on the 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 determine the value of the Variable Account's net assets, or (4) during any other period when the Securities and Exchange Commission, by order, so permits for the protection of security holders, provided that applicable rules and regulations of the Securities and Exchange Commission shall 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. SURRENDERS UNDER A TAX SHELTERED ANNUITY CONTRACT Except as provided below, the Owner may surrender part or all of the Contract Value at any time this Contract is in force prior to the earlier of the Annuitization Date or the death of the Annuitant: A. The surrender of Contract Value attributable to contributions made pursuant to a salary reduction agreement (within the meaning of Code Section 402(g)(3)(A) or (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 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 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 from time to time. 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 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. 19 21 of 89 22 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. 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 above. For salary reduction Tax Sheltered Annuities, loans may only be secured by the Contract Value. For loans from Qualified Contracts and other Tax Sheltered Annuities, the Company reserves the right to limit a loan to 50% of the Contract Value subject to the acceptance by the Contract Owner of the Company's loan agreement. Where permitted, the Company may require other named collateral where the loan from a Contract exceeds 50% of 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. Unless instructed to the contrary by the Contract Owner, the Company will transfer to the collateral fixed account the Variable Account units from the Contract Owner's investment options in proportion to the asset in each option until the required balance is reached or all such variable units are exhausted. The required collateral will next be transferred from the Fixed Account. Any remaining required collateral will be transferred from the Guaranteed Term Option and may be subject to Market Value Adjustment. No withdrawal charges are deducted at the time of the loan, or on any transfers to the collateral fixed account. Until the loan has been repaid in full, that portion of the collateral fixed account equal to the outstanding loan balance shall 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 Fixed and Variable Accounts and the Guaranteed Term Option in the same manner as a Purchase Payment, except that no loan repayments less than $1,000 are permitted into the Guaranteed Term Options. Both loan repayments and Purchase Payments will be allocated to the Contract in accordance with the most current allocation, unless the Contract Owner and the Company agree otherwise on a case by case basis. If the proportional share of the loan repayment to the Guaranteed Term Options is less than $1,000, that portion of the loan repayment will be allocated to the Money Market Sub-Account of the Variable Account; unless the Contract Owner directs such loan repayments to be directed to the Fixed Account or another investment option under the Variable Account. If the Contract is surrendered while the loan is outstanding, the surrender value will be reduced by the amount of the loan outstanding plus accrued interest. If the Contract Owner/Annuitant dies while the loan is outstanding, the Death Benefit will be reduced by the amount of the loan outstanding plus accrued interest. If a Contract Owner who is not the Annuitant dies prior to Annuitization and while the loan is outstanding, the Distribution will be reduced by the amount of the loan outstanding plus accrued interest. If annuity payments start while the loan is outstanding, the Contract Value will be reduced by the amount of the outstanding loan 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. 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, may be taxable to the borrower, and may be subject to the early withdrawal tax penalty. Interest which subsequently accrues on defaulted amounts may also be treated as additional deemed Distributions each year. 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, and this amount may again be treated as a Distribution where required by law. Additional loans may not be available while a previous loan remains in default. 20 22 of 89 23 Loans may also be subject to additional limitations or restrictions under the terms of the employer's 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 term or procedures if there is a change in applicable law. The Company also reserves the right to assess a loan processing fee. Individual Retirement Annuities and Non-Qualified Contracts are not eligible for loans. ASSIGNMENT Where permitted, the Contract Owner may assign some or all of the rights under the Contract at any time during the lifetime of the Annuitant prior to the Annuitization Date. Such assignment will take effect upon receipt and recording by the Company at its Home Office of a written notice executed by the Contract Owner. The Company assumes no responsibility for the validity or tax consequences of any assignment. The Company shall not be liable as to 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. If this Contract is a Non-Qualified Contract, any portion of Contract Value which is pledged or assigned shall be treated as a Distribution and shall 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 Values assigned may, under certain conditions, be subject to a tax penalty equal to 10% of the amount which is included in gross income. All rights in this 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 which exceeds 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. Individual Retirement Annuities 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 underlying Mutual Fund options on a predetermined percentage basis every three months or based on another frequency authorized by the Company. If the last day of the period falls on a Saturday, Sunday, recognized holiday or any other day when the New York Stock Exchange is closed, the Asset Rebalancing exchange will occur on the first business day after that day. An Asset Rebalancing request must be in writing on a form provided by the Company. The Contract Owner may want to contact a financial adviser in order to discuss the use of Asset Rebalancing in his or her Contract. Contracts issued to a Tax Sheltered Annuity Plan as defined by the Code may have superseding plan restrictions with regard to the frequency of fund exchanges and underlying Mutual Fund options. Asset Rebalancing is not available for assets held in the Guaranteed Term Option(s). Amounts transferred from the Guaranteed Term Option prior to the expiration of the specified term are subject to the Market Value Adjustment. The Company reserves the right to discontinue offering Asset Rebalancing upon 30 days written notice; such discontinuation will not affect Asset Rebalancing programs which have already commenced. 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 Nationwide Separate Account Trust Money Market Fund Sub-Account or the Fixed Account to any other Sub-Account within the Variable Account on a monthly basis or as frequently as otherwise authorized by the Company. This service is intended to allow the Contract Owner to utilize Dollar Cost Averaging, a long-term investment program which provides for regular, level investments over time. The Company makes no guarantees that Dollar Cost Averaging will result in a profit or protect against loss in a declining market. The minimum monthly Dollar Cost Averaging transfer is $100. In addition, Dollar Cost 21 23 of 89 24 Averaging monthly transfers from the Fixed Account must be equal to or less than 1/30th of the Fixed Account value when the Dollar Cost Averaging program is requested. Transfers out of the Fixed Account, other than for Dollar Cost Averaging, may be subject to certain additional restrictions (see "Transfers"). A written election of this service, on a form provided by the Company, must be completed by the Contract Owner in order to begin transfers. Once elected, transfers from the Nationwide Separate Account Trust Money Market Fund Sub-Account or the Fixed Account will be processed monthly or on another approved frequency until either the value in the Nationwide Separate Account Trust Money Market Fund Sub-Account or the Fixed Account is completely depleted or the Contract Owner instructs the Company in writing to cancel the transfers. Dollar Cost Averaging transfers may not be directed to Guaranteed Term Options. The Company reserves the right to discontinue offering Dollar Cost Averaging upon 30 days written notice; such discontinuation will not affect Dollar Cost Averaging programs which have already commenced. The Company also reserves the right to assess a processing fee for this service. SYSTEMATIC WITHDRAWALS- A 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 Sub-Accounts in which the Contract Owner has an interest, and the Fixed Account (but is not available for withdrawals from the GTOs). A Contingent Deferred Sales Charge may also apply to Systematic Withdrawals in accordance with the considerations set forth in the "Contingent Deferred Sales Charge" section. Each Systematic Withdrawal is subject to federal income taxes on the taxable portion. Unless directed by the Contract Owner, the Company will withhold federal income taxes from each Systematic Withdrawal. In addition, the Internal Revenue Service may assess a 10% federal penalty tax on Systematic Withdrawals 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, the Systematic Withdrawals may be discontinued at any time by notifying the Company 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 greater of (1) 10% of the total sum of all Purchase Payments made to the Contract at the time of withdrawal; (2) an amount withdrawn from any Individual Retirement Annuity Contract or Tax Sheltered Annuity, in order for that Contract to meet minimum Distribution requirements; or (3) the specified percentage of the Contract Value based on the Contract Owner's age, as shown in the following table:
Contract Owner's Percentage of Age Contract Value ---------------- -------------- Under 59-1/2 5% 59-1/2 to 70-1/2 7% 70-1/2 to 75 9% 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 Company at its Home Office. (In the case of Joint Owners, the older Owner's age will be used.) The Contract Owner may elect to take such CDSC-free amounts only once each Contract Year. 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 offering Systematic Withdrawals upon 30 days written notice; such discontinuation will not affect any Systematic Withdrawal programs already commenced. The Company also reserves the right to assess a processing fee for this service. Systematic withdrawals are not 22 24 of 89 25 available prior to the expiration of the ten day free look provision of the Contract or of applicable state/federal law. ANNUITY PAYMENT PERIOD, DEATH BENEFIT AND OTHER DISTRIBUTIONS ANNUITY COMMENCEMENT DATE An Annuity Commencement Date will be selected. Such date must be the first day of a calendar month or any other agreed upon date and must be at least 2 years after the Date of Issue. In the event the Contract is issued subject to the terms of Tax Sheltered Annuity Plan, Annuitization may occur during the first 2 years subject to approval by the Company. CHANGE IN ANNUITY COMMENCEMENT DATE If the Contract Owner requests in writing and the Company approves the request, the Annuity Commencement Date may be changed. The new date must comply with the Annuity Commencement Date provisions above. ANNUITY PAYMENT PERIOD-VARIABLE ACCOUNT At the Annuitization Date, the Variable Account value is applied to the Annuity Payment Option elected and the amount of the first such payment shall be determined in accordance with the Annuity Table in the Contract. Subsequent Variable Annuity payments vary in amount in accordance with the investment performance of the Variable Account. The dollar amount of the first annuity payment determined as above 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. VALUE OF AN ANNUITY UNIT The value of an Annuity Unit was arbitrarily set initially at $10 when the first underlying Mutual Fund shares were purchased. The value of an Annuity Unit for a Sub-Account for any subsequent Valuation Period is determined by multiplying the Annuity Unit Value for 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 (see "Net Investment Factor"). ASSUMED INVESTMENT RATE A 3.5% assumed investment rate is built into the Annuity Tables contained 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 investment rate is at the annual rate of 3.5%, the annuity payments will be level. FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS Annuity payments will be paid as monthly installments. However, if the net amount available to apply under any Annuity Payment Option is less than $5,000, the Company shall have the right to pay such amount in one lump sum in lieu of the payments otherwise provided for. In addition, if the payments provided for would be or become less than $50, the Company shall have the right to change the frequency of payments to such intervals as will result in payments of at least $50. In no event will the Company make payments under an annuity option less frequently than annually. CHANGE IN FORM OF ANNUITY The Contract Owner may, upon prior written notice to the Company, at any time prior to the Annuitization Date, elect one of the Annuity Payment Options. 23 25 of 89 26 ANNUITY PAYMENT OPTIONS Any of the following Annuity Payment Options may be elected: Option 1-Life Annuity-An annuity payable periodically, but at least annually, during the lifetime of the Annuitant, ceasing with the last payment due prior to the death of the Annuitant. IT WOULD BE POSSIBLE UNDER THIS OPTION FOR THE ANNUITANT TO RECEIVE ONLY ONE ANNUITY PAYMENT IF HE OR SHE DIED BEFORE THE SECOND ANNUITY PAYMENT DATE, TWO ANNUITY PAYMENTS IF HE OR SHE DIED BEFORE THE THIRD ANNUITY PAYMENT DATE, AND SO ON. Option 2-Joint and Last Survivor Annuity-An annuity payable periodically, but at least annually, during the joint lifetimes of the Annuitant and designated second person 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. Option 3-Life Annuity With 120 or 240 Monthly Payments Guaranteed-An annuity payable monthly during the lifetime of the Annuitant with the guarantee that if at the death of the Annuitant payments have been made for fewer than 120 or 240 months, as selected, payments will be made as follows: (1) If the Annuitant is the payee, any guaranteed annuity payments will be continued during the remainder of the selected period to such recipient as chosen by the Annuitant at the time the Annuity Payment Option was selected. In the alternative, the recipient may, at any time, elect to have the present value of the guaranteed number of annuity payments remaining paid in a lump sum as specified in section (2) below. (2) If someone other than the Annuitant is the payee, the present value, computed as of the date on which notice of death is received by the Company at its Home Office, of the guaranteed number of annuity payments remaining after receipt of such notice and to which the deceased would have been entitled had he or she not died, computed at the Assumed Investment Rate effective in determining the Annuity Tables, shall be paid in a lump sum. Some of the stated Annuity Options may not be available in all states. The Contract Owner may request an alternative non-guaranteed option by giving notice in writing prior to Annuitization. If such a request is approved by the Company, it will be permitted under the Contract. If the Contract Owner of a Non-Qualified Contract fails to elect an Annuity Payment Option, no Distribution will be made until an effective Annuity Payment Option has been elected. Individual Retirement Annuities or Tax Sheltered Annuities are subject to the minimum Distribution requirements set forth in the Plan, Contract or Code. DEATH OF CONTRACT OWNER PROVISIONS - NON-QUALIFIED CONTRACTS For Non-Qualified Contracts, if the Contract Owner and the Annuitant are not the same person and such 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 Contingent Deferred Sales Charge), must be distributed in accordance with the "Required Distribution Provisions- Non-Qualified Contracts" provisions. DEATH OF THE ANNUITANT PROVISIONS - NON-QUALIFIED CONTRACTS 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 last surviving Contract Owner's estate, as specified in the "Beneficiary Provisions", 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 such Death Benefits in the form of: (1) a lump sum distribution; (2) election of an annuity payout; or (3) any distribution that is permitted under state and federal regulations and is acceptable by the Company. Such 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 shall be paid according to the selected Annuity Payment Option. 24 26 of 89 27 DEATH OF THE CONTRACT OWNER/ANNUITANT PROVISIONS If any Contract Owner and Annuitant are the same person, and such person dies before the Annuitization Date, a Death Benefit will be payable to the Beneficiary, the Contingent Beneficiary, the Contract Owner, or the last surviving Contract Owner's estate, as specified in the Beneficiary Provisions and in accordance with the appropriate "Required Distributions Provisions." If the Annuitant dies after the Annuitization Date, any benefit that may be payable shall be paid according to the selected Annuity Payment Option. DEATH BENEFIT PAYMENT PROVISIONS 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 the Distribution method; and (3) any applicable state required form(s). At the time of application, Contract Owners may select one of three death benefits available under the Contract as listed below; if no selection is made at the time of application, the Death Benefit will be the Standard Contractual 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 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 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. No additional charge will be assessed to the Contract Owner for election of the Standard Contractual Death Benefit. RIDER OPTION 1 If the Annuitant dies at any time prior to the Annuitization Date, the dollar amount of the death benefit will be the greatest of: (1) the Contract Value; (2) the sum of all Purchase Payments, less an adjustment for amounts surrendered; or (3) the maximum anniversary value. The maximum anniversary value is equal to the greatest anniversary value attained from the following: as of the date proper proof of death is received by the Company, the Contract Value on each Contract Anniversary Date prior to the deceased Annuitant's attained age 86, less an adjustment for amounts subsequently surrendered, plus Purchase Payments subsequently received after that 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. For Death Benefit Rider Option 1, the Company deducts a charge at an annual rate of 0.15% computed on a quarterly basis of the daily net asset value 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 through assessing this charge. RIDER 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 anniversary value. The 5% interest anniversary value is equal to the net of Purchase Payments and amounts surrendered, accumulated at 5% interest from the date of each payment or surrender to the most recent Contract Anniversary Date prior to the deceased Annuitant's 86th birthday, less an adjustment for amounts subsequently surrendered, plus Purchase Payments received since that most recent Contract Anniversary Date. 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 Date will reduce the 5% interest anniversary value in the same proportion that the Contract Value was reduced on the date of the partial surrender. For Death Benefit Rider Option 2, the Company deducts a charge at an annual rate of 0.15% computed on a quarterly basis of the daily net asset value 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 through assessing this charge. FOR ANY DEATH BENEFIT OPTION SELECTED, IF THE ANNUITANT DIES AFTER THE ANNUITIZATION DATE, ANY PAYMENT THAT MAY BE PAYABLE WILL BE DETERMINED ACCORDING TO THE SELECTED ANNUITY PAYMENT OPTION. 25 27 of 89 28 REQUIRED DISTRIBUTION PROVISIONS FOR NON-QUALIFIED CONTRACTS Upon the death of any Contract Owner or Joint Owner (including an Annuitant who becomes the Owner of the Contract on the Annuitization Date) (each of the foregoing "a deceased 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 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 Owner's death. 2. If any deceased 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 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 Owner, Joint 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 Owner's death (or such longer period as may be permitted by federal income tax regulations), and (b) If the designated beneficiary is the surviving spouse of the deceased Owner, such spouse may elect to become the Owner of this Contract, in lieu of a Death Benefit, and the distributions required under these distribution rules will be made upon the death of such 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, (i) the death of the Annuitant shall be treated as the death of any Owner, (ii) any change of the Annuitant shall be treated as the death of any 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 (including Tax Sheltered Annuities, Individual Retirement Annuities, and Qualified Plans. Upon the death of a "deceased Owner", the designated beneficiary must elect a method of distribution which complies with these above distribution provisions and which is acceptable to the Company. Such election must be received by the Company within 60 days of the deceased Owner's death. Required Distributions for Tax Sheltered Annuities The entire interest of an Annuitant under 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 and 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 lives of the Annuitant and the Annuitant's designated beneficiary under the selected Annuity Payment Option; or 26 28 of 89 29 B. a period not extending beyond the life expectancy of the Annuitant or the life expectancy of the Annuitant and the Annuitant's designated beneficiary under the selected annuity Payment Option. No Distributions will be required from this Contract if Distributions otherwise required from this Contract are being withdrawn from another Tax Sheltered Annuity Contract of the Annuitant. If the Annuitant's entire interest in a Tax Sheltered Annuity is to be distributed in equal or substantially equal payments over a period described in (A) or (B), above, such payments will commence no later than (i) the first day of April following the calendar year in which the Annuitant attains age 70 1/2 or (ii) when the Annuitant retires, whichever is later (the "required beginning date"). However, provision (ii) 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. 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 such spouse elects to receive Distribution of the account in substantially equal payments over his or her life (or a period not exceeding his or her life expectancy) and commencing not later than December 31 of the year 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 such Beneficiary elects to receive a Distribution of the account 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, 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 and last survivor expectancy 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 and last survivor expectancy are computed by the use of return multiples contained in Section 1.72-9 of the Treasury Regulations. If the amounts distributed to the Annuitant are less than those mentioned above, 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 Individual Retirement Annuities Distribution from an Individual Retirement Annuity must begin not later than April 1 of the calendar year following the calendar year in which the Owner attains age 70 1/2. Distribution may be accepted in a lump sum or in substantially equal payments over: (a) the Owner's life or the lives of the Owner and his or her spouse or designated beneficiary, or (b) a period not extending beyond the life expectancy of the Owner or the joint life expectancy of the Owner and the Owner's designated beneficiary. If the Owner dies prior to the commencement of his or her Distribution, the interest in the Individual Retirement 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 Owner names his or her surviving spouse as the Beneficiary and such spouse elects to: (i) treat the annuity as an Individual Retirement Annuity established for his or her benefit; or (ii) receive Distribution of the account in nearly 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 Owner would have attained age 70 1/2; or (b) The Owner names a Beneficiary other than his or her surviving spouse and such Beneficiary elects to receive a Distribution of the account in nearly equal payments over his or her life (or a period not 27 29 of 89 30 exceeding his or her life expectancy) commencing not later than December 31 of the year following the year in which the 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 Individual Annuity Account of the Contract Owner. If the 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, 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 Individual Retirement Annuity must annually report the amount of non-deductible Purchase Payments, the amount of any Distribution, the amount by which non-deductible Purchase Payments for all years exceed non-taxable Distributions for all years, and the total balance of all Individual Retirement Annuities. Individual Retirement Annuity Distributions will not receive the benefit of the tax treatment of a lump sum Distribution from a Qualified Plan. If the 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. GENERATION-SKIPPING TRANSFERS The Company may determine whether the Death Benefit or any other payment constitutes a direct skip as defined in Section 2612 of the Code, and the amount of the tax on the generation-skipping transfer resulting from such direct skip. If applicable, such payment will be reduced by any tax the Company is required to pay by Section 2603 of the Code. A direct skip may occur when property is transferred to or a Death Benefit is paid to an individual two or more generations younger than the Contract Owner. 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) Individual Retirement Annuities (2) Tax Sheltered Annuities; and (3) Non-Qualified Contracts. Each type of annuity is discussed below. Distributions to participants from Qualified Contracts or Tax Sheltered Annuities are generally taxed when received. A portion of each Distribution is excludable from income based on the ratio between the after tax investment of the Owner/Annuitant in the Contract and the value of the Contract at the time of the withdrawal or Annuitization. Distributions from Individual Retirement Annuities 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 such 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 Individual Retirement Annuities or the Annuitant under Contracts held by Individual Retirement Accounts must annually report to the Internal Revenue Service the amount of nondeductible Purchase Payments, the amount of any Distribution, the amount by which nondeductible 28 30 of 89 31 Purchase Payments for all years exceed non-taxable Distributions for all years, and the total balance in all Individual Retirement Annuities and Accounts. A change of the Annuitant or Contingent Annuitant may be treated by the Internal Revenue Service as a taxable transaction. NON-QUALIFIED CONTRACTS - NATURAL PERSONS AS 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 includable 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 includable 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 is one of a series of substantially equal periodic payments made over the life or life expectancy of the Contract Owner (or the joint lives or joint life expectancies of the Contract Owner and the beneficiary selected by the Contract Owner to receive payment under the Annuity Payment Option selected by the Contract Owner) 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 Contract 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/her life or life expectancy provided that such payments begin within one year from the death of the Contract Owner. If the Joint Contract Owner, Contingent Owner or other named recipient is the surviving spouse, such 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 as of the date of the Contract Owner's death (see 29 31 of 89 32 "Required Distribution For Qualified Plans and Tax Sheltered Annuities"). If the Contract Owner is not an individual, the death of the Annuitant (or a change in the Annuitant) will result in a Distribution pursuant to these rules, regardless of whether a Contingent Annuitant is named. The Code requires that any election to receive an annuity rather than 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 would be ignored for tax purposes, and the entire amount of the lump sum would be subject to immediate tax. If the election is made within the 60 day period, each Distribution would be taxable when it is paid. NON-QUALIFIED CONTRACTS - NON-NATURAL PERSONS AS 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; it does not apply to Contracts where one or more non-individuals is an Owner. 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 following rules will apply: 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 Owner. The foregoing Non-Natural Person rule does not apply to all entity-owned contracts. First, for this purpose, 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. INDIVIDUAL RETIREMENT ANNUITIES AND TAX SHELTERED ANNUITIES The Contract may be purchased as an Individual Retirement Annuity, or a Tax Sheltered Annuity. The Contract Owner should seek competent advice as to the tax consequences associated with the use of a Contract as an Individual Retirement Annuity. For information regarding eligibility, limitations on permissible amounts of Purchase Payments, and the tax consequences of distributions from Tax Sheltered Annuities, Individual Retirement Annuities and other plans that receive favorable tax treatment, the purchasers of such contracts 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 ($7,000), 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 Owner. The Code permits the rollover of most Distributions from Qualified Plans to other Qualified Plans or Individual Retirement Annuities. Most Distributions from Tax-Sheltered Annuities may be rolled into another Tax-Sheltered Annuity, Individual Retirement Annuity, or an Individual Retirement Account. Distributions that may not be rolled over are those which are: 1. one of a series of substantially equal annual (or more frequent) payments made: (a) over the life (or life expectancy) of the Contract Owner, (b) over the joint lives (or joint life expectancies) of the Contract Owner and the Contract Owner's designated Beneficiary, or (c) for a specified period of ten years or more, or 30 32 of 89 33 2. a required minimum distribution. Any Distribution eligible for rollover will be subject to federal tax withholding at a rate of twenty percent (20%) unless the Distribution is transferred directly to an appropriate plan as described above. Individual Retirement Accounts and Individual Retirement Annuities 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 Internal Revenue Service could determine that the Individual Retirement Account or Individual Retirement Annuity did not qualify for the desired tax treatment. 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 any such Distribution, but may be subject to penalties in the event insufficient federal income tax is withheld during a calendar year. However, if the Internal Revenue Service 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 Internal Revenue Service. 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 Internal Revenue Service. In addition, for any Distribution made after December 31, 1997, the NRA must obtain an Individual Taxpayer Identification Number from the Internal Revenue Service, 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 (for Distributions after December 31, 1997) a proper Individual Taxpayer Identification Number prior to any Distribution, the Company will be required to withhold 30% of the income, regardless of any treaty provision. A payment may not be subject to withholding where the recipient sufficiently establishes to the Company that such payment is effectively connected to the recipient's conduct of a trade or business in the United States and that such payment is includable in the recipient's gross income for United States federal income tax purposes. Any such Distributions will be subject to the rules set forth in the section entitled "Withholding." FEDERAL ESTATE, GIFT, AND GENERATION SKIPPING TRANSFER TAXES A transfer of the Contract from one Contract Owner to another, or the payment of a Distribution under the Contract to someone other than a Contract Owner, may constitute a gift for federal gift tax purposes. Upon the death of the Contract Owner, the value of the Contract may be included in his or her gross estate, 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 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 Owner). If the Owner is not an individual, then for this purpose only, "Owner" refers to any person who would be required to include the Contract, Death Benefit, Distribution, or other payment in his federal gross estate at his death, or who is required to report the transfer of the Contract, Death Benefit, Distribution, or other payment for federal gift tax purposes. 31 33 of 89 34 If the Company determines that a generation skipping transfer tax is required to be paid by reason of such direct skip, the Company is required to reduce the amount of such Death Benefit, Distribution, or other payment by such tax liability, and pay the tax liability directly to the Internal Revenue Service. 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 receiving a Distribution, Death Benefit, or other payment. CHARGE FOR TAX PROVISIONS 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 the Company's Variable Account 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 Internal Revenue Service 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 Owner or the Company pays an amount to the Internal Revenue Service. The amount will be based on the tax that would have been paid by the Owner if the income, for the period the contract was not diversified, had been received by the Owner. If the failure to diversify is not corrected in this manner, the Owner of an annuity contract 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 Internal Revenue Service 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 In the recent past, 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, in the past, considered numerous legislative proposals that, if enacted, could change the tax treatment of the Contracts. It is reasonable to believe that such proposals, and other proposals will be considered in the future, and some of them may be enacted into law. In addition, the Treasury Department may amend existing regulations, issue new regulations, or adopt new interpretations of existing law that may be in variance with its current positions on these matters. In addition, current state law (which is not discussed herein), and future amendments to state law, 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 Internal Revenue Service, 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. 32 34 of 89 35 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 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. STATEMENTS AND REPORTS The Company will mail to Contract Owners, at their last known address of record, any statements and reports required by applicable laws or regulations. Contract Owners should therefore give the Company prompt notice of any address change. The Company will send a confirmation statement to Contract Owners each time a transaction is made affecting the Owner's Variable Account Contract Value or allocations made to the Guaranteed Term Options, such as making additional Purchase Payments, transfers, exchanges or withdrawals. Quarterly statements are also mailed detailing the Contract activity during the calendar quarter. Instead of receiving an immediate confirmation of transactions made pursuant to some types of periodic payment plan (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 Owner's Contract. The Company will assume all transactions are accurately reported on quarterly statements or confirmation statements unless the Contract Owner notifies the Company otherwise within 30 days after receipt of the statement. The Company will also send to Contract Owners each year an annual report and a semi-annual report containing financial statements for the Variable Account, as of December 31 and June 30, respectively. ADVERTISING A "yield" and "effective yield" may be advertised for the Nationwide Separate Account Trust Money Market Fund Sub-Account. "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 Sub-Account's units. Yield is an annualized figure, which means that it is assumed that the Sub-Account 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 Securities and Exchange Commission. 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 the Sub-Account of the Variable Account relative to the performance of other variable annuity sub-accounts or underlying mutual funds 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 of the Variable Account may also be compared to certain market indexes, which may include, but are not limited to: S&P 500; Shearson/Lehman Intermediate Government/Corporate Bond Index; Shearson/Lehman Long-Term Government/Corporate Bond Index; Donoghue Money Fund Average; U.S. Treasury Note Index; Bank Rate Monitor National Index of 2 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 Funds against all underlying mutual 33 35 of 89 36 funds over specified periods and against funds in specified categories. The rankings may or may not include the effects of sales or other charges. 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 for the Sub-Accounts of the Variable Account. The Company may advertise for the Sub-Accounts standardized "average annual total return", calculated in a manner prescribed by the Securities and Exchange Commission, and nonstandardized "total return." "Average annual total return" will show the percentage rate of return of a hypothetical initial investment of $1,000 for at least the most recent one, five and ten year period, or for a period covering the time the underlying Mutual Fund option held in the Sub-Account has been in existence, if the underlying Mutual Fund option has not been in existence for one of the prescribed periods. This calculation reflects the deduction of all applicable charges made to the Contracts except for premium taxes, which may be imposed by certain states. Nonstandardized "total return" will be calculated in a similar manner and for the same time periods as the average annual total return except total return will assume an initial investment of $10,000 and will not reflect the deduction of any applicable Contingent Deferred Sales Charge, which, if reflected, would decrease the level of performance shown. The Contingent Deferred Sales Charge is not reflected because the Contracts are designed for long term investment. 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 amount of the hypothetical initial investment assumed affects performance because the Contract Maintenance Charge is a fixed per Contract charge. For those underlying Mutual Fund options which have not been held as Sub-Accounts within the Variable Account for one of the quoted periods, the standardized average annual total return and nonstandardized total return quotations will show the investment performance such underlying Mutual Fund options would have achieved (reduced by the applicable charges) had they been held as Sub-Accounts within the Variable Account for the period quoted. ALL PERFORMANCE INFORMATION AND COMPARATIVE MATERIAL ADVERTISED BY THE COMPANY IS HISTORICAL IN NATURE AND IS NOT INTENDED TO REPRESENT OR GUARANTEE FUTURE RESULTS. A CONTRACT OWNER'S CONTRACT VALUE AT REDEMPTION MAY BE MORE OR LESS THAN ORIGINAL COST. 34 36 of 89 37 LEGAL PROCEEDINGS There are no material legal proceedings, other than ordinary routine litigation incidental to the business to which the Company and the Variable Account are parties or to which any of their property is the subject. The General Distributor, Nationwide Advisory Services, Inc., is not engaged in any litigation of any material nature. 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. 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 October 1996, a policyholder of Nationwide Life filed a complaint in Alabama state court against Nationwide Life and an agent of Nationwide Life (Wayne M. King v. Nationwide Life Insurance Company and Danny Nix) related to the sale of a whole life policy on a "vanishing premium" basis and seeking unspecified compensatory and punitive damages. In February 1997, Nationwide Life was named as a defendant in a lawsuit filed in New York Supreme Court also related to the sale of whole life policies on a "vanishing premium" basis (John H. Snyder v. Nationwide Mutual Insurance Company, Nationwide Mutual Insurance Co. and 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 is in an early stage and has not been certified as a class action. On April 22, 1997, a motion to dismiss the Snyder complaint in its entirety was filed by the defendants. 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 Underlying Mutual Fund Performance Summary.............................3 Annuity Payments.......................................................3 Financial Statements...................................................4 35 37 of 89 38 APPENDIX FIXED ACCOUNT Purchase Payments under the Fixed Account portion of the Contract and transfers to the Fixed Account portion become part of 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 Securities Act of 1933 ("1933 Act"), nor is the general account registered as an investment company under the Investment Company Act of 1940 ("1940 Act"). Accordingly, neither the general account nor any interest therein are generally subject to the provisions of the 1933 or 1940 Acts, and we have been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this prospectus which related to the guaranteed interest portion. Disclosures regarding the Fixed Account portion of the Contract and the general account, however, may be subject to certain generally applicable provisions of the federal securities laws 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. Fixed Account Purchase Payments will be allocated to the Fixed Account by election of the Contract Owner at the time of purchase. 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 Fixed Account assets will be allocated by the Company between itself and the Contracts participating in the Fixed Account. The level of annuity payments made to Annuitants under the Contracts will not be affected by the mortality experience (death rate) of persons receiving such payments or of the general population. The Company assumes this "mortality risk" by virtue of annuity rates incorporated in the Contract which cannot be changed. In addition, the Company guarantees that it will not increase charges for maintenance of the Contracts regardless of its actual expenses. Investment income from the Fixed Account allocated to the Company 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 year to year in the sole discretion of the Company at such rate or rates as the Company prospectively declares from time to time. Any such rate or rates so determined will remain effective for a period of not less than twelve months, and remain at such rate unless changed. However, the Company guarantees that it will credit interest at not less than 3.0% per year (or as otherwise required under state law, or at such minimum rate as stated in the contract when sold). ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3.0% PER YEAR WILL BE DETERMINED IN 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 Variable Account Sub-Accounts or Guaranteed Term Options to the Fixed Account and amounts maturing in the Fixed Account at the expiration of an Interest Rate Guarantee Period. The Company guarantees that, at any time, 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 the sum of all administrative charges, any applicable premium taxes, and less any amounts surrendered. If the Contract Owner effects a surrender, the amount available from the Fixed Account will be reduced by any applicable Contingent Deferred Sales Charge (see "Contingent Deferred Sales Charge"). TRANSFERS Contract Owners 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 Guaranteed Term Options. The maximum percentage that may be transferred 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 and will be declared upon the expiration date of the then current Interest Rate Guarantee Period. The Interest Rate Guarantee Period expires on the final day of a calendar quarter. Transfers must be made within 45 days after the expiration date of the guarantee period. 36 38 of 89 39 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 under the terms of that agreement. ANNUITY PAYMENT PERIOD-FIXED ACCOUNT FIRST AND SUBSEQUENT PAYMENTS A Fixed Annuity is an annuity with payments which are guaranteed by the Company as to dollar amount during the annuity payment period. The first Fixed Annuity payment will be determined by applying the Fixed Account Contract Value to the applicable Annuity Table in accordance with the Annuity Payment Option elected. This will be done at the Annuitization Date on an age last birthday basis. Fixed Annuity payments after the first will not be less than the first Fixed Annuity payment. The Company does not credit discretionary interest to Fixed Annuity payments during the annuity payment period for annuity options based on life contingencies. The Annuitant must rely on the Annuity Tables applicable to the Contracts to determine the amount of such Fixed Annuity payments. 37 39 of 89 40 STATEMENT OF ADDITIONAL INFORMATION OCTOBER 1, 1997 INDIVIDUAL 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 October 1, 1997. 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 Underlying Mutual Fund Performance Summary.................................3 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 and 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 $67.5 billion as of December 31, 1996. 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 financial statement has 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 40 of 89 41 The Contract Owner may transfer up to 100% of the Contract Value from the Variable Account to the Fixed Account. However, the Company, at its sole discretion, reserves the right to limit such transfers to 25% of the Contract Value for any 12 month period. Contract Owners may at the maturity of an Interest Rate Guarantee Period transfer a portion of the Contract Value of the Fixed Account to the Variable Account. Such portion 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), and will be declared upon the expiration date of the then current Interest Rate Guarantee Period. The Interest Rate Guarantee Period expires on the final day of a calendar quarter. 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. Transfers under this provision must be made within 45 days after the termination date of the guarantee period. Owners who have entered into a Dollar Cost Averaging agreement with the Company may transfer from the Fixed Account under the terms of that agreement. Transfers from the Fixed and Variable Accounts may not be made prior to the first Contract Anniversary. Transfers from the Fixed Account may not be made within 12 months of any prior Transfer. Transfers must also be made prior to the Annuitization Date. 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, 1996, 1995 and 1994, no underwriting commissions were paid by the Company to NAS. CALCULATIONS OF PERFORMANCE Any current yield quotations of the Nationwide Separate Account Trust Money Market Fund Sub-Account, subject to Rule 482 of the Securities Act of 1933, shall consist of a seven calendar day historical yield, carried at least to the nearest hundredth of a percent. The yield shall 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. As of December 31, 1996, the Nationwide Separate Account Trust Money Market Fund Sub-Account's seven-day current unit value yield was 3.54%. The Nationwide Separate Account Trust Money Market Fund Sub-Account'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 Nationwide Separate Account Trust Money Market Fund, and for the period ending December 31, 1996 was 3.60%. The Nationwide Separate Account Trust Money Market Fund Sub-Account's yield and effective yield will fluctuate daily. Actual yields will depend on factors such as the type of instruments in the Nationwide Separate Account Trust Money Market Fund's portfolio, portfolio quality and average maturity, changes in interest rates, and the Fund's expenses. Although the Sub-Account determines its yield on the basis of a seven calendar 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 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 Nationwide Separate Account Trust Money Market Fund Sub-Account 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 shall also include quotations of standardized average annual total return, calculated in accordance with a standard method prescribed by rules of the Securities and Exchange Commission, to facilitate comparison with standardized Average annual total return advertised for a specific period is found by first 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 2 41 of 89 42 reflects the deduction of a 0.90% Mortality Charge and Expense Risk Charge. The redeemable value also reflects the effect of any applicable Contingent Deferred Sales Charge that may be imposed at the end of the period (see "Contingent Deferred Sales Charge" located in the prospectus). No deduction is made for 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 $25,000 and does not reflect the deduction of any applicable Contingent Deferred Sales Charge. Reflecting the Contingent Deferred Sales Charge would decrease the level of the performance advertised. The Contingent Deferred Sales Charge is not reflected because the Contract is designed for long term investment. An assumed initial investment of $25,000 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 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. Both the standardized average annual return and the nonstandardized total 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 option held in the Sub-Account has been in existence, if the underlying Mutual Fund option has not been in existence for one of the prescribed periods. For those underlying Mutual Fund options which have not been held as Sub-Accounts within the Variable Account for one of the quoted periods, the standardized average annual total return and nonstandardized total return quotations will show the investment performance such underlying Mutual Fund options would have achieved (reduced by the applicable charges) had they been held as Sub-Accounts within the Variable Account for the period quoted. Quotations of standardized average annual total return and non-standardized total return are based upon historical earnings and will fluctuate. Any quotation of performance, therefore, would not be considered 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 42 of 89 43 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) as of December 31, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. In 1994, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. KPMG Peat Marwick LLP Columbus, Ohio January 31, 1997 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1996 and 1995 ($000's omitted) Assets 1996 1995 ------ ----------------- ---------------- Investments (notes 5, 8 and 9): Securities available-for-sale, at fair value: Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564 Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953 Mortgage loans on real estate, net 5,272,119 4,602,764 Real estate, net 265,759 229,442 Policy loans 371,816 336,356 Other long-term investments 28,668 61,989 Short-term investments (note 13) 4,789 32,792 ----------------- ---------------- 18,306,921 17,778,860 ----------------- ---------------- Cash 43,784 9,455 Accrued investment income 210,182 212,963 Deferred policy acquisition costs 1,366,509 1,020,356 Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677 Other assets (note 6) 426,441 388,214 Assets held in Separate Accounts (note 8) 26,926,702 18,591,108 ----------------- ---------------- $47,766,246 38,507,633 ================= ================ Liabilities and Shareholder's Equity ------------------------------------ Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614 Policyholders' dividend accumulations 361,401 348,027 Other policyholder funds 60,073 65,297 Accrued federal income tax (note 7): Current 30,170 35,301 Deferred 162,212 246,627 ----------------- ---------------- 192,382 281,928 ----------------- ---------------- Dividend payable to shareholder (notes 1 and 2) 485,707 - Other liabilities 423,047 234,147 Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108 ----------------- ---------------- 45,628,372 35,879,121 ----------------- ---------------- Commitments and contingencies (notes 6, 9 and 15) Shareholder's equity (notes 3, 4, 5, 12 and 13): Capital shares, $1 par value. Authorized 5,000,000 shares, issued and outstanding 3,814,779 shares 3,815 3,815 Additional paid-in capital 527,874 657,118 Retained earnings 1,432,593 1,583,275 Unrealized gains on securities available-for-sale, net 173,592 384,304 ----------------- ---------------- 2,137,874 2,628,512 ----------------- ---------------- $47,766,246 38,507,633 ================= ================
See accompanying notes to consolidated financial statements. 3 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1996, 1995 and 1994 ($000's omitted)
1996 1995 1994 --------------- -------------- ------------- Revenues (note 16): Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245 Traditional life insurance premiums 198,642 199,106 176,658 Net investment income (note 5) 1,357,759 1,294,033 1,210,811 Realized losses on investments (note 5) (326) (1,724) (16,527) Other income 35,861 20,702 11,312 --------------- -------------- ------------- 1,992,838 1,798,651 1,599,499 --------------- -------------- ------------- Benefits and expenses: Benefits and claims 1,160,580 1,115,493 992,667 Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754 Amortization of deferred policy acquisition costs 133,394 82,695 85,568 Other operating expenses (note 13) 342,394 272,954 240,652 --------------- -------------- ------------- 1,677,341 1,511,079 1,357,641 --------------- -------------- ------------- Income from continuing operations before federal income tax expense 315,497 287,572 241,858 --------------- -------------- ------------- Federal income tax expense (benefit) (note 7): Current 116,512 88,700 73,559 Deferred (5,623) 11,108 5,030 --------------- -------------- ------------- 110,889 99,808 78,589 --------------- -------------- ------------- Income from continuing operations 204,608 187,764 163,269 Income from discontinued operations (less federal income tax expense of $4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459 --------------- -------------- ------------- Net income $ 215,932 212,478 183,728 =============== ============== =============
See accompanying notes to consolidated financial statements. 4 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Shareholder's Equity Years ended December 31, 1996, 1995 and 1994 ($000's omitted)
Unrealized gains (losses) Additional on securities Total Capital paid-in Retained available-for- shareholder's shares capital earnings sale, net equity ----------- ------------- --------------- ----------------- --------------- 1994: Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168 Capital contribution - 200,000 - - 200,000 Net income - - 183,728 - 183,728 Adjustment for change in accounting for certain investments in debt and equity securities, net (note 4) - - - 212,553 212,553 Unrealized losses on securities available- for-sale, net - - - (338,971) (338,971) ----------- ------------- --------------- ----------------- --------------- Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478 =========== ============= =============== ================= =============== 1995: Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478 Capital contribution (note 13) - 51,029 - (4,111) 46,918 Dividends to shareholder - - (7,450) - (7,450) Net income - - 212,478 - 212,478 Unrealized gains on securities available- for-sale, net - - - 508,088 508,088 ----------- ------------- --------------- ----------------- --------------- Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512 =========== ============= =============== ================= =============== 1996: Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512 Capital contribution (note 13) - 25 5 - 30 Dividends to shareholder - (129,269) (366,619) (39,819) (535,707) Net income - - 215,932 - 215,932 Unrealized losses on securities available- for-sale, net - - - (170,893) (170,893) ----------- ------------- --------------- ----------------- --------------- Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874 =========== ============= =============== ================= ===============
See accompanying notes to consolidated financial statements. 5 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 ($000's omitted)
1996 1995 1994 ---------------- --------------- --------------- Cash flows from operating activities: Net income $ 215,932 212,478 183,728 Adjustments to reconcile net income to net cash provided by operating activities: Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431) Amortization of deferred policy acquisition costs 133,394 82,695 85,568 Amortization and depreciation 6,962 10,234 3,603 Realized (gains) losses on invested assets, net (284) 3,250 16,094 Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946 Decrease (increase) in accrued investment income 2,781 (16,999) (12,808) (Increase) decrease in other assets (38,876) 39,880 (102,676) Increase in policy liabilities 305,755 135,937 118,361 Increase in policyholders' dividend accumulations 13,374 12,639 15,298 (Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714) Increase in other liabilities 188,900 26,851 506 Other, net (61,679) 1,832 (29,595) --------------- --------------- --------------- Net cash provided by operating activities 346,159 187,633 39,880 ---------------- --------------- --------------- Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843 Proceeds from sale of securities available-for-sale 299,558 107,345 228,308 Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862 Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574 Proceeds from sale of real estate 18,519 48,331 46,713 Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506 Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370) Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379) Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570) Cost of real estate acquired (7,862) (10,928) (6,385) Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302) Short-term investments, net 28,003 77,837 (89,376) Purchase of affiliate (note 13) - - (155,000) ---------------- --------------- --------------- Net cash used in investing activities (771,327) (1,724,978) (1,391,576) ---------------- --------------- --------------- Cash flows from financing activities: Proceeds from capital contributions 30 - 200,000 Dividends paid to shareholder (50,000) (7,450) - Increase in investment product and universal life insurance product account balances 2,293,933 2,809,385 3,547,976 Decrease in investment product and universal life insurance product account balances (1,784,466) (1,258,758) (2,412,595) ---------------- --------------- -------------- Net cash provided by financing activities 459,497 1,543,177 1,335,381 ---------------- --------------- -------------- Net increase (decrease) in cash 34,329 5,832 (16,315) ---------------- --------------- --------------- Cash, beginning of year 9,455 3,623 19,938 ---------------- --------------- --------------- Cash, end of year $ 43,784 9,455 3,623 ================ =============== ===============
See accompanying notes to consolidated financial statements. 6 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1996, 1995 and 1994 ($000's omitted) (1) Organization and Description of Business ---------------------------------------- Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC), Employers Life Insurance Company of Wausau and subsidiaries (ELICW), National Casualty Company (NCC), West Coast Life Insurance Company (WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide Financial Services, Inc.), Nationwide Investment Services Corporation (formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and its subsidiaries are collectively referred to as "the Company." Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in November 1996 as a holding company for NLIC and the other companies of the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. On January 27, 1997, Nationwide Corp. contributed to NFS the common stock of NLIC and three marketing and distribution companies. NFS is planning an initial public offering of its Class A common stock during the first quarter of 1997. In anticipation of the restructuring described above, on September 24, 1996, NLIC's Board of Directors declared a dividend payable January 1, 1997 to Nationwide Corp. consisting of the outstanding shares of common stock of certain subsidiaries (ELICW, NCC and WCLIC) that do not offer or distribute long-term savings and 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 ELICW and another affiliate effective January 1, 1996. These subsidiaries and all accident and health and group life insurance business have been accounted for as discontinued operations for all periods presented. See notes 2 and 13. In addition, as part of the restructuring described above, NLIC intends to make an $850,000 distribution to NFS which will then make an equivalent distribution to Nationwide Corp. The Company is a leading provider of long-term savings and retirement products to retail and institutional customers and is subject to competition from other financial services providers throughout the United States. The Company is subject to regulation by the Insurance Departments of states in which it is licensed, and undergoes periodic examinations by those departments. The following is a description of the most significant risks facing life insurers and how the Company mitigates those risks: LEGAL/REGULATORY RISK is the risk that changes in the legal or regulatory environment in which an insurer operates will create additional expenses not anticipated by the insurer in pricing its products. That is, regulatory initiatives, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those currently recorded in the consolidated financial statements. 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 is 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. 7 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued INTEREST RATE RISK is 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. (2) Discontinued Operations ----------------------- As discussed in note 1, NFS is a holding company for NLIC and certain other companies that offer or distribute long-term savings and retirement products. Prior to the contribution by Nationwide Corp. to NFS of the outstanding common stock of NLIC and other companies, 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 to Nationwide Corp. 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 that serves as a fronting company for a property and casualty subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate. NCC maintains its offices in Scottsdale, Arizona. 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 for all periods presented. NLIC did not recognize any gain or loss on the disposal of these subsidiaries. A summary of the combined results of operations, including the results of the accident and health and group life insurance business ELICW assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994 ------------ ----------- ----------- Revenues $ 668,870 422,149 84,226 Net income 11,324 26,456 11,753 Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692 Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
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 13 for a complete discussion of the reinsurance agreements. NLIC 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 and will cease writing any new business prior to December 31, 1997. NLIC's accident and health and group life insurance business is accounted for as discontinued operations for all periods presented. NLIC 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 NLIC. 8 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued A summary of the results of operations, net of amounts ceded to ELICW and NMIC in 1996, and assets and liabilities of NLIC's accident and health and group life insurance business as of and for the years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994 ------------ ----------- ----------- Revenues $ - 354,788 362,476 Net income (loss) - (1,742) 8,706 Assets, consisting primarily of investments 259,185 239,426 234,082 Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
(3) 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 (GAAP) which differ from statutory accounting practices prescribed or permitted by regulatory authorities. Annual Statements for NLIC and its insurance subsidiaries, filed with the department of insurance of each insurance company's state of domicile, are prepared on the basis of accounting practices prescribed or permitted by each 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. 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 for 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, 1996 or 1995. 9 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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 are 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. (c) Revenues and Benefits --------------------- INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS: Investment products consist primarily of individual and group variable and fixed annuities, annuities without life contingencies and guaranteed investment contracts. 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. ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health insurance premiums are recognized as revenue over the terms of the policies. Policy claims are charged to expense in the period that the claims are incurred. All accident and health insurance business is accounted for as discontinued operations. See note 2. (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 agency 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. For traditional life 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. 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 3(b). 10 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (e) Separate Accounts ----------------- Separate Account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. 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 6. Future policy benefits and claims for collectively renewable long-term disability policies and group long-term disability policies are the present value of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. The impact of reserve discounting is not material. Future policy benefits and claims on other group health insurance policies are not discounted. All health insurance business is accounted for as discontinued operations. See note 2. (g) Participating Business ---------------------- Participating business represents approximately 52% in 1996 (54% in 1995 and 55% in 1994) of the Company's life insurance in force, 78% in 1996 (79% in 1995 and 79% in 1994) of the number of life insurance policies in force, and 40% in 1996 (47% in 1995 and 51% in 1994) of life insurance premiums. The provision for policyholder dividends is based on current dividend scales. Future dividends are provided for ratably in future policy benefits based on dividend scales in effect at the time the policies were issued. (h) Federal Income Tax ------------------ The Company, with the exception of ELICW, files a consolidated federal income tax return with 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. Through 1994, ELICW filed a consolidated federal income tax return with Employers Insurance of Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW files a separate federal income tax return. 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. 11 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (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 2 and 13. (j) Reclassification ---------------- Certain items in the 1995 and 1994 consolidated financial statements have been reclassified to conform to the 1996 presentation. (4) Change in Accounting Principle ------------------------------ Effective January 1, 1994, the Company changed its method of accounting for certain investments in debt and equity securities in connection with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. As of January 1, 1994, the Company classified fixed maturity securities with amortized cost and fair value of $6,299,665 and $6,721,714, respectively, as available-for-sale and recorded the securities at fair value. Previously, these securities were recorded at amortized cost. The effect as of January 1, 1994 has been recorded as a direct credit to shareholder's equity as follows:
Excess of fair value over amortized cost of fixed maturity securities available-for-sale $ 422,049 Adjustment to deferred policy acquisition costs (95,044) Deferred federal income tax (114,452) -------------- $ 212,553 ==============
(5) Investments ----------- The amortized cost and estimated fair value of securities available-for-sale were as follows as of December 31, 1996:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value ------------ ---------- ----------- ----------- 1996: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 275,696 4,795 (1,340) 279,151 Obligations of states and political subdivisions 6,242 450 (2) 6,690 Debt securities issued by foreign governments 100,656 2,141 (857) 101,940 Corporate securities 7,999,310 285,946 (33,686) 8,251,570 Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288 ------------ ---------- ------------ ------------ Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639 Equity securities 43,890 15,571 (330) 59,131 ------------ ---------- ------------ ------------ $12,014,768 400,341 (51,339) 12,363,770 ============ ========== ============ ============
12 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The amortized cost and estimated fair value of securities available-for-sale were as follows as of December 31, 1995:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value ------------ ---------- ----------- --------------- 1995: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 310,186 12,764 (1) 322,949 Obligations of states and political subdivisions 8,655 1,205 (1) 9,859 Debt securities issued by foreign governments 101,414 4,387 (66) 105,735 Corporate securities 7,888,440 473,681 (25,742) 8,336,379 Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642 ------------ ---------- ----------- --------------- Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564 Equity securities 23,617 6,382 (46) 29,953 ------------ ---------- ----------- --------------- $11,886,173 663,588 (34,244) 12,515,517 ============ ========== =========== ===============
The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 1996, 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 cost fair value --------------- -------------- Fixed maturity securities available-for-sale: Due in one year or less $ 440,235 444,214 Due after one year through five years 3,937,010 4,053,152 Due after five years through ten years 2,809,813 2,871,806 Due after ten years 1,194,846 1,270,179 --------------- -------------- 8,381,904 8,639,351 Mortgage-backed securities 3,588,974 3,665,288 --------------- -------------- $11,970,878 12,304,639 =============== ==============
The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31:
1996 1995 --------------- -------------- Gross unrealized gains $349,002 629,344 Adjustment to deferred policy acquisition costs (81,939) (138,914) Deferred federal income tax (93,471) (171,649) --------------- -------------- 173,592 318,781 Unrealized gains on securities available-for-sale, net, of subsidiaries classified as discontinued operations (note 2) - 65,523 --------------- -------------- $173,592 384,304 =============== ==============
13 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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:
1996 1995 1994 --------------- ------------- -------------- Securities available-for-sale: Fixed maturity securities $(289,247) 876,332 (675,373) Equity securities 8,905 (26) (1,927) Fixed maturity securities held-to-maturity - 75,626 (398,183) --------------- ------------- -------------- $(280,342) 951,932 (1,075,483) =============== ============= ==============
Proceeds from the sale of securities available-for-sale during 1996, 1995 and 1994 were $299,558, $107,345 and $228,308, respectively. During 1996, gross gains of $6,606 ($4,838 and $3,045 in 1995 and 1994, respectively) and gross losses of $6,925 ($2,147 and $21,280 in 1995 and 1994, respectively) were realized on those sales. During 1995, the Company transferred fixed maturity securities classified as held-to-maturity with amortized cost of $25,429 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 $3,535. 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 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 $3,320,093, resulting in a gross unrealized gain of $155,940. Investments that were non-income producing for the twelve month period preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and consisted of $248 ($6,982 in 1995) in fixed maturity securities, $20,633 ($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in other long-term investments. Real estate is presented at cost less accumulated depreciation of $30,338 as of December 31, 1996 ($30,482 as of December 31, 1995) and valuation allowances of $15,219 as of December 31, 1996 ($25,819 as of December 31, 1995). The recorded investment of mortgage loans on real estate considered to be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURE) as of December 31, 1996 was $51,765 ($44,409 as of December 31, 1995), which includes $41,663 ($23,975 as of December 31, 1995) of impaired mortgage loans on real estate for which the related valuation allowance was $8,485 ($5,276 as of December 31, 1995) and $10,102 ($20,434 as of December 31, 1995) of impaired mortgage loans on real estate for which there was no valuation allowance. During 1996, the average recorded investment in impaired mortgage loans on real estate was approximately $39,674 ($22,181 in 1995) and interest income recognized on those loans was $2,103 ($387 in 1995), which is equal to interest income recognized using a cash-basis method of income recognition. Activity in the valuation allowance account for mortgage loans on real estate is summarized for the years ended December 31:
1996 1995 ------------- -------------- Allowance, beginning of year $49,128 46,381 Additions charged to operations 4,497 7,433 Direct write-downs charged against the allowance (2,587) (4,686) ------------- ------------- Allowance, end of year $51,038 49,128 ============= ==============
14 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued An analysis of investment income by investment type follows for the years ended December 31:
1996 1995 1994 --------------- ------------- ------------ Gross investment income: Securities available-for-sale: Fixed maturity securities $ 917,135 685,787 647,927 Equity securities 1,291 1,330 509 Fixed maturity securities held-to-maturity - 201,808 185,938 Mortgage loans on real estate 432,815 395,478 372,734 Real estate 44,332 38,344 40,170 Short-term investments 4,155 10,576 6,141 Other 3,998 7,239 2,121 --------------- ------------- -------------- Total investment income 1,403,726 1,340,562 1,255,540 Less investment expenses 45,967 46,529 44,729 --------------- ------------- --------------- Net investment income $1,357,759 1,294,033 1,210,811 =============== ============= ==============
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
1996 1995 1994 ------------ ------------ ------------ Securities available-for-sale: Fixed maturity securities $(3,462) 4,213 (7,296) Equity securities 3,143 3,386 1,422 Mortgage loans on real estate (4,115) (7,091) (20,446) Real estate and other 4,108 (2,232) 9,793 ------------ ------------ ------------ $ (326) (1,724) (16,527) ============ ============ ============
Fixed maturity securities with an amortized cost of $6,161 and $5,592 as of December 31, 1996 and 1995, respectively, were on deposit with various regulatory agencies as required by law. (6) Future Policy Benefits and Claims --------------------------------- The liability for future policy benefits for investment contracts represents approximately 87% and 87% of the total liability for future policy benefits as of December 31, 1996 and 1995, respectively. The average interest rate credited on investment product policies was approximately 6.3%, 6.6% and 6.5% for the years ended December 31, 1996, 1995 and 1994, 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 as follows: --------------
Year of issue Interest rates ----------------- ---------------------------------------- 1996 6.6%, not graded 1984-1995 6.0% to 10.5%, not graded 1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6% 1965 and prior generally lower than post 1965 issues
15 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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 $240,451 and $245,255 as of December 31, 1996 and 1995, 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 13. All other reinsurance agreements are not material to either premiums or reinsurance recoverables. (7) Federal Income Tax ------------------- The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 1996 and 1995 are as follows:
1996 1995 ----------------- --------------- Deferred tax assets: Future policy benefits $175,571 149,192 Liabilities in Separate Accounts 188,426 129,120 Mortgage loans on real estate and real estate 23,366 25,165 Other policyholder funds 7,407 7,424 Other assets and other liabilities 53,757 41,847 ----------------- --------------- Total gross deferred tax assets 448,527 352,748 Less valuation allowances (7,000) (7,000) ----------------- --------------- Net deferred tax assets 441,527 345,748 ================= =============== Deferred tax liabilities: Deferred policy acquisition costs 399,345 299,579 Fixed maturity securities 133,210 227,345 Deferred tax on realized investment gains 37,597 40,634 Equity securities and other long-term investments 8,210 3,780 Other 25,377 21,037 ----------------- --------------- Total gross deferred tax liabilities 603,739 592,375 ----------------- --------------- $162,212 246,627 ================= ===============
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, 1996, 1995 and 1994. 16 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Total federal income tax expense for the years ended December 31, 1996, 1995 and 1994 differs from the amount computed by applying the U.S. federal income tax rate to income before tax as follows:
1996 1995 1994 ---------------------- ---------------------- ---------------------- Amount % Amount % Amount % ---------------------- ---------------------- ---------------------- Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0 Tax exempt interest and dividends received deduction (212) (0.1) (18) (0.0) (130) (0.1) Other, net 677 0.3 (824) (0.3) (5,931) (2.5) ------------ -------- ------------- -------- ------------- -------- Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5 ============ ======== ============= ======== ============= ========
Total federal income tax paid was $115,839, $51,840 and $83,239 during the years ended December 31, 1996, 1995 and 1994, respectively. (8) Disclosures about Fair Value of Financial Instruments ----------------------------------------------------- SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107) requires disclosure of fair value information about existing on and off-balance sheet financial instruments. SFAS 107 defines the fair value of a financial instrument 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 based on estimates 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. SFAS 107 excludes certain assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from SFAS 107 disclosures, 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: CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. FIXED MATURITY AND EQUITY SECURITIES: 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. 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. 17 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued MORTGAGE LOANS ON REAL ESTATE: 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 mortgages in default is the estimated fair value of the underlying collateral. INVESTMENT CONTRACTS: 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 analyses. Interest rates used are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. 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. POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER FUNDS: The carrying amount reported in the consolidated balance sheets for these instruments approximates their 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 9. Carrying amount and estimated fair value of financial instruments subject to SFAS 107 and policy reserves on life insurance contracts were as follows as of December 31, 1996 and 1995:
1996 1995 ------------------------------ ------------------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ------------------------------ --------------- --------------- Assets ------ Investments: Securities available-for-sale: Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564 Equity securities 59,131 59,131 29,953 29,953 Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655 Policy loans 371,816 371,816 336,356 336,356 Short-term investments 4,789 4,789 32,792 32,792 Cash 43,784 43,784 9,455 9,455 Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108 Liabilities ----------- Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798 Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486 Policyholders' dividend accumulations 361,401 361,401 348,027 348,027 Other policyholder funds 60,073 60,073 65,297 65,297 Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
(9) Additional Financial Instruments Disclosures -------------------------------------------- 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. 18 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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 $327,456 extending into 1997 were outstanding as of December 31, 1996. 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 21% (20% in 1995) in any geographic area and no more than 2% (2% in 1995) with any one borrower as of December 31, 1996. The Company had a significant reinsurance recoverable balance from one reinsurer as of December 31, 1996 and 1995. See note 6. The summary below depicts loans by remaining principal balance as of December 31, 1996 and 1995:
Apartment Office Warehouse Retail & other Total ------------ ------------- ------------- ------------- -------------- 1996: East North Central $139,518 119,069 549,064 215,038 1,022,689 East South Central 33,267 22,252 172,968 90,623 319,110 Mountain 17,972 43,027 113,292 73,390 247,681 Middle Atlantic 129,077 54,046 160,833 18,498 362,454 New England 33,348 43,581 161,960 - 238,889 Pacific 202,562 325,046 424,295 110,108 1,062,011 South Atlantic 103,889 134,492 482,934 385,185 1,106,500 West North Central 126,467 2,441 75,180 40,529 244,617 West South Central 104,877 120,314 197,090 304,256 726,537 ------------- ------------- ------------- -------------- ------------ $890,977 864,268 2,337,616 1,237,627 5,330,488 ============ ============= ============= ============= Less valuation allowances and unamortized discount 58,369 -------------- Total mortgage loans on real estate, net $5,272,119 ==============
1995: East North Central $138,965 101,925 514,995 175,213 931,098 East South Central 21,329 13,053 180,858 82,383 297,623 Mountain - 17,219 138,220 45,274 200,713 Middle Atlantic 116,187 64,813 158,252 10,793 350,045 New England 9,559 39,525 148,449 1 197,534 Pacific 183,206 233,186 374,915 105,419 896,726 South Atlantic 106,246 73,541 446,800 278,265 904,852 West North Central 133,899 14,205 78,065 36,651 262,820 West South Central 69,140 92,594 190,299 267,268 619,301 ------------ ------------ ------------- ------------- -------------- $778,531 650,061 2,230,853 1,001,267 4,660,712 ============ ============= ============= ============= Less valuation allowances and unamortized discount 57,948 -------------- Total mortgage loans on real estate, net $4,602,764 ==============
19 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (10) 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 thousand hours of service within a twelve-month period and who have met certain age requirements. 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. 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. 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, 1996, 1995 and 1994 were $7,381, $10,478 and $10,063, respectively. The Company's net accrued pension expense as of December 31, 1996 and 1995 was $1,075 and $1,392, respectively. The net periodic pension cost for the Nationwide Insurance Enterprise Retirement Plan as a whole for the year ended December 31, 1996 and for the Nationwide Insurance Companies and Affiliates Retirement Plan as a whole for the years ended December 31, 1995 and 1994 follows:
1996 1995 1994 --------------- --------------- --------------- Service cost (benefits earned during the period) $ 75,466 64,524 64,740 Interest cost on projected benefit obligation 105,511 95,283 73,951 Actual return on plan assets (210,583) (249,294) (21,495) Net amortization and deferral 101,795 143,353 (62,150) --------------- --------------- --------------- $ 72,189 53,866 55,046 =============== =============== ===============
Basis for measurements, net periodic pension cost:
1996 1995 1994 --------------- --------------- --------------- Weighted average discount rate 6.00% 7.50% 5.75% Rate of increase in future compensation levels 4.25% 6.25% 4.50% Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
20 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Information regarding the funded status of the Nationwide Insurance Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995 follows:
1996 1995 --------------- --------------- Accumulated benefit obligation: Vested $1,338,554 1,236,730 Nonvested 11,149 26,503 --------------- --------------- $1,349,703 1,263,233 =============== =============== Net accrued pension expense: Projected benefit obligation for services rendered to date $1,847,828 1,780,616 Plan assets at fair value 1,947,933 1,738,004 --------------- --------------- Plan assets in excess of (less than) projected benefit obligation 100,105 (42,612) Unrecognized prior service cost 37,870 42,845 Unrecognized net gains (201,952) (63,130) Unrecognized net asset at transition 37,158 41,305 --------------- --------------- $ (26,819) (21,592) =============== ===============
Basis for measurements, funded status of plan:
1996 1995 --------------- --------------- Weighted average discount rate 6.50% 6.00% Rate of increase in future compensation levels 4.75% 4.25%
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested in group annuity contracts of NLIC and ELICW. (11) 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; 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, 1996 and 1995 was $34,884 and $33,537, respectively, and the net periodic postretirement benefit cost (NPPBC) for 1996, 1995 and 1994 was $3,286, $3,132 and $4,284, respectively. 21 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The amount of NPPBC for the plan as a whole for the years ended December 31, 1996, 1995 and 1994 was as follows:
1996 1995 1994 ----------- ----------- ----------- Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586 Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011 Actual return on plan assets (4,348) (2,657) (1,622) Amortization of unrecognized transition obligation of affiliates 173 2,966 568 Net amortization and deferral 1,830 (1,619) 1,622 ----------- ----------- ----------- $17,875 19,076 23,165 =========== =========== ===========
Information regarding the funded status of the plan as a whole as of December 31, 1996 and 1995 follows:
1996 1995 --------------- --------------- Accrued postretirement benefit expense: Retirees $ 92,954 88,680 Fully eligible, active plan participants 23,749 28,793 Other active plan participants 83,986 90,375 --------------- --------------- Accumulated postretirement benefit obligation (APBO) 200,689 207,848 Plan assets at fair value 63,044 54,325 --------------- --------------- Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523) Unrecognized transition obligation of affiliates 1,654 1,827 Unrecognized net gains (23,225) (1,038) --------------- --------------- $(159,216) (152,734) =============== ===============
Actuarial assumptions used for the measurement of the APBO as of December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were as follows:
1996 1996 1995 1995 1994 APBO NPPBC APBO NPPBC NPPBC ------------ ----------- ----------- ----------- ------------ Discount rate 7.25% 6.65% 6.75% 8.00% 7.00% Long-term rate of return on plan assets, net of tax - 4.80% - 8.00% N/A Assumed health care cost trend rate: Initial rate 11.00% 11.00% 11.00% 10.00% 12.00% Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00% Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
The health care cost trend rate assumption has an effect on the amounts reported. 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, 1996 by $701 and the NPPBC for the year ended December 31, 1996 by $83. (12) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings and Dividend Restrictions --------------------------------------------------------------------- Each insurance company'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 each of its insurance company subsidiaries exceed the minimum risk-based capital requirements. 22 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The statutory capital shares and surplus of NLIC as of December 31, 1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861, respectively. The statutory net income of NLIC for the years ended December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532, respectively. NLIC is limited in the amount of shareholder dividends it may pay without prior approval by the Department of Insurance of the State of Ohio (the Department). NLIC's dividend of the outstanding shares of common stock of certain companies which was declared on September 24, 1996 and the anticipated $850,000 dividend (as discussed in note 1) are deemed extraordinary under Ohio insurance laws. As a result of such dividends, any dividend paid by NLIC during the 12-month period immediately following the $850,000 dividend would also be an extraordinary dividend under Ohio insurance laws. Accordingly, no such dividend could be paid without prior regulatory 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 stockholder. The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses and stockholder dividends in the future. (13) Transactions With Affiliates ---------------------------- The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the Company made lease payments to NMIC and its subsidiaries of $9,065, $8,986 and $8,133, 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 $101,584, $107,112, and $100,601 in 1996, 1995 and 1994, 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 intercompany 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 $15,111 and $1,186 as of December 31, 1996 and 1995, 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 1996 and 1995 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. 23 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Intercompany reinsurance contracts 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 NLIC'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 NLIC's agreements, the investment risk associated with changes in interest rates is borne by NMIC or ELICW, as the case may be. Risk of asset default is retained by NLIC, although a fee is paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC'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. NLIC believes that the terms of the modified coinsurance agreements are consistent in all material respects with what NLIC could have obtained with unaffiliated parties. Amounts ceded to ELICW in 1996 are included in ELICW's results of operations for 1996 which, combined with the results of WCLIC and NCC, are summarized in note 2. Amounts ceded to ELICW in 1996 include premiums of $224,224, net investment income and other revenue of $14,833, and benefits, claims and other expenses of $246,641. Amounts ceded to NMIC in 1996 include premiums of $97,331, net investment income of $10,890, and benefits, claims and other expenses of $100,476. The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC) and California Cash Management Company (CCMC), both affiliates, under which NCMC and CCMC act as common agents in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC and CCMC were $4,789 and $9,654 as of December 31, 1996 and 1995, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. On April, 5 1996, Nationwide Corp. contributed all of the outstanding shares, with shareholder equity value of $30, of NISC to NLIC. NLIC contributed an additional $500 to NISC on August 30, 1996. 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 $46,918. As discussed in note 2, WCLIC is accounted for as discontinued operations. Effective December 31, 1994, NLIC purchased all of the outstanding shares of common stock of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC transferred fixed maturity securities and cash with a fair value of $155,000 to WSC on December 28, 1994, which resulted in a realized loss of $19,239 on the disposition of the securities. The purchase price approximated both the historical cost basis and fair value of net assets of ELICW. ELICW has and will continue to share home office, other facilities, equipment and common management and administrative services with WSC. As discussed in note 2, ELICW is accounted for as discontinued operations. Certain annuity products are sold through three affiliated companies which are also subsidiaries of Nationwide Corp. Total commissions and fees paid to these affiliates for the years ended December 31, 1996, 1995 and 1994 were $76,922, $57,280 and $50,168, respectively. (14) Bank Lines of Credit -------------------- In August 1996, NLIC, along with NMIC, established a $600,000 revolving credit facility which provides for a $600,000 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. 24 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (15) 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. (16) Segment Information ------------------- The Company has three primary 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 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, 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. During 1996, the Company changed its reporting segments to better reflect the way the businesses are managed. Prior periods have been restated to reflect these changes. The following table summarizes the revenues and income from continuing operations before federal income tax expense for the years ended December 31, 1996, 1995 and 1994 and assets as of December 31, 1996, 1995 and 1994, by business segment.
1996 1995 1994 ----------------- --------------- --------------- Revenues: Variable Annuities $ 284,638 189,071 132,687 Fixed Annuities 1,092,566 1,051,970 939,868 Life Insurance 435,657 409,135 383,150 Corporate and Other 179,977 148,475 143,794 ----------------- --------------- --------------- $ 1,992,838 1,798,651 1,599,499 ================= =============== =============== Income from continuing operations before federal income tax expense: Variable Annuities 90,244 50,837 24,574 Fixed Annuities 135,405 137,000 138,950 Life Insurance 67,242 67,590 53,046 Corporate and Other 22,606 32,145 25,288 ----------------- --------------- --------------- $ 315,497 287,572 241,858 ================= =============== =============== Assets: Variable Annuities 25,069,725 17,333,039 11,146,465 Fixed Annuities 13,994,715 13,250,359 11,668,973 Life Insurance 3,353,286 3,027,420 2,752,283 Corporate and Other 5,348,520 4,896,815 3,678,303 ----------------- --------------- --------------- $47,766,246 38,507,633 29,246,024 ================= =============== ===============
25 SCHEDULE I NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Summary of Investments - Other Than Investments in Related Parties As of December 31, 1996 ($000's omitted)
- --------------------------------------------------------------- --------------- -------------- ----------------- Column A Column B Column C Column D - --------------------------------------------------------------- --------------- -------------- ----------------- Amount at which shown in the consolidated Type of Investment Cost Market value balance sheet - --------------------------------------------------------------- --------------- -------------- ----------------- Fixed maturity securities available-for-sale: Bonds: U.S. Government and government agencies and authorities $ 3,757,887 3,834,762 3,834,762 States, municipalities and political subdivisions 6,242 6,690 6,690 Foreign governments 100,656 101,940 101,940 Public utilities 1,798,736 1,843,938 1,843,938 All other corporate 6,307,357 6,517,309 6,517,309 --------------- -------------- ----------------- Total fixed maturity securities available-for-sale 11,970,878 12,304,639 12,304,639 --------------- -------------- ----------------- Equity securities available-for-sale: Common stocks: Industrial, miscellaneous and all other 43,501 50,405 50,405 Non-redeemable preferred stock 389 8,726 8,726 --------------- -------------- ----------------- Total equity securities available-for-sale 43,890 59,131 59,131 --------------- -------------- ----------------- Mortgage loans on real estate, net 5,327,317 5,272,119 (1) Real estate, net: Investment properties 253,383 217,611 (1) Acquired in satisfaction of debt 57,933 48,148 (1) Policy loans 371,816 371,816 Other long-term investments 27,370 28,668 (2) Short-term investments 4,789 4,789 --------------- ---------------- Total investments $18,057,376 18,306,921 =============== ================ - ---------- (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 5 to the consolidated financial statements. (2) Difference from Column B is primarily due to operating gains of investments in limited partnerships.
See accompanying independent auditors' report. 26
SCHEDULE III NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Supplemental Insurance Information As of December 31, 1996, 1995 and 1994 and for each of the years then ended ($000's omitted) - ----------------------------------- -------------- ------------------ ----------------- ------------------ --------------- Column A Column B Column C Column D Column E Column F - ----------------------------------- -------------- ------------------ ----------------- ----------------- --------------- Deferred Future policy Other policy policy benefits, losses, claims and acquisition claims and Unearned premiums benefits payable Premium Segment costs loss expenses (1) (2) revenue - ----------------------------------- -------------- ------------------ ----------------- ---------------- -------------- 1996: Variable Annuities $ 791,611 - - - Fixed Annuities 242,421 14,952,877 687 24,030 Life Insurance 414,417 1,995,802 395,739 174,612 Corporate and Other (81,940) 230,381 25,048 - -------------- ------------------ ---------------- -------------- Total $1,366,509 17,179,060 421,474 198,642 ============== ================== ================ ============== 1995: Variable Annuities 571,283 - - - Fixed Annuities 221,111 14,221,622 455 32,774 Life Insurance 366,876 1,898,641 383,983 166,332 Corporate and Other (138,914) 238,351 28,886 - -------------- ------------------ ---------------- -------------- Total $1,020,356 16,358,614 413,324 199,106 ============== ================== ================ ============== 1994: Variable Annuities 395,397 - - - Fixed Annuities 198,639 12,633,253 240 20,134 Life Insurance 327,079 1,806,762 371,984 156,524 Corporate and Other 74,445 233,569 26,927 - -------------- ------------------ ---------------- -------------- Total $ 995,560 14,673,584 399,151 176,658 ============== ================== ================ ============== - ----------------------------------- -------------- ------------------- ----------------- ---------------- -------------- Column A Column G Column H Column I Column J Column K - ----------------------------------- -------------- ------------------- ----------------- ---------------- -------------- Net Amortization Other investment Benefits, claims, of deferred operating income losses and policy expenses Premiums Segment (3) settlement expenses acquisition costs (3) written - ----------------------------------- -------------- ------------------- ----------------- ----------------- -------------- 1996: Variable Annuities $ (21,449) 4,624 57,412 132,357 Fixed Annuities 1,050,557 838,533 38,635 79,737 Life Insurance 174,002 211,386 37,347 78,965 Corporate and Other 154,649 106,037 - 51,335 -------------- ------------------- ----------------- ----------------- Total $1,357,759 1,160,580 133,394 342,394 ============== =================== ================= ================= 1995: Variable Annuities (17,640) 2,881 26,264 109,089 Fixed Annuities 1,002,718 804,980 29,499 80,260 Life Insurance 171,255 201,986 31,021 68,832 Corporate and Other 137,700 105,646 (4,089) 14,773 -------------- ------------------- ----------------- ----------------- Total $1,294,033 1,115,493 82,695 272,954 ============== =================== ================= ================= 1994: Variable Annuities (13,415) 2,277 22,135 83,701 Fixed Annuities 903,572 702,082 29,849 69,975 Life Insurance 166,329 191,006 29,495 69,861 Corporate and Other 154,325 97,302 4,089 17,115 -------------- ------------------- ----------------- ----------------- Total $1,210,811 992,667 85,568 240,652 ============== =================== ================= ================= - ---------- (1) Unearned premiums are included in Column C amounts. (2) Column E agrees to the sum of the Balance Sheet captions, Policyholders' dividend accumulations and Other policyholder funds. (3) Allocations of net investment income and certain general 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. 27 SCHEDULE IV NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Reinsurance As of December 31, 1996, 1995 and 1994 and for each of the years then ended ($000's omitted)
- ------------------------------- ----------------- ----------------- ---------------- ---------------- --------------- Column A Column B Column C Column D Column E Column F - ------------------------------- ----------------- ----------------- ---------------- ---------------- --------------- Percentage Ceded to Assumed from of amount Gross amount other companies other companies Net amount assumed to net ----------------- ----------------- ---------------- ---------------- --------------- 1996: Life insurance in force $47,071,264 6,633,567 288,593 40,726,290 0.7% ================= ================= ================ ================ =============== Premiums: Life insurance 225,615 29,282 2,309 198,642 1.2% Accident and health insurance 291,871 305,789 13,918 - N/A ----------------- ----------------- ---------------- ---------------- --------------- Total $ 517,486 335,071 16,227 198,642 8.2% ================= ================= ================ ================ =============== 1995: Life Insurance in force $41,087,025 8,935,743 391,174 32,542,456 1.2% ================= ================= ================ ================ =============== Premiums: Life insurance 221,257 24,360 2,209 199,106 1.1% Accident and health insurance 298,058 313,036 14,978 - N/A ----------------- ----------------- ---------------- ---------------- --------------- Total $ 519,315 337,396 17,187 199,106 8.6% ================= ================= ================ ================ =============== 1994: Life Insurance in force $35,926,633 7,550,623 829,742 29,205,752 2.8% ================= ================= ================ ================ =============== Premiums: Life insurance 198,705 24,912 2,865 176,658 1.6% Accident and health insurance 303,435 321,696 18,261 - N/A ----------------- ----------------- ---------------- ---------------- --------------- Total $ 502,140 346,608 21,126 176,658 12.0% ================= ================= ================ ================ =============== - ---------- Note: The life insurance caption represents principally premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on invesment products and universal life insurance products.
See accompanying independent auditors' report. 28
SCHEDULE V NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Valuation and Qualifying Accounts Years ended December 31, 1996, 1995 and 1994 ($000's omitted) - ------------------------------------------------- ------------ ----------------------------- ------------ ------------- Column A Column B Column C Column D Column E - ------------------------------------------------- ------------ ----------------------------- ------------ ------------- Balance at Charged to Balance at beginning of costs and Charged to Deductions end of Description period expenses other accounts (1) period - ------------------------------------------------- ------------ ------------ -------------- ------------ ------------- 1996: Valuation allowances - mortgage loans on real estate $49,128 4,497 - 2,587 51,038 Valuation allowances - real estate 25,819 (10,600) - - 15,219 ------------ ------------ -------------- ------------ ------------- Total $74,947 (6,103) - 2,587 66,257 ============ ============ ============== ============ ============= 1995: Valuation allowances - fixed maturity securities - 8,908 - 8,908 - Valuation allowances - mortgage loans on real estate 46,381 7,433 - 4,686 49,128 Valuation allowances - real estate 27,330 (1,511) - - 25,819 ------------ ------------ -------------- ------------ ------------- Total $73,711 14,830 - 13,594 74,947 ============ ============ ============== ============ ============= 1994: Valuation allowances - fixed maturity securities 4,800 (4,800) - - - Valuation allowances - mortgage loans on real estate 42,150 20,445 - 16,214 46,381 Valuation allowances - real estate 31,357 (4,027) - - 27,330 ------------ ------------ -------------- ------------ ------------- Total $78,307 11,618 - 16,214 73,711 ============ ============ ============== ============ ============= - ---------- (1) Amounts represent direct write-downs charged against the valuation allowance.
See accompanying independent auditors' report. 44 PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits
(a) Financial Statements: Page (1) Financial statements and schedule included N/A in Prospectus. (Part A): Condensed Financial Information. (2) Financial statements and schedule included 43 in Part B: Those financial statements and schedule required by Item 23 to be included in Part B have been incorporated therein by reference to the Prospectus (Part A). Nationwide Variable Account-9: N/A Nationwide Life Insurance Company: Independent Auditors' Report. 43 Consolidated Balance Sheets as of December 44 31, 1996 and 1995. Consolidated Statements of Income for the 45 years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Shareholder's 46 Equity for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for 47 the years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. 48 Schedule I - Consolidated Summary of Investments - Other Than Investments in Related Parties 85 Schedule III - Supplementary Insurance Information 86 Schedule IV - Reinsurance 87 Schedule V - Valuation and Qualifying Accounts 88
67 of 89 45 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. 68 of 89 46 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 Keith W. Eckel Director 1647 Falls Road Clarks Summit, PA 18411 Willard J. Engel Director 1100 East Main 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 Henry S. Holloway Chairman of the 1247 Stafford Road Board and Director Darlington, MD 21034 Dimon Richard McFerson Chairman and Chief Executive Officer- One Nationwide Plaza Nationwide Insurance Enterprise Columbus, OH 43215 and Director David O. Miller Director 115 Sprague Drive Hebron, OH 43025 C. Ray Noecker Director 2770 Winchester Southern S. Ashville, OH 43103 James F. Patterson Director 8765 Mulberry Road Chesterland, OH 44026
69 of 89 47
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 Gordon E. McCutchan Executive Vice President, One Nationwide Plaza Law and Corporate Services Columbus, OH 43215 and Secretary 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 James E. Brock Senior Vice President - One Nationwide Plaza Life Company Operations 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 Michael D. Bleiweiss Vice President- One Nationwide Plaza Individual Annuity Operation Columbus, OH 43215
70 of 89 48
NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH DEPOSITOR Matthew S. Easley Vice President - Marketing, One Nationwide Plaza Innovation and Compliance Columbus, OH 43215 Ronald L. Eppley Vice President - One Nationwide Plaza Applications Service Columbus, OH 43215 Timothy E. Murphy Vice President - One Nationwide Plaza Strategic Marketing Columbus, OH 43215 R. Dennis Noice Vice President - One Nationwide Plaza Retail Operations Columbus, OH 43215 Joseph P. Rath Vice President - Product One Nationwide Plaza and Market Compliance 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 71 of 89 49
NO. VOTING SECURITIES STATE (SEE ATTACHED OF ORGANIZATION CHART) UNLESS COMPANY 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 Investment Securities Agent Colonial County Mutual insurance Texas Insurance Company Company Colonial Insurance Company of California Insurance Company California 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 Idaho, Inc. Idaho Insurance Broker Companies Agency of Illinois, Inc. Illinois Acts as Collection Agent for Policies placed through Brokers 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 Insurance Broker Companies Annuity Agency of Texas, Texas Insurance Broker Inc. Countrywide Services Corporation Delaware Products Liability, Investigative and Claims Management Services Employers Insurance of Wausau A Wisconsin Insurance Company Mutual Company ** Employers Life Insurance Company of Wisconsin Life Insurance Company Wausau F & B, Inc. Iowa Insurance Agency
72 of 89 50
NO. VOTING SECURITIES STATE (SEE ATTACHED OF ORGANIZATION CHART) UNLESS COMPANY OTHERWISE PRINCIPAL BUSINESS INDICATED Farmland Mutual Insurance Company Iowa 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 Ohio Plus, Inc. Ohio Managed Care Organization Greater La Crosse Health Plans, Inc. Wisconsin Writes Commercial Health and Medicare Supplement Insurance Insurance Intermediaries, Inc. Ohio Insurance Broker and 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 Michigan 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 Nationwide Agency, Inc. Ohio Insurance Agency Nationwide Agribusiness Insurance Iowa Insurance Company Company
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NO. VOTING SECURITIES STATE (SEE ATTACHED OF ORGANIZATION CHART) UNLESS COMPANY OTHERWISE PRINCIPAL BUSINESS INDICATED * Nationwide Asset Allocation Trust Massachusetts Investment Company Nationwide Cash Management Company Ohio Investment Securities Agent Nationwide Communications, Inc. Ohio Radio Broadcasting Business 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 Development Company Ohio Owns, leases and manages commercial real estate Nationwide Financial Institution Delaware Insurance Agency Distributors Agency, Inc. Nationwide Financial Services, Inc. Delaware Holding Company Nationwide General Insurance Company Ohio Insurance Company Nationwide HMO, Inc. Ohio Health Maintenance Organization * Nationwide Indemnity Company Ohio Reinsurance Company Nationwide Insurance Enterprise Ohio Membership Non-Profit Corporation Foundation Nationwide Insurance Golf Charities, Ohio Membership Non-Profit Corporation Inc. Nationwide Investing Foundation Michigan Investment Company * Nationwide Investing Massachusetts Investment Company Foundation II 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 Develops and operates Managed Care Delivery System Nationwide Mutual Fire Insurance Ohio Insurance Company Company
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NO. VOTING SECURITIES STATE (SEE ATTACHED OF ORGANIZATION CHART) UNLESS COMPANY OTHERWISE PRINCIPAL BUSINESS INDICATED Nationwide Mutual Insurance Company Ohio Insurance Company Nationwide Property, 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 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
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NO. VOTING SECURITIES STATE (SEE ATTACHED OF ORGANIZATION CHART) UNLESS COMPANY OTHERWISE PRINCIPAL BUSINESS INDICATED 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 Excess and Surplus Lines 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 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 ** West Coast Life Insurance Company California Life Insurance Company
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NO. VOTING SECURITIES STATE (SEE ATTACHED CHART) UNLESS COMPANY OF ORGANIZATION OTHERWISE INDICATED PRINCIPAL BUSINESS * 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 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 * Nationwide VLI Separate Account-3 Ohio Nationwide Life Separate Issuer of Life Insurance Account Policies
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NATIONWIDE INSURANCE ENTERPRISE(R) (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 | ------------------------------------------ | ----------------------------------------------------------------------- | | | - --------------------------- --------------------------- ---------------------------- --------------------------- | SAN DIEGO LOTUS | | WAUSAU INSURANCE CO. | | WAUSAU SERVICE | | | | CORPORATION | | (U.K.) LIMITED | | CORPORATION (WSC) | | NATIONWIDE LLOYDS | |Common Stock: 748,212 | |Common Stock: 8,506,800 | |Common Stock: 1,000 Shares| | | |------------ Shares | |------------ Shares | |------------ | | | | | | | | |=========| | | Cost | | Cost | | Cost | || | A TEXAS LLOYDS | | ---- | | ---- | | ---- | || | | |Employers- | |Employers- | |Employers- | || | | |100% $29,000,000| |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% $861,761 | | |WSC-100% $1,000 | | |WSC-100% $10,000 | | |WSC-100% $248,222 | - --------------------------- | --------------------------- | ---------------------------- | --------------------------- | | | - --------------------------- | --------------------------- | ---------------------------- | --------------------------- | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | | COMPANIES AGENCY | | OF ALABAMA, INC. | | | OF PENNSYLVANIA, INC. | | | INSURANCE SERVICES | | | OF ILLINOIS, INC. | | | | | | | | OF CALIFORNIA | | | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 250 | |------------ Shares | | |------------ Shares | |---|------------ Shares | |------|------------ Shares | | |---|---| | | | | | | | | Cost | | | Cost | | | Cost | | | Cost | | ---- | | | ---- | | | ---- | | | ---- | |WSC-100% $100 | | |WSC-100% $100 | | |WSC-100% $1,000 | | |WSC-100% $2,500 | - --------------------------- | --------------------------- | ---------------------------- | --------------------------- | | | - --------------------------- | --------------------------- | ---------------------------- | --------------------------- | COMPANIES AGENCY | | | COMPANIES AGENCY | | | PHYSICIANS PLUS | | | COMPANIES | | OF IDAHO, INC. | | | OF PHOENIX, INC. | | | INSURANCE | | | AGENCY, INC. | | | | | | | | CORPORATION | | | | |Common Stock: 1,000 | | |Common Stock: 1,000 | | |Common Stock: 7,150 | | |Common Stock: 100 | |------------ Shares | | |------------ Shares | | |------------ Shares | | |------------ Shares | | |-------| | |---|Preferred Stock: 11,540 | |------| | | | | | | |--------------- Shares | | | | | | | | | | | | | | | Cost | | Cost | | | Cost | | | Cost | | ---- | | ---- | | | ---- | | | ---- | |WSC-100% $1,000 | |WSC-100% $1,000 | | |WSC-33 1/3% $6,215,459| | |WSC-100% $10,000 | - --------------------------- --------------------------- | ---------------------------- | --------------------------- | | | ---------------------------- | --------------------------- | | PREVEA HEALTH | | | PENSION ASSOCIATES | | | INSURANCE PLAN, INC. | | | OF WAUSAU, INC. | | |Common Stock: 3,000 Shares| | |Common Stock: 1,000 | | |------------ | | |------------ Shares | ----| | -------| | | | | | | Cost | |Companies Cost | | ---- | |Agency, Inc. ---- | |WSC-33 1/3% $500,000 | |(Wisconsin)-100% $10,000 | ---------------------------- ---------------------------
56
NATIONWIDE INSURANCE ENTERPRISE(R) (middle) ----------------------------------------------------------------------------- | | | | | NATIONWIDE MUTUAL | =======| INSURANCE COMPANY |================================================ | (CASUALTY) | | | | | ----------------------------------------------------------------------------- | || | | || ------------------------------------------------------------- | || --------------------------------------------------------------------------------------- | || | | - -------------------------------- || | -------------------------------- -------------------------------- | ALLNATIONS, INC. | || | | NATIONWIDE GENERAL | | NECKURA HOLDING | |Common Stock: 3,136 Shares | || | | INSURANCE COMPANY | | COMPANY (NECKURA) | |------------ | || | | | | | | Cost | || | |Common Stock: 20,000 | |Common Stock: 10,000 | | ---- | || | |------------ Shares | |------------ Shares | |Casualty-24.5% $88,320 | || | | Cost | | Cost | |Fire-24.5% $88,463 | || | | ---- | | ---- | |Preferred Stock: 1,466 Shares | || |----|Casualty-100% $5,944,422 | ---------|Casualty-100% $87,943,140 | |--------------- | || | | | | | | | Cost | || | | | | | | | ---- | || | | | | | | |Casualty-7.7% $100,000 | || | | | | | | |Fire-7.7% $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 CALIFORNIA | | | 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% $11,750,000 | | |Neckura-100% DM 15,825,681 | - -------------------------------- | -------------------------------- | -------------------------------- | | - -------------------------------- | -------------------------------- | -------------------------------- | NATIONWIDE AGRIBUSINESS | | | SCOTTSDALE | | | NECKURA GENERAL | | INSURANCE COMPANY | | | INSURANCE COMPANY | | | INSURANCE COMPANY | |Common Stock: 1,000,000 | | | | | | | |------------ Shares | | |Common Stock: 30,136 | | |Common Stock: 1,500 | | Cost |------------------|------------ Shares | |--------|------------ Shares | | ---- | | Cost | | | Cost | |Casualty-99.9% $26,714,335 | | ---- | | | ---- | |Other Capital: | |Casualty-100% $150,000,000 | | |Neckura-100% DM 1,656,925 | |------------- | | | | | | |Casualty-Ptd. $ 713,567 | | | | | | - -------------------------------- -------------------------------- | -------------------------------- | | -------------------------------- | -------------------------------- | SCOTTSDALE | | | COLUMBUS INSURANCE | | SURPLUS LINES | | | BROKERAGE AND SERVICE | | INSURANCE COMPANY | | | GmbH | | | | |Common Stock: 1 Share | | | |--------|------------ | | "NEWLY FORMED" | | | Cost | | | | | ---- | | | | |Neckura-100% DM 51,639 | | | | | | | | | | | -------------------------------- | -------------------------------- | | -------------------------------- | -------------------------------- | NATIONAL PREMIUM & | | | LEBEN DIREKT | | BENEFIT ADMINISTRATION | | | INSURANCE COMPANY | | COMPANY | | | | |Common Stock: 10,000 | | |Common Stock: 4,000 Shares | |------------ Shares |------------------|------------ | | Cost | | Cost | | ---- | | ---- | |Scottsdale-100% $10,000 | |Neckura-100% DM 4,000,000 | | | | | | | | | -------------------------------- -------------------------------- -------------------------------- -------------------------------- | SVM SALES | | AUTO DIREKT | | GmbH | | INSURANCE COMPANY | | | | | |Common Stock: 50 Shares | |Common Stock: 1,500 Shares | |------------ | |------------ | | Cost | | Cost | | ---- | | ---- | |Neckura-100% DM 50,000 | |Neckura-100% DM 1,643,149 | | | | | | | | | -------------------------------- --------------------------------
57
NATIONWIDE INSURANCE ENTERPRISE(R) (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 | | | | | | |Surplus Debentures | | |Common Stock: 90 Shares | |------------------ | |----|------------ | | Cost | | | Cost | | ---- | | | ---- | |Colonial $500,000 | | |Casualty-100% $9,000 | |Lone Star 150,000 | | | | -------------------------------- | -------------------------------- | | -------------------------------- -------------------------------- | | NATIONWIDE | | THE BEAK AND | | | COMMUNICATIONS, INC. | | WIRE CORPORATION | | |Common Stock: 14,750 | | | | |------------ Shares | |Common Stock: 750 Shares | -----| Cost |------------------|------------ | | ---- | | Cost | |Casualty-100% $11,510,000 | | ---- | |Other Capital: | |NW Comm-100% $531,000 | |------------- | | | |Casualty-Ptd. 1,000,000 | | | -------------------------------- -------------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Lines March 6, 1997
58
(Left Side) NATIONWIDE INSURANCE ENTERPRISE(R) ------------------------------------------------ | 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 | | DISTRIBUTORS AGENCY | || | | | (NW LIFE) | | | (NW ADV. SERV.) | | OF ALABAMA, INC. | || | | | Common Stock: 68,000 | | | 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 | || | NFIDIA--100% $100 | || | | --------------------------- | --------------------------- || --------------------------- || -------------------------- | || || --------------------------- | --------------------------- || --------------------------- || -------------------------- | NWE, INC. | | | NATIONWIDE | || | LANDMARK FINANCIAL | || | | | | | | INVESTOR SERVICES, INC. | || | SERVICES OF | || | | | | | | | || | NEW YORK, INC. | || | | | Common Stock: 100 | | | Common Stock: 5 | || | Common Stock: 10,000 | || | FINANCIAL HORIZONS | | ------------ Shares |--| | ------------ Shares |==|| | ------------ Shares | ||==| DISTRIBUTORS AGENCY | | | | | | || | | || | OF OKLAHOMA, INC. | | Cost | | | Cost | || | Cost | || | | | ---- | | | ---- | || | ---- | || | | | NW Life--100% $35,971,375 | | | NW Adv. Serv.--100% $5,000| || | NFIDIA--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 | || | NFIDIA--100% $153,000 | || | | --------------------------- | --------------------------- || --------------------------- || -------------------------- | || || --------------------------- | --------------------------- || --------------------------- || -------------------------- | NATIONWIDE LIFE INSURANCE | | | NATIONWIDE | || | AFFILIATE AGENCY, INC. | || | | | COMPANY OF NEW YORK | | | INVESTING | || | | || | | | | | | FOUNDATION | || | | || | | | Common Stock: | | | | || | Common Stock: 100 | || | AFFILIATE | | ------------ Shares |--| | |==|| | ------------ Shares |__||==| AGENCY OF | | Cost | | | | || | | | OHIO, INC. | | ---- | | | | || | Cost | | | | NW Life--100% | | | | || | ---- | | | | (Proposed) | | | COMMON LAW TRUST | || | NFIDIA--100% $100 | | | --------------------------- | --------------------------- || --------------------------- -------------------------- | || --------------------------- | --------------------------- || | NATIONWIDE REALTY | | | NATIONWIDE | || | INVESTORS, LTD. | | | INVESTING | || | | | | FOUNDATION II | || | Units: | | | | || | ------ | | | |==|| | | | | | || | | | | | || | NW Life--90% | | | | || | NW Mutual--10% | | | COMMON LAW TRUST | || --------------------------- | --------------------------- || | || --------------------------- | --------------------------- || | NATIONWIDE REALTY | | | NATIONWIDE | || | INVESTORS, LTD. | | | SEPARATE ACCOUNT | || | | | | TRUST | || | Units: | | | | || | ------ |__| | |__|| | | | | | | | | | NW Life--97.6% | | | | NW Mutual--2.4% | | COMMON LAW TRUST | --------------------------- ---------------------------
59
(Center) ------------------------------------------------ | 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 | | MRM INVESTMENTS, INC. | | WEST COAST LIFE | | NATIONAL CASUALTY | | SERVICES, INC. (NFS) | | | | INSURANCE COMPANY | | COMPANY | | | | | | | | (NC) | | Common Stock: Control | | Common Stock: 1 | | Common Stock: 1,000,000 | | Common Stock: 100 | | ------------ ------- | | ------------ Share | | ------------ Shares | | ------------ Shares | | | | | | | | | | | | Cost | | Cost | | Cost | | Class A Public--100% | | ---- | | ---- | | ---- | | Class B NW Corp--100% | | NW Corp.--100% $1,339,218 | | NW Corp.--100% $152,946,930 | | NW Corp.--100% $73,442,439 | --------------------------- --------------------------- ----------------------------- ---------------------------- | | - -------------------------------------------------------------------------------- | | | | --------------------------- --------------------------- ---------------------------- | PUBLIC EMPLOYEES BENEFIT | | NEA VALUEBUILDER | | NCC OF AMERICA, INC. | | SERVICES CORPORATION | | INVESTOR SERVICES, INC. | | (INACTIVE) | | (PEBSCO) | | (NEA) | | | | Common Stock: 236,494 |==|| | Common Stock: 500 | | | | ------------ Shares | || | ------------ Shares | | | | | || | | | | | NFS--100% | || | NFS--100% | | NFS--100% | --------------------------- || ----------------------------- ---------------------------- || || --------------------------- || --------------------------- || | PEBSCO OF | || | NEA VALUEBUILDER | || | ALABAMA | || | INVESTOR SERVICES | || | | || | OF ALABAMA, INC. | || | Common Stock: 100,000 | || | Common Stock: 500 | || | ------------ Shares |--|| | ------------ Shares |--|| | | || | | || | Cost | || | Cost | || | ---- | || | ---- | || | PEBSCO--100% $1,000 | || | NEA--100% $5,000 | || --------------------------- || --------------------------- || || || --------------------------- || --------------------------- || | 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 | || | | | MONTANA | || | INVESTOR SERVICES | || | | | | || | OF NEVADA, INC. | || | NEA VALUEBUILDER | | Common Stock: 500 | || | Common Stock: 500 | || | INVESTOR SERVICES | | ------------ Shares |--|| | ------------ Shares | ||==| OF OHIO, INC. | | | || | | || | | | Cost | || | Cost | || | | | ---- | || | ---- | || | | | PEBSCO--100% $500 | || | NEA--100% $500 | || | | --------------------------- || --------------------------- || --------------------------- || || --------------------------- || --------------------------- || --------------------------- | PEBSCO OF | || | NEA VALUEBUILDER | || | | | NEW MEXICO | || | INVESTOR SERVICES | || | | | | || | OF WYOMING, INC. | || | NEA VALUEBUILDER | | Common Stock: 1,000 | || | Common Stock: 500 | || | INVESTOR SERVICES | | ------------ Shares |--|| | ------------ Shares | ||==| OF OKLAHOMA, INC. | | | || | | || | | | Cost | || | Cost | || | | | ---- | || | ---- | || | | | PEBSCO--100% $1,000 | || | NEA--100% $500 | || | | --------------------------- || --------------------------- || --------------------------- || || --------------------------- || --------------------------- || ---------------------------- | | || | NEA VALUEBUILDER | || | | | | || | SERVICES INSURANCE | || | | | PEBSCO OF | || | AGENCY, INC. | || | NEA VALUEBUILDER | | TEXAS, INC. | || | Common Stock: 100 | || | INVESTOR SERVICES | | |==|| | ------------ Shares |__||==| OF TEXAS, INC. | | | | | | | | | | Cost | | | | | | ---- | | | | | | NEA--100% $1,000 | | | --------------------------- --------------------------- ----------------------------
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(Right) ------------------------------------------------ | NATIONWIDE MUTUAL | ========================================| FIRE INSURANCE COMPANY | | (FIRE) | ------------------------------------------------ | - -----------------------------------------------------------------| - ---------------------------------------------------------------------------------------------- | | | --------------------------- ------------------------------ ------------------------------ | GATES, MCDONALD | | EMPLOYERS LIFE INSURANCE | | NATIONWIDE HMO, INC. | | & COMPANY (GATES) | | OF WAUSAU (ELIOW) | | (NW HMO) | | | | | | | | 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: 250,000 | | | Common Stock: 100 | |-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares | | | | | | | | | | | | Cost | | | Cost | | | NW HMO Cost | | | ---- | | | ---- | | | ---- | | | GATES--100% $106,947 | | | NW CORP.--100% $57,413,193 | | | Inc.--100% $25,149 | | ----------------------------- | ------------------------------ | ------------------------------ | | | | ----------------------------- | ------------------------------ | ------------------------------ | | GATES, MCDONALD & COMPANY | | | KEY HEALTH PLAN, INC. | | | NATIONWIDE | | | OF NEVADA | | | | | | AGENCY, INC. | | | | | | | | | | | | Common Stock: 40 | | | Common Stock: 1,000 | | | Common Stock: 100 | |-- | ------------ Shares | |--| ------------ Shares | |--| ------------ Shares | | | | | | | | | | | Cost | | Cost | | | NW HMO Cost | | | ---- | | ---- | | | ---- | | | Gates--100% $93,750 | | ELIOPW--80% $2,700,000 | | | Inc.--99% $116,077 | | ----------------------------- ------------------------------ | ------------------------------ | | ----------------------------- | | GATES, MCDONALD | | | HEALTH PLUS, INC. | | | | | | Common Stock: 200 | |-- | ------------ Shares | | | | Cost | | ---- | | NW CORP.--100% $2,000,000 | ----------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Partnership Interest -- Dotted Line March 6, 1997 Page 2
61 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 VLI Separate Account-2, Nationwide VLI Separate Account-3, 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 Investing Foundation, Nationwide Separate Account Trust, Financial Horizons Investment Trust, Nationwide Asset Allocation Trust and Nationwide Investing Foundation II, 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 Richard McFerson Chairman of the Board of Directors and One Nationwide Plaza Chairman and Columbus, OH 43215 Chief Executive Officer-Nationwide Insurance Enterprise and Director Gordon E. McCutchan One Nationwide Plaza Executive Vice President-Law and Columbus, OH 43215 Corporate Services and Director
80 of 89 62 (b) NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS Robert A. Oakley Executive Vice President - Chief Financial One Nationwide Plaza Officer and Director Columbus, OH 43215 Robert J. Woodward, Jr. Executive Vice President - Chief Investment One Nationwide Plaza Officer and Director Columbus, OH 43215 W. Sidney Druen Senior Vice President and One Nationwide Plaza General Counsel and Columbus, OH 43215 Assistant Secretary James F. Laird, Jr. Vice President - General One Nationwide Plaza Manager & Acting Treasurer Columbus, OH 43215 Edwin P. Mc Causland Vice President-Fixed Income One Nationwide Plaza Securities Columbus, OH 43215 Harry S. Schermer One Nationwide Plaza Vice President - Investments Columbus, OH 43215 Joseph P. Rath Vice President -Compliance One Nationwide Plaza Columbus, OH 43215 William G. Goslee One Nationwide Plaza Vice President Columbus, OH 43215 Peter J. Neckermann Vice President One Nationwide Plaza Columbus, OH 43215 Rae M. Pollina 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.
81 of 89 63 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. 82 of 89 64 Offered by Nationwide Life Insurance Company NATIONWIDE LIFE INSURANCE COMPANY Nationwide Variable Account - 9 Individual Modified Single Premium Deferred Variable Annuity Contract PROSPECTUS October 1, 1997 83 of 89 65 ACCOUNTANTS' CONSENT AND INDEPENDENT AUDITORS' 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 31, 1997 included the related financial statement schedules as of December 31, 1996, and for each of the years in the three-year period ended December 31, 1996, 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 herein. 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 11, 1997 84 of 89 66 SIGNATURES As required by the Securities Act of 1933, and the Investment Company Act of 1940, the Registrant, NATIONWIDE VARIABLE ACCOUNT-9, has caused this Registration Statement to be signed on its behalf in the City of Columbus, and State of Ohio, on this 11th day of June, 1997. NATIONWIDE VARIABLE ACCOUNT-9 ------------------------------------ (Registrant) NATIONWIDE LIFE INSURANCE COMPANY ------------------------------------ (Depositor) By/s/JOSEPH P. RATH ------------------------------------ Joseph P. Rath Vice President - 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 11th day of June, 1997.
Signature Title LEWIS J. ALPHIN Director - ------------------------------------------ Lewis J. Alphin 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/Chief Operating Officer and Director - ------------------------------------------ Joseph J. Gasper HENRY S. HOLLOWAY Chairman of the Board and Director - ----------------------------------------- Henry S. Holloway Chairman and Chief Executive Officer--Nationwide Insurance DIMON RICHARD MCFERSON Enterprise and Director - ------------------------------------------ Dimon Richard McFerson DAVID O. MILLER Director - ------------------------------------------ David O. Miller C. RAY NOECKER Director - ------------------------------------------ C. Ray Noecker 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
89 of 89 EX-1 2 EXHIBIT 1 1 NATIONWIDE LIFE INSURANCE COMPANY NATIONWIDE VARIABLE ACCOUNT-9 INDIVIDUAL MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS EXHIBITS TO FORM N-4 SEC FILE NO. __________ 2 EXHIBIT NO. 1 BOARD OF DIRECTORS RESOLUTION OF THE DEPOSITOR 3 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 4 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. 5 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. RATH ------------------------- 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 INSURANCE COMPANY LOGO] NATIONWIDE LIFE INSURANCE COMPANY Home Office Columbus, Ohio (Hereinafter Called the Company) ............................................................................... APPLICATION FOR GROUP MODIFIED SINGLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT, NON-PARTICIPATING MADE TO NATIONWIDE LIFE INSURANCE COMPANY (Called Nationwide) ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43215 [Applicant] - -------------------------------------------------------------------------------- (Exact Name of Applicant) The Applicant applies for Group Modified Single Purchase Payment Deferred Variable Annuity Form No. APO-3416 The Applicant approves and accepts the terms of the Contract. The Applicant certifies that to the best of his or her knowledge the Applicant has authority to enter into the Contract. If Nationwide fails to accept this Application, the amounts received will be refunded without interest or charge. [January 1, 1994] [John Doe] - --------------------------------- --------------------------------------- Date Agent Signature [January 1, 1994] [Mary Doe] - --------------------------------- --------------------------------------- Date Person Signing for Applicant [January 1, 1994] [Officer] - --------------------------------- --------------------------------------- Date of Issue Title APO-3415 (AO)(4/97) 3 [NATIONWIDE INSURANCE COMPANY LOGO] NATIONWIDE LIFE INSURANCE COMPANY P.O. BOX 16609 COLUMBUS, OHIO 43218-2008 1-800-848-6331 (Hereinafter called the Company) In consideration of the Application for this Contract made by Key Trust, Trustee, Nationwide BEST OF AMERICA(R) Group Master Trust - -------------------------------------------------------------------------------- (hereinafter called the Contract Holder) FBO Customers of Re: -------------------------------- -------------------------------------- (Name of B/D) (Indicate NQ, IRA, 403(b), 401,or CRT) and of the payment of Purchase Payments as provided herein, the Company agrees to pay, in accordance with and subject to the terms and conditions of this Contract, the benefits herein set forth with respect to each Certificate Owner. CONTRACT: Group Modified Single Purchase Payment Deferred Variable Annuity, Non-Participating, Non-Qualified Contract. Executed for the Company on the Date of Issue. [GRAPHIC NAME] Secretary President READ YOUR CONTRACT CAREFULLY 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 MARKET VALUE ADJUSTMENT, ARE VARIABLE, MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE FLUCTUATIONS IN THE NET INVESTMENT FACTOR, AND ARE NOT GUARANTEED AS TO FIXED-DOLLAR AMOUNT. APO-3416 (AO)(4/97) 4 TABLE OF CONTENTS DEFINITIONS................................................................3 GENERAL PROVISIONS.........................................................5 CERTIFICATE ACCOUNT LIMITATION ON CONTRACT OWNER'S RIGHTS ENTIRE CONTRACT NON-PARTICIPATING INCONTESTABILITY ALTERATION OR MODIFICATION ASSIGNMENT MISSTATEMENT OF AGE PROTECTION OF PROCEEDS INFORMATION-RECORDS REPORTS NUMBER AND GENDER DEDUCTIONS AND CHARGES.....................................................6 OWNERSHIP PROVISIONS.................................................................6 DEATH PROVISIONS.................................................................6 DEATH BENEFIT PAYMENT PROVISIONS ACCUMULATION PROVISIONS....................................................7 MODIFIED SINGLE PURCHASE PAYMENTS CONTRACT VALUE SURRENDERS AND WITHDRAWALS.................................................7 DISTRIBUTIONS PROVISIONS...................................................8 ANNUITIZATION PROVISIONS...................................................8 2 5 DEFINITIONS - ----------- ANNUITANT - The person designated with respect to each Certificate Owner's account to receive annuity payments 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 Certificate 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 the 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 Certificate Agreement, and is subject to change by the Certificate Owner. ANNUITY PAYMENT OPTION - The chosen form of annuity payments. Several options are available under the Certificate Agreement. BENEFICIARY - The person designated with respect to the Certificate Owner's account to receive certain benefits under the Contract upon the death of the Annuitant prior to the Annuitization Date. The Beneficiary can be changed by the Certificate Owner as set forth in the Certificate Agreement. CERTIFICATE AGREEMENT - The document which describes a Certificate Owner's rights and benefits. CERTIFICATE ACCOUNT - An account in which all financial transactions occurring under the Contract prior to the Annuitization Date with respect to the Certificate Owner are recorded. CERTIFICATE ACCOUNT VALUE - With respect to a Certificate Account, the sum of the value of all Accumulation Units attributable to the Certificate Account, plus any amount attributable to the Fixed Account, plus any amount attributable to the Variable Account and held under a Guaranteed Term Option (GTO) which may be subject to Market Value Adjustment. CERTIFICATE EFFECTIVE DATE - With respect to each Certificate Owner, the first date Purchase Payments are credited on the Certificate Owner's behalf to the Contract. CERTIFICATE OWNER (OWNER) - The person who possesses all rights under the Contract, including the right to designate and change any designations of the Certificate Owner, Contingent Certificate Owner, Annuitant, Contingent Annuitant, Beneficiary, Contingent Beneficiary, Annuity Payment Option, and Annuity Commencement Date. The Certificate Owner is the person named as owner in the enrollment form unless a subsequent change is made. CODE - The Internal Revenue Code of 1986, as amended. COMPANY - Nationwide Life Insurance Company. CONTINGENT ANNUITANT - The Contingent Annuitant may be the recipient of certain rights or benefits under the Certificate Agreement when the Annuitant dies before the Annuitization Date. 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 not be named for Contracts issued as Qualified Contracts, Individual Retirement Annuities, SEP- IRAs, or Tax Sheltered Annuities. CONTINGENT BENEFICIARY - The person designated to be the Beneficiary if the named Beneficiary is not living at the time of the death of the Annuitant. CONTINGENT CERTIFICATE OWNER - A Contingent Certificate Owner succeeds to the rights of the Certificate Owner upon the Certificate Owner's death before Annuitization. A Contingent Certificate Owner may not be named for contracts issued as qualified contracts, Individual Retirement Annuities, SEP IRAs, or Tax Sheltered Annuities. 3 6 CONTRACT - The Group Modified Single Premium Deferred Variable Annuity issued to the Contract Holder and described herein. CONTRACT ANNIVERSARY - Each 12 month anniversary the Contract remains in force commencing with Date of Issue. CONTRACT HOLDER - The Entity named on the face page. The Contract Holder possesses no rights under the Contract. 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 prior to Annuitization. This benefit does not apply upon the death of the Certificate Owner when the Certificate Owner and Annuitant are not the same person. 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 the Certificate Owner's Certificate Account Value. FIXED ACCOUNT - The Fixed Account is made up of all assets of the Company other than those in the Variable Account or any other segregated asset account of the Company. 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 Home Office is the main office of the Company located in Columbus, Ohio. JOINT CERTIFICATE OWNER - The Joint Certificate Owner, if any, possesses an undivided interest in the entire Certificate Account in conjunction with the Certificate Owner. If a Joint Certificate Owner is named, references to "Certificate Owner" or "Joint Certificate Owner" will apply to both the Certificate Owner and Joint Certificate Owner or either of them. Where such a restriction is permitted by state law, Joint Owners must be spouses at the time joint ownership is requested. Joint ownership may be selected only for a Non-Qualified Contract. NON-QUALIFIED CONTRACT - A Contract which does not qualify for favorable tax treatment under the provisions of Sections 401 or 403(a) (qualified plans), 408 (IRAs) or 403(b) (Tax-Sheltered Annuities) of the Code. 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, or among the Sub-Accounts. VARIABLE ACCOUNT - 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. 4 7 GENERAL PROVISIONS - ------------------ CERTIFICATE ACCOUNT The Company shall establish and maintain a Certificate Account for each Certificate Owner under this Contract. LIMITATIONS ON CONTRACT HOLDER'S RIGHTS The Contract Holder rights under the Contract with respect to a Certificate Account are delegated to the Certificate Owner. A Certificate Owner has the sole authority to exercise contractual rights with respect to the Certificate Account. These rights are described in the Certificate Agreement. ENTIRE CONTRACT The Contract is the entire agreement between the Company and the Contract Holder. All statements made in the application will be deemed to be representations and not warranties. NON-PARTICIPATING The Contract is non-participating. It will not share in the surplus of the Company. INCONTESTABILITY The Contract will not be contested. ALTERATION OR MODIFICATION The Company reserves the right to: (1) not accept any new Certificate Owners in the Contract as of a specified date; (2) discontinue the Fixed Account option for any new Certificate Owner as of a specified date: and (3) not accept future deposits into the Fixed Account from existing Certificate Owners. The Company reserves the right to change any other provision of this Contract as of the first Contract Anniversary, and at any time thereafter, by giving written notice to the Contract Holder not less than 90 days before the effective date of the change. No such change will adversely affect the rights of any Certificate Owner with an interest in the Contract prior to the effective date of the change unless: (1) the change is required by a governmental agency, or (2) the consent of every Certificate Owner with a contractual interest is obtained. All changes in or to the terms of the Contract must be: (1) made in writing; and (2) signed by the President or Secretary of the Company. No other person can alter or change any of the terms or conditions of this Contract. ASSIGNMENT Where permitted, the Certificate Owner may assign some or all rights under this Contract at any time during the lifetime of the Annuitant, prior to the Annuitization Date. The Company shall not be liable as to any payment or other settlement made by the Company before recording of the assignment. The Company is not responsible for the validity or tax consequences of any assignment. Such assignment will take effect upon receipt and recording by the Company at its Home Office of written notice executed by the Certificate Owner. Where necessary for proper administration of the terms of the Contract, an assignment will not be recorded until the Company has received sufficient direction from the Certificate Owner and assignee as to the proper allocation of Contract rights under the assignment. 5 8 The value of any portion of the Contract which is assigned, pledged or transferred by gift may be treated like a cash withdrawal for federal tax purposes and may be subject to a tax penalty. All rights in the Contract are personal to the Certificate Owner and may not be assigned without written consent of the Company. MISSTATEMENT OF AGE If the age or sex of any Annuitant has been misstated, all payments and benefits under the Contract will be adjusted as provided for in the Certificate Agreement. PROTECTION OF PROCEEDS Proceeds of any interest under the Contract are not assignable by any Beneficiary prior to the time they are due. Proceeds are not subject to the claims of creditors or to legal process, except as mandated by applicable laws. INFORMATION - RECORDS The Contract Holder or Certificate Owner shall furnish all information which the Company may reasonably require for the administration of the Contract or Certificate Agreement. The Company will not be liable for the fulfillment of any obligations until it receives all information in a satisfactory form. REPORTS At least once each year, prior to the Annuitization Date, a report showing the Certificate Account Value will be provided to the Certificate Owner. NUMBER AND GENDER Unless otherwise provided, all references in the Contract which are in the singular form will include the plural; all references in the plural form will include the singular; and all references in the male gender will include the female and neuter genders. DEDUCTIONS AND CHARGES - ---------------------- The Company will charge against each Certificate Account Value the amount of any premium taxes levied by a state or any other government entity. The Company will deduct a Mortality and Expense Risk Charge equal on an annual basis to [not greater than 1.25%] . This charge will be applied to the daily net asset value of each Certificate Variable Account value. The Company may assess a charge on the net amount at risk (defined as the Death Benefit minus the Certificate Acount Value). This charge will not be greater than the mortality risk factor, and will only be assessed when the Certificate Account Value is less than or equal to 20% of the Death Benefit, and 40% or more of the decrease in the Certificate Account Value is due to partial surrenders. All deductions and charges will be made for the purposes of and in the manner prescribed in the Certificate Agreement. OWNERSHIP PROVISIONS - -------------------- All ownership rights of the Certificate Owner, Joint Certificate Owner, Contingent Certificate Owner, Annuitant, Contingent Annuitant and Beneficiary are defined in the Certificate Agreement. 6 9 DEATH PROVISIONS - ---------------- Upon the death of any Certificate Owner, prior to Annuitization, the Certificate Owner's entire interest in the Contract will be distributed in accordance with and in the manner described under the Death Provisions of the Certificate Agreement and as required by Section 72(s) of the Code. Prior to Annuitization, a Death Benefit is payable upon the death of the Annuitant. The Death Benefit will be distributed in accordance with and in the manner described under the Death Provisions of the Certificate Agreement and as required by Section 72(s) of the Code. In the event that an interest under this Contract is owned by a person that is not a natural person (e.g., a trust or corporation), then, for purposes of the Required Distribution Provisions of the Certificate Agreement, (i) the death of the Annuitant shall be treated as the death of any Certificate Owner, (ii) any change of the Annuitant shall be treated as the death of any Certificate Owner, and (iii) in either case the appropriate distribution required under the distribution rules shall be made upon such death or change, as the case may be. The Annuitant is the primary annuitant as defined by Section 72(s)(6)(B) of the Code. Each interest in the Contract is intended to be treated as an "annuity contract" for federal income tax purposes. Accordingly all provisions of the 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 limits permitted by Section 72(s) of the Code. The Company reserves the right to amend the Contract to comply with requirements set out in the Code and regulations and rulings thereunder, as they may exit from time to time. DEATH BENEFIT PAYMENT PROVISIONS The value of the Death Benefit will be determined as of the date specified in the Certificate Agreement and will be calculated in the manner described therein. ACCUMULATION PROVISIONS - ----------------------- MODIFIED SINGLE PURCHASE PAYMENTS A Certificate Owner's interest in the Contract is bought for the initial Purchase Payment and any subsequent Purchase Payments. The cumulative total of all Purchase Payments for any one Annuitant 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 Certificate Effective Date. The initial Purchase Payment made on behalf of each Certificate Owner may not be less than [$15,000]. Certificate Owner Purchase Payments, if any, after the initial Purchase Payment must be at least [$1,000] and may be made at any time. Based on the Certificate Owner's election, Purchase Payments will be allocated to the Variable Account, the Fixed Account, or to a Guaranteed Term Option. These accounts and options, applicable provisions, and restrictions and rights applicable to the Certificate Owner, are defined and described in the Certificate Agreement. CONTRACT VALUE The Contract Value at any time will be the sum of all (1) Variable Certificate Account Values; and (2) Fixed Certificate Account Values, and (3) amounts allocated under each Certificate Account to a GTO. 7 10 SURRENDERS AND WITHDRAWALS - -------------------------- SURRENDERS The Certificate Owner may surrender part or all of the Certificate Account Value at any time a Certificate Agreement is in force and prior to the earlier of the Annuitization Date or the death of the Annuitant. All conditions and restrictions applicable to Certificate Account surrenders are prescribed in the Certificate Agreement. The Company has the right to suspend or delay the date of any surrender payment from the Variable Account for any period defined in the Certificate Agreement. CONTINGENT DEFERRED SALES CHARGE If part or all of the Certificate Account Value is surrendered, a Contingent Deferred Sales Charge (CDSC) may be made by the Company. The CDSC is designed to cover expenses relating to the sale of the Certificate Account interest. All provisions governing the applicability of CDSC, including the waivers of CDSC, are prescribed in the Certificate Agreement. SYSTEMATIC WITHDRAWALS The Certificate Owner may elect in writing on a form provided by the Company to take Systematic Withdrawals as prescribed in the Certificate Agreement. TRANSFER PROVISIONS A Certificate Owner may transfer among the accounts available under a Certificate Agreement. Restrictions and limitations regarding the Certificate Owner's right to make transfers are described in the Certificate Agreement. DISTRIBUTION PROVISIONS - ----------------------- The events will give rise to a Distribution of a Certificate Account are defined in the Certificate Agreement. ANNUITIZATION PROVISIONS - ------------------------ All Annuitization Provisions, including the selection and change of Annuity Payment Options, the Annuity Commencement Date, calculation and frequency of payments, and the available Annuity Payment Options are prescribed in the Certificate Agreement. A Supplementary Agreement will be issued to the Annuitant within 30 days following the Annuitization Date. The Supplementary Agreement will set forth the terms of the Annuity Payment Option selected. 8 11 [NATIONWIDE LIFE INSURANCE COMPANY LOGO] NATIONWIDE LIFE INSURANCE COMPANY P.O. BOX 16609 COLUMBUS, OHIO 43218-2008 1-800-848-6331 (Hereinafter called the Company) CERTIFICATE AGREEMENT --------------------------------- Certificate Effective Date - ---------------------- ------------- --------------- Certificate Owner Name Date of Birth Social Security Number NATIONWIDE LIFE INSURANCE COMPANY COLUMBUS OHIO Nationwide Life Insurance Company ("Nationwide") issues this Certificate of Participation ("Certificate Agreement") to the Certificate Owner named below. The terms of the Certificate Owner's rights, benefits, and options are shown in the following pages. This Certificate Agreement describes the Certificate Owner's rights and benefits. It is not part of, nor does it modify any provisions of the Contract. Group Contract Number: --------------------------------------------------------- Group Contract Holder: Trustee, Nationwide BEST OF AMERICA(R) Group Master Trust ---------------------------------------------------------- FBO Re: --------------------------------- --------------------------------------- (Name of B/D) (Indicate NQ, IRA, 403(b), 401, or CRT) To be sure that the Certificate Owner is satisfied with this Certificate, the Certificate Owner has a TEN DAY "FREE LOOK". Within ten days of the day the Certificate is received by the Certificate Owner, it may be returned to the Home Office of the Company. When the Certificate is received at the Home Office, the Certificate Account Value will be refunded in full. [GRAPHIC NAME] Secretary President 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 Certificate may be found on Pages 16 and 24 APO-3417 (AO)(4/97) 12 SUMMARY OF PARTICIPATION As a Certificate Owner in the Group Modified Single Purchase Payment Deferred Variable Annuity, you are entitled to certain rights, benefits and options. Here is a summary of your rights. A more detailed description is provided in this Certificate Agreement (and any applicable endorsements). You have the right to: * choose from a variety of fund options in which your purchase payments will be invested; * make additional purchase payments (a minimum of [$1,000]) after the initial payment; * transfer variable assets among the various funds without a charge; * make telephone exchanges where permitted by state law; * withdraw free of a contingent deferred sales charge each year, [10%] of your purchase payments (non-cumulative); * make withdrawals pursuant to a systematic withdrawal program; * choose a beneficiary of the death benefit; * choose an annuity commencement date, as permitted by the Internal Revenue Code; * choose an annuity option when you annuitize your interest in the Contract. Your rights under this Certificate Agreement cannot be taken away from you. Your benefits under this Certificate Agreement cannot be denied. However, this does not mean that the benefits must be paid to you immediately. The provisions of the Internal Revenue Code are designed to discourage receiving benefits before retirement. If this Certificate Agreement is issued pursuant to an Individual Retirement Annuity contract, this Certificate Agreement and the benefits under it cannot be sold, assigned, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any purpose, to any person other than the Company. 13 CONTENTS DATA PAGE..............................................................INSERT CONTENTS..................................................................3 DEFINITIONS...............................................................5 GENERAL PROVISIONS........................................................9 CERTIFICATE ACCOUNT ENTIRE CONTRACT NON-PARTICIPATING INCONTESTABILITY CONTRACT SETTLEMENT EVIDENCE OF SURVIVAL ALTERATION OR MODIFICATION ASSIGNMENT PROTECTION OF PROCEEDS MISSTATEMENT OF AGE OR SEX INFORMATION - RECORDS REPORTS NUMBER AND GENDER DEDUCTIONS AND CHARGES....................................................10 DEDUCTION FOR PREMIUM TAXES MORALITY AND EXPENSE RISK CHARGE OWNERSHIP PROVISIONS......................................................11 CERTIFICATE OWNERSHIP PROVISIONS JOINT CERTIFICATE OWNERSHIP PROVISIONS CONTINGENT CERTIFICATE OWNERSHIP PROVISIONS BENEFICIARY PROVISIONS DEATH PROVISIONS..........................................................12 DEATH OF CERTIFICATE OWNER DEATH OF CERTIFICATE OWNER/ANNUITANT PROVISIONS DEATH OF ANNUITANT PROVISIONS REQUIRED DISTRIBUTION PROVISIONS DEATH BENEFIT PAYMENT PROVISIONS ACCUMULATION PROVISIONS...................................................14 MODIFIED SINGLE PURCHASE PAYMENTS ALLOCATION OF PURCHASE PAYMENTS CERTIFICATE ACCOUNT VALUE CONTRACT VALUE FIXED ACCOUNT CERTIFICATE VALUE FIXED ACCOUNT PROVISIONS INTEREST TO BE CREDITED VARIABLE ACCOUNT CERTIFICATE VALUE THE VARIABLE ACCOUNT INVESTMENTS OF THE VARIABLE ACCOUNT VALUATION OF ASSETS VARIABLE ACCOUNT ACCUMULATION UNITS VARIABLE ACCOUNT ACCUMULATION UNIT VALUE NET INVESTMENT FACTOR THE MULTIPLE MATURITY ACCOUNT GUARANTEED TERM OPTIONS MARKET VALUE ADJUSTMENT FORMULA 14 SURRENDERS, WITHDRAWALS AND TRANSFERS.......................................18 SURRENDERS SURRENDER VALUE SUSPENSION OR DELAY IN PAYMENT OF SURRENDER CONTINGENT DEFERRED SALES CHARGE WITHDRAWALS WITHOUT CHARGE SYSTEMATIC WITHDRAWALS TRANSFER PROVISIONS DISTRIBUTION PROVISIONS.....................................................21 ANNUITIZATION PROVISIONS....................................................21 ANNUITIZATION ANNUITY COMMENCEMENT DATE CHANGE OF ANNUITY COMMENCEMENT DATE CHANGE OF ANNUITY PAYMENT OPTION SELECTION OF PAYMENT OPTION SUPPLEMENTARY AGREEMENT FREQUENCY AND AMOUNT OF PAYMENTS FIXED ANNUITY PROVISION VARIABLE ANNUITY PROVISIONS DETERMINATION OF FIRST VARIABLE ANNUITY PAYMENT ANNUITY UNIT VALUE VARIABLE ANNUITY PAYMENTS AFTER THE FIRST PAYMENT ANNUITY PAYMENT OPTIONS.....................................................23 GENERAL INDIVIDUAL CERTIFICATE LIFE ANNUITY JOINT AND LAST SURVIVOR ANNUITY LIFE ANNUITY - MONTHLY PAYMENTS GUARANTEED ANY OTHER OPTION TABLE.......................................................................25 15 DEFINITIONS - ----------- ACCUMULATION UNIT - An accounting unit of measure used to calculate the Variable Account value prior to the Annuitization Date. ANNIVERSARY VALUE - The Certificate Account Value on a Certificate Anniversary. ANNUITANT - The person designated with respect to a Certificate Owner's account to receive annuity payments 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 Certificate Agreement 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 the annuity payments actually 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 Certificate Agreement, and is subject to change by the Certificate Owner. 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 with respect to a Certificate Owner's account to receive certain benefits under the Certificate Agreement upon the death of the Annuitant prior to the Annuitization Date. The Beneficiary can be changed by the Certificate Owner as set forth in the Certificate Agreement. CERTIFICATE AGREEMENT - The document which describes a Certificate Owner's rights and benefits. CERTIFICATE ACCOUNT - An account in which all financial transactions occurring under the Contract prior to the Annuitization Date with respect to a Certificate Owner are recorded. CERTIFICATE ACCOUNT VALUE - With respect to a Certificate Account, 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 Market Value Adjustment. CERTIFICATE ANNIVERSARY - Each 12-month anniversary of the Certificate Effective Date. CERTIFICATE EFFECTIVE DATE - With respect to each Certificate Owner, the first date Purchase Payments are credited on a Certificate Owner's behalf to the Contract. CERTIFICATE OWNER (OWNER) - A person who possesses all rights under the Contract, including the right to designate and change any designations of a Certificate Owner, Contingent Certificate Owner, Annuitant, Contingent Annuitant, Beneficiary, Contingent Beneficiary, Annuity Payment Option, and the Annuity Commencement Date. A Certificate Owner is the person named as owner in the Enrollment Card unless a subsequent change is made. CERTIFICATE YEAR - Each year the Certificate Agreement remains in force commencing with the Certificate Effective Date. CODE - The Internal Revenue Code of 1986, as amended. COMPANY - Nationwide Life Insurance Company. CONSTANT MATURITY TREASURY RATES (CMT RATES) OR CMT RATES(S) - The formula (the MVA Formula) for deriving the MVA Factor is based on Constant Maturity Treasury (CMT) Rates which are published by the Federal Reserve Board on a regular basis. The Company utilizes CMT Rates in its MVA Formula because they represent a readily available and consistently 5 16 reliable interest rate benchmark in financial markets. CMT Rates for 1, 2, 3, 5, 7 and 10 years are published by the Federal Reserve Board on a regular basis. CONTINGENT ANNUITANT - The Contingent Annuitant may be the recipient of certain rights or benefits under the Certificate Agreement when the Annuitant dies before the Annuitization Date. 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 not be named for Contracts issued as Qualified Contracts, Individual Retirement Annuities, SEP- IRAs, or Tax Sheltered Annuities. CONTINGENT BENEFICIARY - The person designated to be the Beneficiary if the named Beneficiary is not living at the time of the death of the Annuitant. CONTINGENT CERTIFICATE OWNER - A Contingent Certificate Owner succeeds to the rights of a Certificate Owner upon the Certificate Owner's death before Annuitization. A Contingent Certificate Owner may not be named for Contracts issued as Qualified Contracts, Individual Retirement Annuities, SEP IRAs, or Tax Sheltered Annuities. CONTRACT - The Group Modified Single Premium Deferred Variable Annuity issued to the Contract Holder. CONTRACT ANNIVERSARY - Each 12 month anniversary the Contract remains in force commencing with Date of Issue. CONTRACT HOLDER - The Entity named on the face page. The Contract Holder possesses no rights under Contract. 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 or the Contingent Annuitant, if applicable. This benefit does not apply upon the death of the Certificate Owner when the Certificate Owner and Annuitant are not the same person. 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 Certificate Owner's Certificate Account Value. ENROLLMENT CARD - The form required for participation in the Contract. FIXED ACCOUNT - The Fixed Account is made up of all assets of the Company other than those in the Variable Account or any other segregated asset account of the Company. FIXED ANNUITY - 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). Amounts allocated to a GTO shall be credited with a Specified Interest Rate over the corresponding Guaranteed Term, so long as such amounts are not distributed from the GTO prior to the Maturity Date. 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 of 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. Three, five, seven and ten year GTOs are offered. If amounts allocated to a GTO are not distributed from the GTO during the duration of its Guaranteed Term, the value of the amounts allocated under the GTO will reflect the amount of the allocation plus interest accrued at the Specified Interest Rate and will be available for distribution with no Market Value Adjustment during the Maturity Period. Prior to the Maturity Period for the GTO selected, amounts allocated to such GTO will be subject, upon distribution, to fluctuations in value in accordance with a Market Value Adjustment. GTOs are available only prior to Annuitization. 6 17 HOME OFFICE - The main office of the Company located in Columbus, Ohio. INDIVIDUAL RETIREMENT ANNUITY (IRA) - An annuity which qualifies for favorable tax treatment under Section 408 of the Internal Revenue 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, 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. 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. 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. JOINT CERTIFICATE OWNER- The Joint Certificate Owner, if any, possesses an undivided interest in the entire Certificate Account in conjunction with the Certificate Owner. If a Joint Certificate Owner is named, references to "Certificate Owner" or "Joint Certificate Owner" will apply to both the Certificate Owner and Joint Certificate Owner or either of them. Where such a restriction is permitted by state law, Joint Certificate Owners must be spouses at the time joint ownership is requested. Joint ownership may be selected only for a Non-Qualified Contract. 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 Owner or Annuitant; or 4) annuitized under this Contract at any time other than the Maturity Period. A Market Value Adjustment 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 Market Value Adjustment 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 Market Value Adjustment will result in an upward adjustment of amounts allocated to a GTO. The Market Value Adjustment is applied only when amounts allocated to a GTO are distributed from the GTO prior to a 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 Market Value Adjustment. The MVA Factor will either be less than 1 (in which case the amount distributed will be decreased) or greater than 1 (in which case the amount distributed will be increased). If the MVA Factor is exactly 1, the amount distributed will neither be increased or decreased. The MVA Factor is derived from the MVA Formula. MVA FORMULA - The MVA Formula is utilized when a distribution is made from a GTO during the Guaranteed Term which is subject to a Market Value Adjustment. The MVA Formula is a calculation expressing the relationship between three factors: (1) the 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. The result of the MVA Formula is the MVA Factor. MATURITY DATE - The date on which a particular GTO matures. Such date will be the last day of a calendar quarter on 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 Market Value Adjustment. The Maturity Period shall begin on the day following the Maturity Date and will end on the thirtieth day thereafter. 7 18 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. MUTUAL FUNDS (FUNDS) - The registered management investment companies in which the assets of the Sub-Accounts of the Variable Account will be invested. NON-QUALIFIED CONTRACT - A Contract which does not qualify for favorable tax treatment under the provisions of Sections 401 or 403(a) (qualified plans), 408 (IRAs) or 403(b) (Tax-Sheltered Annuities) of the Code. 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. 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. 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. 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. 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. The Variable Account is divided into Sub-Accounts, each of which invests in the shares of a separate underlying Mutual Fund. VARIABLE 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. 8 19 GENERAL PROVISIONS - ------------------ CERTIFICATE ACCOUNT Each Certificate Owner's Purchase Payments are deposited to the Contract. The Company shall establish and maintain a Certificate Account for each Certificate Owner under the Contract. ENTIRE CONTRACT The Certificate Agreement and endorsements, if any, make up the Entire Agreement between the Company and the Certificate Owner. The Contract Holder delegates rights to each Certificate Owner with respect to a Certificate Owner's Certificate Account. NON-PARTICIPATING The Contract is non-participating. It will not share in the surplus of the Company. INCONTESTABILITY Neither the Contract, Certificate Agreement, endorsements nor attachments will be contested. CONTRACT SETTLEMENT The Company may require the Certificate Agreement to be returned to the Home Office prior to making any payments. All sums payable to or by the Company under this Certificate Agreement are payable at the Home Office. EVIDENCE OF SURVIVAL Where any payments under this Certificate Agreement 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 Certificate Agreement must be: (1) made in writing; and (2) 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 or Certificate Agreement. The Company reserves the right to: (1) not accept any new Certificate Owners into the Contract as of a specified date; (2) discontinue the Fixed Account option for any new Certificate Owner as of a specified date; and not accept future deposits into the Fixed Account from existing Certificate Owners. ASSIGNMENT Where permitted, a Certificate Owner may assign some or all rights under this Contract at any time during the lifetime of the Annuitant, prior to the Annuitization Date. The Company shall not be liable as to any payment or other settlement made by the Company before recording of the assignment. The Company is not responsible for the validity or tax consequences of any assignment. Such assignment will take effect upon receipt and recording by the Company at its Home Office of written notice executed by the Certificate Owner. Where necessary for proper administration of the terms of the Contract, an assignment will not be recorded until the Company has received sufficient direction from the Certificate Owner and assignee as to the proper allocation of Contract rights under the assignment. The value of any portion of the Contract which is assigned, pledged or transferred by gift may be treated like a cash withdrawal for federal tax purposes and may be subject to a tax penalty. All rights in this Contract are personal to the Certificate Owner and may not be assigned without written consent of the Company. 9 20 PROTECTION OF PROCEEDS Proceeds under this Certificate Agreement are not assignable by any Beneficiary prior to the time they are due. Proceeds are not subject to the claims of creditors or to legal process, except as mandated by applicable laws. MISSTATEMENT OF AGE OR SEX If the age or sex of the Annuitant has been misstated, all payments and benefits under the Certificate Agreement 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 Certificate Agreement. 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 Certificate Agreement. REPORTS At least once each year, prior to the Annuitization Date, a report showing the Certificate Account Value will be provided to the Certificate Owner. NUMBER AND GENDER Unless otherwise provided, all references in this Certificate Agreement which are in the singular form will include the plural; all references in the plural form will include the singular; and all references in the male gender will include the female and neuter genders. DEDUCTIONS AND CHARGES - ---------------------- DEDUCTION FOR PREMIUM TAXES The Company will charge against the Certificate Account 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 Certificate Owner's Account Value either (1) at the time the Certificate Agreement is surrendered, (2) at Annuitization, or (3) at such earlier date as the Company may be subject to such taxes. MORTALITY AND EXPENSE RISK CHARGE The Company will deduct a Mortality and Expense Risk Charge equal, on an annual basis, to [not greater than 1.25%] of the daily net asset value of the Certificate Owner's Variable Account. This deduction is made to compensate the Company for assuming the mortality risks and expense risks under this Contract. The Company assumes a "mortality risk" that fixed and variable annuity payments will not be affected by the death rates of persons receiving such payments or of the general population by virtue of annuity rates incorporated in the Contract which cannot be changed. The Company also assumes a mortality risk by its promise to pay in certain circumstances a Death Benefit that is greater than the Certificate Account Value. The "expense risk" involves the guaranty by the Company that it will not increase charges for administration of the Contract regardless of the Company's actual administrative expenses. Mortality and Expense Risk Charges which may be assessed under a Certificate Account will not be assessed against any allocation to a GTO. The Company may assess a charge on the net amount of risk (defined as the Death Benefit minus the Certificate Account Value). This charge will not be greater than the mortality risk factor, and will only be assessed when the Certificate Account Value is less than or equal to 20% 10 21 of the Death Benefit, and 40% or more of the decrease in the Certificate Account Value is due to partial withdrawals. OWNERSHIP PROVISIONS - -------------------- CERTIFICATE OWNERSHIP PROVISIONS Unless otherwise provided, the Certificate Owner has all rights under the Contract. IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF AS OWNER, THE PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT. Prior to the Annuitization Date, the Certificate Owner may name a new Certificate Owner. Such change may be subject to state and federal gift taxes and may also result in current federal income taxation. Any change of Certificate Owner designation will automatically revoke any prior Certificate Owner designation. Any request for change of Certificate Owner must be (1) made by proper written application, (2) received and recorded by the Company at its Home Office, and (3) may require a signature guarantee as specified in the "Surrender" provision of the Contract. Such a request must be signed by both the Certificate Owner and the person designated as the new Certificate Owner. Once the change is received and recorded by the Company, the change will become effective as of the date the written request is signed. Any change of Certificate Owner will not apply to any payment made or action taken by the Company prior to the time it was received and recorded by the Company. Prior to the Annuitization Date, the Certificate Owner may request a change in the Annuitant, Contingent Annuitant, Contingent Certificate Owner, Beneficiary, or Contingent Beneficiary. Such request must be received by the Company at its Home Office prior to the Annuitization Date. Any change to the Annuitant or Contingent Annuitant is subject to underwriting and approval by the Company. Notwithstanding any provisions in this Contract, if any Certificate Owner is not a natural person the change of the Annuitant will be treated as the death of the Certificate Owner and will result in a distribution, regardless of whether a Contingent Annuitant is also named. Distributions shall be made as if the Certificate Owner died at the time of such change. On the Annuitization Date, the Annuitant shall become the Certificate Owner. JOINT CERTIFICATE OWNERSHIP PROVISIONS Where such a restriction is permitted by state law, Joint Certificate Owners must be spouses at the time joint ownership is requested. If a Joint Certificate Owner is named, the Joint Owner will possess an undivided interest in the Certificate Account. Unless otherwise provided, the exercise of any ownership right in the Contract (including the right to surrender or partially surrender the Certificate Account, to change the Certificate Owner, the Contingent Certificate Owner, the Annuitant, the Contingent Annuitant, the Beneficiary, the Contingent Beneficiary, the Annuity Payment Option or the Annuitization Date) shall require a written request signed by both Certificate Owners. CONTINGENT CERTIFICATE OWNERSHIP PROVISIONS The Contingent Certificate Owner is the person who may receive certain benefits under the Certificate Agreement if the Certificate Owner, who is not the Annuitant, dies prior to the Annuitization Date and there is no surviving Joint Certificate Owner. If more than one Contingent Certificate Owner survives the Certificate Owner, each will share equally unless otherwise specified in the Contingent Certificate Owner designation. If no Contingent Certificate Owner survives a Certificate Owner and there is no surviving Joint Certificate Owner, all rights and interest of the Contingent Certificate Owner will vest in the Certificate Owner's estate. If a Certificate Owner, who is also the Annuitant, dies before the Annuitization Date, then the Contingent Certificate Owner does not have any rights in the Contract. However, if the Contingent Certificate Owner is also the Beneficiary, the Contingent Certificate Owner will have all the rights of a beneficiary. Subject to the terms of any existing assignment, the Certificate Owner may change the Contingent Certificate Owner prior to the Annuitization Date by written notice to the Company. The change, upon receipt and recording by the Company at its Home Office, will take effect as of the time the written 11 22 notice was signed, whether or not the Certificate Owner is living at the time of recording, but without further liability as to any payment or settlement made by the Company before receipt of such change. BENEFICIARY PROVISIONS The Beneficiary is the person or persons who may receive certain benefits under the Certificate Agreement in the event the Annuitant dies prior to the Annuitization Date. If more than one Beneficiary survives the Annuitant, each will share equally unless otherwise specified in the Beneficiary designation. If no Beneficiary survives the Annuitant, all rights and interest of the Beneficiary shall 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 interests of the Contingent Beneficiary will vest with the Certificate Owner or the estate of the last surviving Certificate Owner. Subject to the terms of any existing assignment, the Certificate Owner may change the Beneficiary or Contingent Beneficiary during the lifetime of the Annuitant by written notice to the Company. The change, upon receipt and recording by the Company at Home Office, will take effect as of the time the written notice was signed, whether or not the Annuitant is living at the time of the recording, but without further liability as to any payment or settlement made by the Company before receipt of such change. DEATH PROVISIONS - ---------------- DEATH OF CERTIFICATE OWNER PROVISIONS If any Certificate Owner and the Annuitant are not the same person and such Certificate Owner dies prior to the Annuitization Date then the Joint Certificate Owner, if any, becomes the new Certificate Owner. If there is no surviving Joint Certificate Owner, the Contingent Certificate Owner becomes the new Certificate Owner. If there is no surviving Contingent Certificate Owner, the last surviving Certificate Owner's estate becomes the new Certificate Owner. The entire interest in the Certificate Account Value must be distributed in accordance with the "Required Distribution Provisions". DEATH OF CERTIFICATE OWNER/ANNUITANT PROVISIONS If any Certificate 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 Beneficiary, the Contingent Beneficiary, the Certificate Owner, or the last surviving Certificate Owner's estate, as specified in the "Beneficiary Provisions", and distributed in accordance with the "Required Distribution Provisions". DEATH OF ANNUITANT PROVISIONS If the Certificate 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 Certificate Owner, or the last surviving Certificate 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. The Beneficiary may elect to receive such Death Benefits in the form of: (1) a lump sum distribution; (2) election of an annuity payout; or (3) any distribution that is permitted under state and federal regulations and is acceptable by the Company. Such 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 shall be paid according to the Annuity Payment Option selected. REQUIRED DISTRIBUTION PROVISIONS Upon the death of any Owner, Certificate Owner or Joint Certificate Owner (including an Annuitant or Annuitant who becomes the Certificate Owner of the Contract on the Annuitization Date) (each of the foregoing "a deceased Certificate Owner"), certain distributions are required by Section 72(s) of the 12 23 Code. Nothwithstanding any provision of the Certificate Agreement to the contrary, the following distributions shall be made in accordance with such requirements. 1. If any deceased Certificate Owner died on or after the Annuitization Date and before the entire interest under the Certificate Agreement 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 Certificate Owner's death. 2. If any deceased Certificate Owner died prior to the Annuitization Date, then the entire interest in the Certificate Agreement (consisting of either the Death Benefit or the Certificate Account Value reduced by certain charges as set forth elsewhere in the Contract) shall be distributed within 5 years of the death of the deceased Certificate 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 Certificate Owner, Contingent Certificate Owner, Joint Certificate 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 Certificate Owner's death (or such longer period as may be permitted by federal income tax regulations). (b) If the designated beneficiary is the surviving spouse of the deceased Certificate Owner, such spouse may elect to become the Certificate Owner of this Contract, and the distributions required under these Required Distribution Provisions will be made upon the death of such spouse. In the event that the Certificate 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 Certificate Owner, (ii) any change of the Annuitant shall be treated as the death of any Certificate 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 Certificate Agreement 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 Certificate Agreement (i) which is provided under a plan described in Section 401(a) of the Code which includes a trust exempt from tax under Section 501 of the Code; (ii) which is provided under a plan described in Section 403(a) of the Code; (iii) which is described in Section 403(b) of the Code; (iv) which is an individual retirement annuity or provided under an individual retirement account or annuity as described in Section 408 of the Code; or (v) which is a qualified funding asset (as defined in Section 130(d) of the Code, but without regard to whether there is a qualified assignment). This Certificate Agreement 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 Certificate Agreement to comply with requirements set out in the Code and regulations and rulings thereunder, as they may exist from time to time. Upon the death of a "deceased Certificate Owner", the designated beneficiary must elect a method of distribution which complies with these above Distribution Provisions and which is acceptable to the Company. Such election must be made with 60 days of the Certificate Owner's death. DEATH BENEFIT PAYMENT PROVISIONS 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). 13 24 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 value of the Death Benefit will be the greater of (1) the sum of all Purchase Payments, less any amounts surrendered, (2) the Certificate Account Value, or (3) the Certificate Account Value as of the most recent five-year Certificate Anniversary occurring prior to the Annuitant's 86th birthday, less any amounts surrendered after that anniversary date. ACCUMULATION PROVISIONS - ----------------------- MODIFIED SINGLE PURCHASE PAYMENTS The Certificate Agreement 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 Certificate Effective Date and may not be less than [$15,000]. Purchase payments, if any, after the initial Purchase Payment must be at least [$1,000] and may be made at any time. ALLOCATION OF PURCHASE PAYMENTS The 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 at the time of application. The allocation of future Purchase Payments may be changed by the Certificate Owner by a proper submission that is received and recorded by the Company. CERTIFICATE ACCOUNT VALUE The value of a Certificate Account at any time will be: (1) the Variable Account value held on behalf of the Certificate Owner; (2) the Fixed Account value held on behalf of the Certificate Owner; and (3) the value of amounts allocated to GTOs under the Multiple Maturity Account which may be subject to a Market Value Adjustment. FIXED ACCOUNT CERTIFICATE VALUE The Fixed Account Certificate 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. FIXED ACCOUNT PROVISIONS The Fixed Account is the general account of the Company. It is made up of all assets of the Company other than: (1) those in the Variable Account; and (2) those in any other segregated asset account. INTEREST TO BE CREDITED The Company will credit interest to the Fixed Account Certificate 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 Certificate Owner in writing after each quarterly period. Any such rate or rates so determined, for which deposits are 14 25 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. VARIABLE ACCOUNT CERTIFICATE VALUE The Variable Account Certificate Value is the sum of the value of all Variable Account Accumulation Units under this Certificate Agreement. If: (1) part or all of the Variable Account Certificate Value is surrendered; or (2) charges or deductions are made against the Variable Account Certificate Value; then, an appropriate number of Accumulation Units will be canceled or surrendered to equal such amount. THE VARIABLE ACCOUNT The Variable Account is a separate investment account of the Company. 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. The Variable Account is divided into Sub-Accounts which invest in shares of the Mutual Funds. Purchase payments are allocated among one or more of these Sub-Accounts, as designated by the Certificate Owner. INVESTMENTS OF THE VARIABLE ACCOUNT The Purchase Payments applied to the Variable Account will be invested at net asset value in one or more of the Sub-Accounts. VALUATION OF ASSETS Mutual Fund shares in the Variable Account will be valued at their net asset value. VARIABLE ACCOUNT ACCUMULATION UNITS 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. VARIABLE ACCOUNT ACCUMULATION UNIT VALUE The value of an Accumulation Unit for each Sub-Account of the Variable Account was arbitrarily set at $10 when the first Mutual Fund shares were available for purchase. 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. 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. 15 26 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 sum of: a. the net asset value per share of the 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 Mutual Fund held in the Sub-Account, if the "ex-dividend" date occurs during the current Valuation Period. 2. is the net result of: a. the net asset value per share of the Mutual Fund held in the Sub-Account, determined at the end of the last prior Valuation Period; plus or minus b. the per share charge or credit for any taxes reserved for the last prior Valuation Period, plus or minus c. a per share charge or credit 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 Mortality and Expense Risk Charge deducted from the Variable Account. Such factor is equal, on an annual basis, to [not greater than 1.25%] of the daily net asset value of the Variable Account. 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. THE MULTIPLE MATURITY ACCOUNT The Multiple Maturity Account is a separate account of the Company established for the purpose of facilitating accounting and investment processes undertaken by the Company in offering GTOs under the Contract. The Company will purchase and account for Multiple Maturity Account assets in a manner which will support the crediting of Specified Interest Rates under the various GTOs and the satisfaction of obligations incurred by the Company in the form of GTOs. 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 allocation is $1,000. GTOs are not available as funding options if the Contract is annuitized. If a variable annuity Contract is annuitized while a GTO is in effect, and prior to the Maturity Date of the GTO, an 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. A Market Value Adjustment 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 Market Value Adjustment (a Contingent Deferred Sales Charge may apply on amounts surrendered). At all times other than during a Maturity Period, a Market Value Adjustment will apply to amounts distributed from allocations under a GTO. 16 27 At least 15 days and at most 30 days prior to the end of each calendar quarter, variable annuity contract holders having GTOs with Maturity Dates coinciding with the end of the calendar quarter will be notified of the impending expiration of the GTO. Contract holders 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 the 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 1 per calendar year at all times other than during a Maturity Period. MARKET VALUE ADJUSTMENT FORMULA 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 .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. 17 28 SURRENDERS, WITHDRAWALS AND TRANSFERS - ------------------------------------- SURRENDERS The Certificate Owner may surrender part or all of the Certificate Account Value at any time this Certificate Agreement is in force and prior to the earlier of the Annuitization Date or the death of the Annuitant or Contingent Annuitant, if any. All surrenders will have the following conditions: 1. The request for surrender must be in writing or in a form otherwise acceptable to the Company. 2. The surrender value will be paid to the Certificate Owner after proper written application and any proof of interest satisfactory to the Company are received at the Home Office. 3. 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. Payment of the Variable Certificate Account Value will be made within seven days of receipt of both proper written application and proof of interest satisfactory to the Company. Payment of the Fixed Certificate Account Value may be deferred up to six months following receipt of application. 4. 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; and any amount from any GTO under the Multiple Maturity Account needed to equal: (a) the dollar amount requested; plus (b) any Contingent Deferred Sales Charge which applies. 5. If a partial surrender is requested, unless the Certificate Owner has instructed otherwise, the surrender will be made as follows: (a) from the Variable Certificate Account; (b) from the Fixed Certificate Account; and (c) from the GTOs under the Multiple Maturity Account. The amounts surrendered from the Fixed Account, the Variable Account, and the GTOs will be in the same proportion that the Certificate Owner's interest in the Fixed Account, the Variable account, and the GTOs bear to the total Certificate Account Value. SURRENDER VALUE The surrender value is the amount that will be paid if the full Certificate Account is surrendered. The surrender value at any time will be: The Certificate Account Value less; 1. any Contingent Deferred Sales Charge which applies. 2. premium taxes, if applicable. SUSPENSION OR DELAY IN PAYMENT OF SURRENDER The Company has the right to suspend or delay the date of any Surrender payment 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; 4. During any other period when the Securities and Exchange Commission, by order, so permits for the protection of security holders; or 5. When the request for Surrender is not made in a form acceptable by the Company. 18 29 Rules and regulations of the Securities and Exchange Commission will govern as to whether the conditions set forth in numbers [1, 2, 3, and 4] above exist. The Company further reserves the right to delay payment of a total surrender of Certificate Owner's Fixed Account Value for up to [six] months in those states where applicable law requires the Company to reserve such right. CONTINGENT DEFERRED SALES CHARGE If part or all of the Certificate Account Value is surrendered, a Contingent Deferred Sales Charge may be made by the Company. The Contingent Deferred Sales Charge is designed to cover expenses relating to the sale of the Certificate Agreement. The Contingent Deferred Sales Charge is calculated by multiplying the applicable Contingent Deferred Sales Charge percentages noted below by the Purchase Payments that are surrendered. For purposes of calculating the amount of the Contingent Deferred Sales Charge, surrenders are considered to come first from the oldest Purchase Payment attributed to the Certificate Account, then from the next oldest Purchase Payment and so forth, with any earnings attributable to such Purchase Payments considered only after all Purchase Payments attributed to the Certificate Account have been considered. (For tax purposes, a surrender is treated as a withdrawal of earnings first.)
Number of Completed Contingent Deferred Number of Completed Contingent Deferred Years from Date of Sales Charge Years From Date of Sales Charge Purchase Payment Percentage Purchase Payment Percentage - ---------------------------------------------------------------------------------------------------------- 0 7% 4 4% 1 7% 5 3% 2 6% 6 2% 3 5% 7 0%
Contingent Deferred Sales Charges, 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 Contingent Deferred Sales Charges. WITHDRAWALS WITHOUT CHARGE During each Certificate Year, the Certificate Owner may withdraw without a Contingent Deferred Sales Charge (CDSC) a total amount equal to 10% of the sum of all Purchase Payments made to the Certificate Account. This CDSC-free withdrawal privilege is non-cumulative; that is, free amounts not taken during any given Certificate Year cannot be taken as free amounts in a subsequent Certificate Year. A CDSC will not be assessed against the withdrawal of any: (1) Purchase Payments which have been held under this Certificate Account for at least [84] months; (2) earnings attributable to Purchase Payments made to this Certificate Account; (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; or (5) amounts transferred among the Sub-Accounts or among the Fixed Certificate Account, the Variable Certificate Account and the GTOs under the Multiple Maturity Account. In addition, when a Certificate Agreement described herein is exchanged for another Contract or Certificate Agreement issued by the Company or any of its affiliate insurance companies, of the type and class which the Company determines is eligible for such exchange, the Company will waive the Contingent Deferred Sales Charge on the first contract. A Contingent Deferred Sales Charge may apply to the contract received in the exchange. When a Certificate Account is held by a Charitable Remainder Trust, the amount which may be withdrawn from this Certificate Account without application of a Contingent Deferred Sales Charge, shall be the larger of (a) or (b) where (a) is: the amount which would otherwise be available for withdrawal without application of a Contingent Deferred Sales Charge; and where 19 30 (b) is the difference between the total Purchase Payments attributed to the Certificate Account as of the date of the withdrawal (reduced by previous withdrawals of such Purchase Payments), and the Certificate Account Value at the close of the day prior to the date of the withdrawal. The amount of Contingent Deferred Sales Charge on the Certificate Account may be reduced when sales of the Contract interest 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 under which such program results in savings of sales expenses. The entitlement of such a reduction in Contingent Deferred Sales Charge will be determined by the Company. SYSTEMATIC WITHDRAWALS The Certificate 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 Certificate Owner has an interest, and the Fixed Account. A Contingent Deferred Sales Charge may apply to Systematic Withdrawals in accordance with the considerations set forth in the "Contingent Deferred Sales Charge" and "Withdrawals Without Charge" provisions of the Contract. Each Systematic Withdrawal is subject to federal income taxes on the taxable portion. In addition, a 10% federal penalty tax may be assessed on Systematic Withdrawals if the Contract Owner is under age 59 1/2. Unless otherwise directed by the Certificate Owner, the Company will withhold federal income taxes from each Systematic Withdrawal. An age-based Systematic Withdrawal program will terminate automatically at the end of each Certificate Year and may be reinstated only on or after the next Certificate Anniversary pursuant to a new request. Unless the Certificate 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. If the Certificate Owner withdraws amounts pursuant to a Systematic Withdrawal program, then the Certificate Owner may withdraw each Certificate Year without a CDSC an amount up to the greater of (i) 10% of the total sum of all Purchase Payments made to the Contract at the time of withdrawal, or (ii) the specified percentage of the Certificate Account based on the Certificate Owner's age, as shown in the following table:
CERTIFICATE OWNER'S AGE PERCENTAGE OF CERTIFICATE ACCOUNT VALUE - ----------------------- --------------------------------------- Under 59-1/2 5% 59-1/2 to 70-1/2 7% 70-1/2 to 75 9% 75 and Over 13%
If the total amounts withdrawn in any Certificate 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 "Withdrawals Without Charge" provision of the Certificate Agreement, and the total amount of CDSC charged during the Certificate Year will be determined in accordance with that provision. The Certificate Account value and the Certificate 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 Certificate Owners, the older Certificate Owner's age will be used.) The Certificate Owner may elect to take such CDSC-free amounts only once each Certificate Year. Furthermore, this CDSC-free withdrawal privilege for Systematic Withdrawals is non-cumulative, that is, free amounts not taken during any given Certificate Year cannot be taken as free amounts in a subsequent Certificate Year. Systematic Withdrawals are not available prior to the expiration of the free look provision of the Contract. The Company also reserves the right to assess a processing fee for this service. 20 31 TRANSFER PROVISIONS A Certificate Owner may annually transfer a portion of the value held on his behalf in the Fixed Account to the Variable Account and a portion of the Variable Account to the Fixed Account, without penalty or adjustment. Within any Certificate Year, the Company reserves the right to restrict transfers from the Variable Account to the Fixed Account to [10%] of the Certificate Owner's Variable Account Value. For purposes of the provisions in this section describing limitations or potential limitations on transfers to or from the Fixed Account, where available, the term "Variable Account" will be defined to include all GTO allocations under the Certificate Account. 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. A Certificate Owner may annually transfer at the end of an Interest Rate Guarantee Period, a minimum of 10% of the funds held on his behalf with a maturing interest rate guarantee from the Certificate Owner's Fixed Certificate Account to the Variable Certificate Account without penalty or adjustment. The maximum allowable transfer amount from the Fixed Certificate Account to the Variable Certificate Account will be determined by the Company at its sole discretion. Transfers from the Fixed Certificate Account must be made within [45] days after the expiration date of the Interest Rate Guarantee Period. The Company reserves the right to refuse transfers or Purchase Payments into the fixed portion of the Certificate Account if the Certificate Owner's Fixed Account Certificate Value is greater than or equal to [30%] of the total of the Certificate Account Value at the time such transfer is requested or such Purchase Payment is tendered. Transfers must be made prior to the Annuitization date. Transfers may occur among the Sub-Accounts once daily. DISTRIBUTION PROVISIONS - ----------------------- The following events will give rise to a Distribution: 1. Reaching the Annuitization Date - Distribution will be made pursuant to the Annuity Payment Option selected. 2. Death of the Annuitant prior to the Annuitization Date - Distribution to be made in accordance with the options available under the Annuitant provisions of this Certificate Agreement. When the Certificate Owner is a non-natural person, upon the death of the Annuitant, Distribution will be made in a manner that is consistent with the Required Distribution Provisions of this Certificate Agreement. 3. Death of an Owner - Distribution to be made in a manner consistent with the Required Distribution Provisions a this Certificate Agreement. 4. Other Surrender - Distribution to be made in accordance with the Surrender provisions of this Certificate Agreement. ANNUITIZATION PROVISIONS - ------------------------ ANNUITIZATION This is the process of selecting an Annuity Payment Option to begin the payout phase of the Certificate Agreement. When making the Annuitization election the Annuitant must chose: (1) an Annuity Payout Option; and (2) elect either a Fixed Annuity, Variable Annuity or other annuity that may be available at the time of Annuitization. As of the Annuitization Date, the Certificate Account Value is surrendered and applied to the purchase rate then in effect for the option selected. The purchase rates for any options guaranteed to be available will be determined on a basis not less favorable than the 1983 "Table a" with ages set back six years, with minimum interest at 3.0%. The rates shown in the Annuity Tables are calculated on this guarantee basis. Annuitization is irrevocable once payments have begun. 21 32 ANNUITY COMMENCEMENT DATE The Annuity Commencement Date may be the first day of a calendar month or any other agreed upon date. It must be at least [two] years after the Date of Issue. The Annuity Commencement Date may not be later than the first day of the first calendar month after the Annuitant's [90th] birthday, unless a later date has been requested by the Certificate Owner and approved by the Company. This date is selected by the Certificate Owner at the time of application. Any applicable premium taxes not already deducted may be deducted from the Certificate Account value at the Annuitization Date. The remaining Certificate Account Value will then be applied to the Annuity Payment Option selected by the Certificate Owner. CHANGE OF ANNUITY COMMENCEMENT DATE The Certificate Owner may change the Annuity Commencement Date. A change of Annuity Commencement Date must be made by written request, approved by the Company, and must comply with Annuity Commencement Date Provisions above. CHANGE OF ANNUITY PAYMENT OPTION The Certificate Owner may change the Annuity Payment Option prior to the Annuitization Date. A change of the Annuity Payment Option must be made by written request and must be received at the Home Office prior to the Annuitization Date. After a change of Annuity Payment Option is received at the Home Office, it will become effective as of the date it was requested. A change of Annuity Payment Option will not apply to any payment made or action taken by the Company before it is received. SELECTION OF ANNUITY PAYMENT OPTION An Annuity Payment Option may be selected prior to Annuitization. Any Annuity Payment Option NOT set forth in the Certificate Agreement or a combination of available options which is satisfactory to both the Company and the Annuitant may be selected. Options available for qualified contracts may be limited based on the age of the Annuitant and distribution requirements under the Code. 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. FREQUENCY AND AMOUNT OF PAYMENTS Payments will be made based on the Annuity Payment Option selected. However, if the net amount to be applied to any annuity payment option at the Annuitization Date is less than [$5000], the Company has the right to pay such amount in one lump sum. If any payment provided for would be or becomes less than [$50], the Company has the right to change the frequency of payment 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, unless otherwise required. FIXED ANNUITY PROVISIONS A Fixed Annuity is an annuity with level payments which are guaranteed by the Company as to dollar amount during the annuity payment period. At the Annuitization Date, a designated portion of the Certificate Account Value will be applied to the applicable Annuity Table. This will be done in accordance with the Annuity Payment Option selected. 22 33 VARIABLE ANNUITY PROVISIONS A Variable Annuity 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 Variable Account. DETERMINATION OF FIRST VARIABLE ANNUITY PAYMENT At the Annuitization Date, a designated portion of the Certificate Account Value will be applied to purchase rates not less favorable than those based on 1983 "Table a" with ages set back six years and 3.5% interest. ANNUITY UNIT VALUE An Annuity Unit is used to calculate the value of annuity payments. The value of an Annuity Unit for each Sub-Account was arbitrarily set at $10 when the first Mutual Fund shares were bought. The value for any later Valuation Period is found as follows: 1. The Annuity 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 Valuation Period for which the Annuity Unit Value is being calculated. 2. The result is multiplied by an interest factor. This is done because the Assumed Investment Rate of 3.5% per year is built into the Annuity Tables. VARIABLE ANNUITY PAYMENTS AFTER THE FIRST PAYMENT Variable Annuity payments after the first 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 unit value as of the Annuitization Date. This result establishes the fixed number of Annuity Units for each monthly annuity payment after the first. This 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 expenses or mortality experience. ANNUITY PAYMENT OPTIONS - ----------------------- GENERAL All annuity payments will be mailed within 10 working days of the first of the month in which they are scheduled to be made. The following is a list of options guaranteed to be made available by the Company. INDIVIDUAL CERTIFICATE The Company will issue an annuity certificate to each Annuitant or other person for whom an annuity is purchased under this Certificate Agreement, as of the date of the first payment under such annuity. Each certificate will set forth in substance the benefit to which such person entitled under the annuity. In addition if any applicable law so requires, the Company will issue a descriptive certificate to each Annuitant or other person for whom an annuity is purchased under the Contract. Each such certificate wills set forth in substance the benefits to which such Annuitant or other person is entitled. The certificate will not be considered a part of the Contract. 23 34 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 LAST SURVIVOR ANNUITY The amount to be paid under this option will be paid during the lifetimes of the Annuitant and 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 Annuitant 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. 24 35 MONTHLY BENEFITS PER $1000 APPLIED ANNUITY TABLES 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 ATTAINED ANNUITANT'S AGE LAST BIRTHDAY 120 240 ATTAINED AGE 120 240 ------------- 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
25 EX-5 5 EXHIBIT 5 1 EXHIBIT NO. 5 THE VARIABLE ANNUITY APPLICATION FORM 2 [BEST OF AMERICA LOGO] [ ] NON-QUALIFIED BEST OF AMERICA(R) FUTURE [ ] IRA (CERTIFICATE OWNER GROUP ANNUITY ENROLLMENT FORM AND ANNUITANT MUST BE $15,000 MINIMUM INITIAL PAYMENT THE SAME) [ ] CHARITABLE REMAINDER TRUST [ ] 401 [ ] 403(b)
- ---------------------- -------------------------------------------------- ---------------------------------------------------------- 1 CERTIFICATE OWNER (If Applicable) [ ] JOINT CERT. OWNER (SPOUSE ONLY) [ ] CONTINGENT CERT. OWNER CERTIFICATE -------------------------------------------------- OWNER(S) (Print) Last First MI -------------------------------------------------------- Last First MI -------------------------------------------------- If no annuitant is Address -------------------------------------------------------- specified in Address section 2, the -------------------------------------------------- certificate owner City State Zip -------------------------------------------------------- will be the City State Zip annuitant. Soc. Sec. No./Tax I.D. Sex [ ] M - - [ ] F Soc. Sec. No./Tax I.D. Sex [ ] M ------ ---- ------ - - [ ] F ------ ---- ------ -------- --------- -------- -------- --------- -------- Date of MO. DAY YEAR Date of MO. DAY YEAR Birth -------- --------- -------- Birth -------- --------- -------- -------- --------- -------- -------- --------- -------- - ---------------------- ---------------------------------------------------- -------------------------------------------------------- 2 ANNUITANT [ ] CONTINGENT ANNUITANT (If Applicable) ANNUITANT -------------------------------------------------- (Print) Last First MI -------------------------------------------------------- Last First MI -------------------------------------------------- Complete only if Address -------------------------------------------------------- different from Address the certificate -------------------------------------------------- owner City State Zip -------------------------------------------------------- City State Zip Soc. Sec. No./Tax I.D. Sex [ ] M - - [ ] F Soc. Sec. No./Tax I.D. Sex [ ] M ------ ---- ------ - - [ ] F ------ ---- ------ -------- --------- -------- -------- --------- -------- Date of MO. DAY YEAR Date of MO. DAY YEAR Birth -------- --------- -------- Birth -------- --------- -------- -------- --------- -------- -------- --------- -------- Annuitization Date ------------------------------- - ---------------------- ---------------------------------------------------- -------------------------------------------------------- 3 BENEFICIARY [ ] CONTINGENT BENEFICIARY --------------------------------------------------- ------------------------------------------------------- BENEFICIARY (Print) Last First MI (Print) Last First MI --------------------------------------------------- ------------------------------------------------------- Relationship To Certificate Owner(s) Relationship To Certificate Owner (s) - ---------------------- ---------------------------------------------------- -------------------------------------------------------- 4 FIRST PURCHASE PAYMENT $ ------------------------- ANNUITY Submitted herewith. A copy of this enrollment form duly signed PURCHASE by the agent will constitute receipt for such amount. If this PAYMENTS enrollment form is declined, there will be no liability on the part of the company, and any sums submitted with this enrollment form will be refunded. (MINIMUM INITIAL PURCHASE PAYMENT OF $15,000) - ---------------------- ---------------------------------------------------- -------------------------------------------------------- 5 Will the proposed certificate replace any existing annuity or insurance certificates/contracts? [ ] No [ ] Yes Existing Company --------------------------------------------------- REPLACEMENT In accordance with TEFRA (1982), please provide the cost basis of the contract. Pre - TEFRA $ Post - TEFRA $ -------- ---------- (Before August 14, 1982) - ---------------------- ---------------------------------------------------- -------------------------------------------------------- SEND COMPLETED FORM - WITH A CHECK MADE OUT TO NATIONWIDE LIFE INSURANCE CO. TO: FOR REGULAR MAIL: NATIONWIDE LIFE INSURANCE CO. FOR EXPRESS MAIL: NATIONWIDE LIFE INSURANCE CO. P.O. BOX 16609 INDIVIDUAL INVESTMENT PRODUCTS, 1-05-P1 COLUMBUS, OHIO 43218-2008 ONE NATIONWIDE PLAZA 1-(800) - 848-6331 COLUMBUS, OHIO 43215-2220
APO-3418 AO (5/97) 3
- ---------------------- ---------------------------------------------------- -------------------------------------------------------- 6 ALLOCATIONS Initial minimum: $15,000 NATIONWIDE LIFE INS. CO Whole percentages only, NATIONWIDE SEPARATE ______% Fixed Account must total 100% ACCOUNT TRUST ______% Capital App. Fund ______% Money Market Fund ______% Govt. Bond Fund ______% Small Company Fund ______% Total Return Fund - ---------------------- ---------------------------------------------------- -------------------------------------------------------- 7. OPTIONAL: LIMITED POWER OF ATTORNEY [ ] Yes [ ] No ___________ Initialed by Certificate Owner (Certificate Owner) appoint _____________________________________________ as my Limited Attorney in fact. Once this appointment is received and recorded by Nationwide Life, my Limited Attorney in fact may exchange account values in my name between and among the sub-accounts of my account and change allocations among the sub-accounts for my future contributions. I and my Limited Attorney in Fact, agree, for ourselves, our heirs, the legal representative of our estates, their successors and assigns, to release Nationwide Life from any liability for acting in reliance on instructions given pursuant to the Limited Power. We jointly and severally agree to indemnify Nationwide Life from and against any claim, liability or expense arising out of any action by Nationwide Life in reliance on such instructions. THIS POWER IS PERSONAL TO THE HOLDER AND MAY NOT BE DELEGATED TO ANY OTHER PERSON OR ORGANIZATION. THE HOLDER MUST BE A CURRENTLY LICENSED AND APPOINTED REPRESENTATIVE OF NATIONWIDE LIFE AND MUST BE THE AGENT OF RECORD FOR THIS CERTIFICATE, OR THE POWER WILL AUTOMATICALLY TERMINATE. - -------------------------------------------------------------------------------------------------------------------------- 8. REMARKS - -------------------------------------------------------------------------------------------------------------------------- 9. SIGNATURES [ ] Please send me a copy of the Statement of Additional Information to the Prospectus. Signed at: on ------------------------------------------- ----------------------- City State (Mo / Day / Year) Certificate Owner --------------------------------------------------------------- Joint Certificate Owner (if Applicable) ----------------------------------------- This individual is a customer of the Broker/Dealer referenced below, and is to be enrolled as a Certificate Owner in the group contract issued for the benefit of certain customers of this Broker/Dealer. The Broker/Dealer is familiar with the terms and conditions of the Group BEST OF AMERICA (R) FUTURE Annuity Contract and directs Nationwide Life Insurance Company to enroll this individual in such group annuity contract issued, or to be issued, to Society National Bank, acting as trustee of the Nationwide BEST OF AMERICA (R) Group Master Trust. Witness #020- ----------------------------------- -------------------------------- (Signature of Producer) (Print Producer Name and Number) Producer Phone # ( ) Address ----------------------------- ----------------------- Producer: Do you have reason to believe the contract applied for is to replace existing annuities or insurance owned by the annuitant? [ ] Yes [ ] No Broker Dealer Telephone -------------------------- ----------------------
EX-6 6 EXHIBIT 6 1 EXHIBIT NO. 6 ARTICLES OF INCORPORATION OF 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 43218 (614) 249-7617 FACSIMILE: (614) 249-2418 June 11, 1997 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, Individual Modified Single Premium 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 Individual Modified Single Premium 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-----