<PAGE> 1
Registration No. 333-59517
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 7
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
----------------------------
NATIONWIDE VL SEPARATE ACCOUNT-D
(EXACT NAME OF TRUST)
----------------------------
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------------------
================================================================================
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on December 30, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
1 of 117 REDLINED
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
1..............................................Nationwide Life and Annuity
Insurance Company
The Variable Account
2..............................................Nationwide Life and Annuity
Insurance Company
3..............................................Custodian of Assets
4..............................................Distribution of The Policies
5..............................................The Variable Account
6..............................................Not Applicable
7..............................................Not Applicable
8..............................................Not Applicable
9..............................................Legal Proceedings
10..............................................Information About The Policies;
How The Cash Value Varies;
Right to Exchange for a Fixed
Benefit Policy; Reinstatement;
Other Policy Provisions
11..............................................Investments of The Variable
Account
12..............................................The Variable Account
13..............................................Policy Charges
Reinstatement
14..............................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for
Issuance of a Policy
15..............................................Investments of the Variable
Account; Premium Payments
16..............................................Underwriting and Issuance -
Allocation of Cash Value
17..............................................Surrendering The Policy for Cash
18..............................................Reinvestment
19..............................................Not Applicable
20..............................................Not Applicable
21..............................................Policy Loans
22..............................................Not Applicable
23..............................................Not Applicable
24..............................................Not Applicable
25..............................................Nationwide Life and Annuity
Insurance Company
26..............................................Not Applicable
27..............................................Nationwide Life and Annuity
Insurance Company
28..............................................Company Management
2 of 117
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N-8B-2 ITEM CAPTION IN PROSPECTUS
29..............................................Company Management
30..............................................Not Applicable
31..............................................Not Applicable
32..............................................Not Applicable
33..............................................Not Applicable
34..............................................Not Applicable
35..............................................Nationwide Life and Annuity
Insurance Company
36..............................................Not Applicable
37..............................................Not Applicable
38..............................................Distribution of the Policies
39..............................................Distribution of the Policies
40..............................................Not Applicable
41(a)...........................................Distribution of the Policies
42..............................................Not Applicable
43..............................................Not Applicable
44..............................................How the Cash Value Varies
45..............................................Not Applicable
46..............................................How the Cash Value Varies
47..............................................Not Applicable
48..............................................Custodian of Assets
49..............................................Not Applicable
50..............................................Not Applicable
51..............................................Summary of the Policies;
Information About The Policies
52..............................................Substitution of Securities
53..............................................Taxation of the Company
54..............................................Not Applicable
55..............................................Not Applicable
56..............................................Not Applicable
57..............................................Not Applicable
58..............................................Not Applicable
59..............................................Financial Statements
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NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Corporate Flexible Premium Variable Universal Life Insurance Policies
Issued by Nationwide Life and Annuity Insurance Company through its
Nationwide VL Separate Account-D
The date of this prospectus is December 30, 1999.
This prospectus contains basic information you should know about the policies
before investing. Please read it and keep it for future reference.
The following underlying mutual funds are available under the policies:
BT INSURANCE FUNDS TRUST
o EAFE(R) Equity Index Fund
o Equity 500 Index Fund
o Small Cap Index Fund
DREYFUS
o The Dreyfus Socially Responsible Growth Fund, Inc.
o Dreyfus Stock Index Fund, Inc.
DREYFUS VARIABLE INVESTMENT FUND
o Capital Appreciation Portfolio
o Disciplined Stock Portfolio
o International Value Portfolio
o Limited Term High Income Portfolio*
o Quality Bond Portfolio
o Small Company Stock Portfolio
DREYFUS INVESTMENT PORTFOLIOS
o Mid Cap Stock Portfolio
EVERGREEN VARIABLE TRUST
o Evergreen VA Equity Index Fund
o Evergreen VA Fund
o Evergreen VA Foundation Fund
o Evergreen VA Global Leaders Fund
o Evergreen VA Growth and Income Fund
o Evergreen VA International Growth Fund
o Evergreen VA Masters Fund
o Evergreen VA Omega Fund
o Evergreen VA Small Cap Value Fund
o Evergreen VA Special Equity Fund
o Evergreen VA Strategic Income Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
o Equity-Income Portfolio: Service Class
o Growth Portfolio: Service Class
o High Income Portfolio: Service Class
o Overseas Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
o Asset Manager Portfolio: Service Class
o Asset Manager: Growth Portfolio: Service Class
o Contrafund Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
o Balanced Portfolio: Service Class
o Growth & Income Portfolio: Service Class
o Growth Opportunities Portfolio: Service Class
o Mid Cap Portfolio: Service Class
GOLDMAN SACHS VARIABLE INSURANCE TRUST
o Goldman Sachs VIT Growth and Income Fund
o Goldman Sachs VIT CORE U.S. Equity Fund
o Goldman Sachs VIT CORE Large Cap Growth Fund
o Goldman Sachs VIT CORE Small Cap Equity Fund
o Goldman Sachs VIT Capital Growth Fund
o Goldman Sachs VIT Mid Cap Value Fund (formerly Goldman Sachs VIT Mid
Cap Equity Fund)
o Goldman Sachs VIT International Equity Fund
o Goldman Sachs VIT Global Income Fund
o Goldman Sachs VIT Conservative Strategy Portfolio
o Goldman Sachs VIT Balanced Strategy Portfolio
o Goldman Sachs VIT Growth and Income Strategy Portfolio
o Goldman Sachs VIT Growth Strategy Portfolio
o Goldman Sachs VIT Aggressive Growth Strategy Portfolio
1
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
o INVESCO VIF - Dynamics Fund
o INVESCO VIF - Blue Chip Growth Fund INVESCO VIF - Health Sciences
Fund
o INVESCO VIF - High Yield Fund
o INVESCO VIF - Industrial Equity Income Fund
o INVESCO VIF - Realty Fund
o INVESCO VIF - Small Company Growth Fund
o INVESCO VIF - Technology Fund
o INVESCO VIF - Total Return Fund
o INVESCO VIF - Utilities Fund
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS INC.
o Emerging Markets Debt Portfolio
o Equity Growth Portfolio
o Fixed Income Portfolio
o Global Equity Portfolio
o High Yield Portfolio
o International Magnum Portfolio
o Mid Cap Growth Portfolio
o Mid Cap Value Portfolio
o Value Portfolio
o U.S. Real Estate Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST ("NSAT")
o Capital Appreciation Fund
o Government Bond Fund
o Money Market Fund
o Total Return Fund
o Nationwide Balanced Fund (subadviser: Salomon Brothers Asset
Management, Inc.)
o Nationwide Equity Income Fund (subadviser: Federated Investment
Counseling)
o Nationwide Global Equity Fund (subadviser: J.P. Morgan Investment
Management Inc.)
o Nationwide High Income Bond Fund* (subadviser: Federated Investment
Counseling)
o Nationwide Mid Cap Index Fund (subadviser: The Dreyfus Corporation)
o Nationwide Multi Sector Bond Fund (subadviser: Salomon Brothers Asset
Management, Inc. with Salomon Brothers Asset Management Limited)
o Nationwide Select Advisers Small Cap Growth Fund (subadvisers:
Franklin Advisers, Inc., Miller Anderson & Sherrerd, LLP, Neuberger
Berman, LLC.)
o Nationwide Small Cap Value Fund (subadviser: The Dreyfus Corporation)
o Nationwide Small Company Fund (subadvisers: The Dreyfus Corporation,
Neuberger Berman, L.P., Lazard Asset Management, Strong Capital
Management, Inc. and Credit Suisse Asset Management, LLC)
o Nationwide Strategic Growth Fund (subadviser: Strong Capital
Management Inc.)
o Nationwide Strategic Value Fund (subadviser: Strong Capital
Management Inc./Schafer Capital Management Inc.)
ONE GROUP(R) INVESTMENT TRUST
o One Group Investment Trust Balanced Portfolio (formerly Asset
Allocation Fund)
o One Group Investment Trust Bond Portfolio
o One Group Investment Trust Diversified Equity Portfolio
o One Group Investment Trust Diversified Mid Cap Portfolio
o One Group Investment Trust Equity Index Portfolio
o One Group Investment Trust Government Bond Portfolio
o One Group Investment Trust Large Cap Growth Portfolio (formerly
Large Company Growth Fund)
o One Group Investment Trust Mid Cap Growth Portfolio (formerly Growth
Opportunities Fund)
o One Group Investment Trust Mid Cap Value Portfolio
SALOMON BROTHERS VARIABLE SERIES FUNDS INC.
o Capital Fund
o High Yield Bond Fund*
o Investors Fund
o Strategic Bond Fund
o Total Return Fund
*These underlying mutual funds invest in lower quality debt securities commonly
referred to as junk bonds.
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In the future, additional underlying mutual funds managed by certain financial
institutions or brokerage firms may be added to the variable account. These
additional underlying mutual funds may be offered exclusively to purchasing
customers of the particular financial institution or brokerage firm.
To obtain copies of any underlying mutual fund prospectus, please call:
1-800-547-7548
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
P.O. BOX 182150
COLUMBUS, OHIO 43218-2150
Material incorporated by reference to this prospectus can be found on the SEC
website at:
WWW.SEC.GOV
This policy is NOT:
o a bank deposit;
o endorsed by a bank or government agency;
o federally insured; or
o available in every state.
The life insurance policies offered by this prospectus are corporate flexible
premium variable universal life insurance policies. They are designed for use by
corporations and employers to provide life insurance coverage and the
flexibility to vary the amount and frequency of premium payments. A cash
surrender value may be offered if the policy is terminated during the lifetime
of the insured.
The purpose of this policy is to provide life insurance protection for the
beneficiary named in the policy. No claim is made that the policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.
The death benefit and cash value of this policy may vary to reflect the
experience of the Nationwide VL Separate Account-D (the "variable account") or
the fixed account, depending on how premium payments are invested.
Investors assume certain risks when investing in the policies, including the
risk of losing money.
Nationwide guarantees the death benefit for as long as the policy is in force.
The cash surrender value is not guaranteed. The policy will lapse if the cash
surrender value is insufficient to cover policy charges.
Benefits described in this prospectus may not be available in every jurisdiction
- - refer to your policy for specific benefit information.
THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION WHERE SUCH OFFERING MAY
NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
3
<PAGE> 7
GLOSSARY OF SPECIAL TERMS
ATTAINED AGE- The insured's age on the policy date, plus the number of full
years since the policy date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the cash
value of the variable account.
FIXED ACCOUNT- An investment option which is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the policy
under guaranteed mortality and current expense charges, and an interest rate of
4%. It is calculated pursuant to the Internal Revenue Code.
MATURITY DATE- The policy anniversary on or next following the insured's 100th
birthday.
NATIONWIDE - Nationwide Life and Annuity Insurance Company.
NET AMOUNT AT RISK- The death benefit minus the cash value. On a monthly
anniversary day, the net amount at risk is the death benefit minus the cash
value prior to subtraction of the base policy cost of insurance charge.
NET PREMIUMS- The actual premiums minus the percent of premium charges. The
percent of premium charges are shown on the policy data page.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units are separately maintained.
VALUATION PERIOD - Each day the New York Stock Exchange is open.
VARIABLE ACCOUNT- Nationwide VL Separate Account-D, a separate account of
Nationwide Life and Annuity Insurance Company that contains variable account
allocations. The variable account is divided into sub-accounts, each of which
invests in shares of a separate underlying mutual fund.
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<PAGE> 8
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS..........................
SUMMARY OF POLICY EXPENSES.........................
UNDERLYING MUTUAL FUND ANNUAL EXPENSES.............
SYNOPSIS OF THE POLICIES...........................
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY......
NATIONWIDE ADVISORY SERVICES, INC..................
INVESTING IN THE POLICY............................
The Variable Account and Underlying Mutual
Funds
The Fixed Account
INFORMATION ABOUT THE POLICIES.....................
Minimum Requirements for Policy Issuance
Premium Payments
Pricing
POLICY CHARGES.....................................
Sales Load
Premium Expense Charge
Monthly Cost of Insurance
Monthly Administrative Charge
Mortality and Expense Risk Charge
Income Tax
Reduction of Charges
SURRENDERING THE POLICY FOR CASH...................
Surrender (Redemption)
Cash Surrender Value
Partial Surrenders
Income Tax Withholding
VARIATION IN CASH VALUE............................
POLICY PROVISIONS..................................
Policy Owner
Beneficiary
Changes in Existing Insurance Coverage
OPERATION OF THE POLICY............................
Allocation of Net Premium and Cash Value
How the Investment Experience is Determined
Net Investment Factor
Determining the Cash Value
Transfers
RIGHT TO REVOKE....................................
POLICY LOANS.......................................
Taking a Policy Loan
Effect on Investment Performance
Interest
Effect on Death Benefit and Cash Value
Repayment
ASSIGNMENT POLICY OWNER SERVICES ............... 24
Dollar Cost Averaging
DEATH BENEFIT INFORMATION..........................
Calculation of the Death Benefit
Changes in the Death Benefit Option
Proceeds Payable on Death
Incontestability
Error in Age
Suicide
Maturity Proceeds
RIGHT OF CONVERSION................................
GRACE PERIOD.......................................
Reinstatement
TAX MATTERS........................................
Policy Proceeds
Withholding
Federal Estate and Generation-Skipping
Transfers Taxes
Non-Resident Aliens
Taxation of Nationwide
Tax Changes
LEGAL CONSIDERATIONS...............................
YEAR 2000 COMPLIANCE ISSUES........................
STATE REGULATION...................................
REPORTS TO POLICY OWNERS...........................
ADVERTISING........................................
LEGAL PROCEEDINGS..................................
EXPERTS............................................
REGISTRATION STATEMENT.............................
LEGAL OPINIONS.....................................
DISTRIBUTION OF THE POLICIES.......................
ADDITIONAL INFORMATION ABOUT NATIONWIDE............
5
<PAGE> 9
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL
FUNDS............................................
APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH
SURRENDER VALUES, AND DEATH BENEFITS.............
6
<PAGE> 10
SUMMARY OF POLICY EXPENSES
Nationwide deducts certain charges from the policy. Charges are made for
administrative and sales expenses, providing life insurance protection and
assuming the mortality and expense risks.
Nationwide deducts a sales load and a charge for premium expense charge from
premium payments. The sales load is guaranteed never to exceed 5.5% of each
premium payment during the first 7 policy years and 2% thereafter. On a current
basis, the sales load is 3% of the premium payment plus 2.5% of premiums up to
the target premium during the first 7 policy years, and 0% on all premiums
thereafter. The premium expense charge is approximately 3.5% of premiums for all
states (see "Sales Load" and "Premium Expense Charge").
Nationwide deducts the following charges from the cash value of the policy:
o monthly cost of insurance;
o monthly cost of any additional benefits provided by riders to the
policy;
o administrative expense charge(1); and
o mortality and expense risk charge(2).
(1)Currently, the administrative expense charge is $5 per month. It is
guaranteed not to exceed $10 per month.
(2)The mortality and expense risk charge is guaranteed not to exceed an annual
effective rate of 0.75% of the daily net assets of the variable account. On a
current basis this annual effective rate will be 0.60% in policy years 1-4,
0.40% in policy years 5-20, and 0.25% thereafter.
Nationwide does not deduct a surrender charge from the policy.
For more information about any policy charge, see "Policy Charges" in this
prospectus.
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<PAGE> 11
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(AFTER EXPENSE REIMBURSEMENT)
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
BT Insurance Funds Trust - EAFE(R)Equity Index Fund 0.00% 0.65% 0.00% 0.65%
BT Insurance Funds Trust - Equity 500 Index Fund 0.00% 0.30% 0.00% 0.30%
BT Insurance Funds Trust - Small Cap Index Fund 0.00% 0.45% 0.00% 0.45%
The Dreyfus Socially Responsible Growth Fund, Inc. 0.75% 0.05% 0.00% 0.80%
Dreyfus Stock Index Fund, Inc. 0.25% 0.01% 0.00% 0.26%
Dreyfus Variable Investment Fund - Capital Appreciation Portfolio 0.75% 0.05% 0.00% 0.80%
Dreyfus Variable Investment Fund - Disciplined Stock Portfolio 0.75% 0.13% 0.00% .0.88%
Dreyfus Variable Investment Fund - International Value Portfolio 1.00% 0.29% 0.00% 1.29%
Dreyfus Variable Investment Fund - Limited Term High Income 0.65% 0.44% 0.00% 1.09%
Portfolio
Dreyfus Variable Investment Fund - Quality Bond Portfolio 0.65% 0.08% 0.00% 0.73%
Dreyfus Variable Investment Fund - Small Company Stock Portfolio 0.75% 0.23% 0.00% 0.98%
Dreyfus Investment Portfolios - Mid Cap Stock Portfolio 1.10% 0.00% 0.25% 1.35%
Fidelity VIP Equity-Income Portfolio: Service Class 0.49% 0.08% 0.10% 0.67%
Fidelity VIP Growth Portfolio: Service Class 0.59% 0.06% 0.10% 0.75%
Fidelity VIP High Income Portfolio: Service Class 0.58% 0.14% 0.10% 0.82%
Fidelity VIP Overseas Portfolio: Service Class 0.74% 0.13% 0.10% 0.97%
Fidelity VIP II Asset Manager Portfolio: Service Class 0.54% 0.13% 0.10% 0.77%
Fidelity VIP II Asset Manager: Growth Portfolio: Service Class 0.59% 0.19% 0.10% 0.88%
Fidelity VIP II Contrafund Portfolio: Service Class 0.59% 0.06% 0.10% 0.75%
Fidelity VIP III Balanced Portfolio: Service Class 0.44% 0.15% 0.10% 0.69%
Fidelity VIP III Growth & Income Portfolio: Service Class 0.49% 0.11% 0.10% 0.70%
Fidelity VIP III Growth Opportunities Portfolio: Service Class 0.59% 0.10% 0.10% 0.79%
Fidelity VIP III Mid Cap Portfolio: Service Class 0.56% 0.44% 0.10% 1.10%
Evergreen VA Equity Index Fund 0.00% 0.30% 0.00% 0.30%
Evergreen VA Fund 0.81% 0.19% 0.00% 1.00%
Evergreen VA Foundation Fund 0.83% 0.17% 0.00% 1.00%
Evergreen VA Global Leaders Fund 0.39% 0.61% 0.00% 1.00%
Evergreen VA Growth and Income Fund 0.79% 0.21% 0.00% 1.00%
Evergreen VA International Growth Fund 0.00% 1.00% 0.00% 1.00%
Evergreen VA Masters Fund 0.58% 0.42% 0.00% 1.00%
Evergreen VA Omega Fund 0.05% 0.95% 0.00% 1.00%
Evergreen VA Small Cap Value Fund 0.00% 1.00% 0.00% 1.00%
Evergreen VA Special Equity Fund 1.00% 0.00% 0.00% 1.00%
Evergreen VA Strategic Income Fund 0.43% 0.57% 0.00% 1.00%
Goldman Sachs VIT Growth and Income Fund 0.75% 0.15% 0.00% 0.90%
Goldman Sachs VIT CORE U.S. Equity Fund 0.70% 0.10% 0.00% 0.80%
Goldman Sachs VIT CORE Large Cap Growth Fund 0.70% 0.10% 0.00% 0.80%
Goldman Sachs VIT CORE Small Cap Equity Fund 0.75% 0.15% 0.00% 0.90%
Goldman Sachs VIT Capital Growth Fund 0.75% 0.15% 0.00% 0.90%
Goldman Sachs VIT Mid Cap Value Fund 0.80% 0.15% 0.00% 0.95%
Goldman Sachs VIT International Equity Fund 1.00% 0.25% 0.00% 1.25%
Goldman Sachs VIT Global Income Fund 0.90% 0.15% 0.00% 1.05%
</TABLE>
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<PAGE> 12
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
Goldman Sachs VIT Conservative Strategy Portfolio 0.15% 0.10% 0.00% 0.25%
Goldman Sachs VIT Balanced Strategy Portfolio 0.15% 0.10% 0.00% 0.25%
Goldman Sachs VIT Growth and Income Strategy Portfolio 0.15% 0.10% 0.00% 0.25%
Goldman Sachs VIT Growth Strategy Portfolio 0.15% 0.10% 0.00% 0.25%
Goldman Sachs VIT Aggressive Growth Strategy Portfolio 0.15% 0.10% 0.00% 0.25%
INVESCO VIF - Dynamics Fund 0.60% 0.85% 0.00% 1.45%
INVESCO VIF - Blue Chip Growth Fund 0.85% 0.72% 0.00% 1.57%
INVESCO VIF - Health Sciences Fund 0.75% 0.52% 0.00% 1.27%
INVESCO VIF - High Yield Fund 0.60% 0.26% 0.00% 0.86%
INVESCO VIF - Industrial Equity Income Fund 0.75% 0.18% 0.00% 0.93%
INVESCO VIF - Realty Fund 0.90% 1.00% 0.00% 1.90%
INVESCO VIF - Small Company Growth Fund 0.75% 1.12% 0.00% 1.87%
INVESCO VIF - Technology Fund 0.75% 0.65% 0.00% 1.40%
INVESCO VIF - Total Return Fund 0.75% 0.42% 0.00% 1.17%
INVESCO VIF - Utilities Fund 0.60% 0.48% 0.00% 1.08%
Morgan Stanley Dean Witter Universal Funds, Inc. - Emerging 0.27% 1.03% 0.00% 1.30%
Markets Debt Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - Equity Growth 0.09% 0.76% 0.00% 0.85%
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - Fixed Income 0.06% 0.64% 0.00% 0.70%
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - Global Equity 0.32% 0.83% 0.00% 1.15%
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - High Yield 0.15% 0.65% 0.00% 0.80%
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - International 0.15% 1.00% 0.00% 1.15%
Magnum Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - Mid Cap Growth 0.75% 0.30% 0.00% 1.05%
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - Mid Cap Value 0.23% 0.82% 0.00% 1.05%
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - U.S. Real 0.17% 0.93% 0.00% 1.10%
Estate Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - Value Portfolio 0.08% 0.77% 0.00% 0.85%
NSAT Capital Appreciation Fund 0.58% 0.22% 0.00% 0.80%
NSAT Government Bond Fund 0.44% 0.22% 0.00% 0.66%
NSAT Money Market Fund 0.34% 0.21% 0.00% 0.55%
NSAT Total Return Fund 0.57% 0.21% 0.00% 0.78%
NSAT Nationwide Balanced Fund 0.54% 0.36% 0.00% 0.90%
NSAT Nationwide Equity Income Fund 0.45% 0.50% 0.00% 0.95%
NSAT Nationwide Global Equity Fund 0.59% 0.61% 0.00% 1.20%
NSAT Nationwide High Income Bond Fund 0.48% 0.47% 0.00% 0.95%
NSAT Nationwide Mid Cap Index Fund 0.15% 0.50% 0.00% 0.65%
NSAT Nationwide Multi-Sector Bond Fund 0.54% 0.36% 0.00% 0.90%
NSAT Nationwide Select Advisers Small Cap Growth Fund 0.57% 0.73% 0.00% 1.30%
NSAT Nationwide Small Cap Value Fund 0.47% 0.58% 0.00% 1.05%
NSAT Nationwide Small Company Fund 1.00% 0.25% 0.00% 1.25%
NSAT Nationwide Strategic Growth Fund 0.20% 0.80% 0.00% 1.00%
NSAT Nationwide Strategic Value Fund 0.52% 0.48% 0.00% 1.00%
One Group Investment Trust Balanced Portfolio (formerly Asset 0.70% 0.30% 0.00% 1.00%
Allocation Fund)
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
One Group Investment Trust Bond Portfolio 0.54% 0.21% 0.00% 0.75%
One Group Investment Trust Diversified Equity Portfolio 0.67% 0.28% 0.00% 0.95%
One Group Investment Trust Diversified Mid Cap Portfolio 0.17% 0.78% 0.00% 0.95%
One Group Investment Trust Equity Index Portfolio 0.00% 0.55% 0.00% 0.55%
One Group Investment Trust Government Bond Portfolio 0.42% 0.33% 0.00% 0.75%
One Group Investment Trust Large Cap Growth Portfolio (formerly 0.65% 0.28% 0.00% 0.93%
Large Company Growth Fund)
One Group Investment Trust Mid Cap Growth Portfolio (formerly 0.65% 0.32% 0.00% 0.97%
Growth Opportunities Fund)
One Group Investment Trust Mid Cap Value Portfolio 0.42% 0.53% 0.00% 0.95%
Salomon Brothers Capital Fund 0.85% 0.15% 0.00% 1.00%
Salomon Brothers High Yield Bond Fund 0.70% 0.30% 0.00% 1.00%
Salomon Brothers Investors Fund 0.80% 0.20% 0.00% 1.00%
Salomon Brothers Strategic Bond Fund 0.75% 0.25% 0.00% 1.00%
Salomon Brothers Total Return Fund 0.75% 0.25% 0.00% 1.00%
</TABLE>
The following underlying mutual funds have "Other Expenses" voluntarily capped
at 0.10%: Goldman Sachs VIT Conservative Strategy Portfolio, Goldman Sachs VIT
Balanced Strategy Portfolio, Goldman Sachs VIT Growth and Income Strategy
Portfolio, Goldman Sachs VIT Growth Strategy Portfolio, Goldman Sachs VIT
Aggressive Growth Strategy Portfolio.
The following underlying mutual funds have voluntarily agreed to limit aggregate
operating expenses (including investment advisory fees, but excluding interest,
brokerage commissions and extraordinary expenses) to 1.00% of average daily net
assets: Evergreen VA Fund, Evergreen VA Foundation Fund, Evergreen VA Global
Leaders Fund, Evergreen VA Growth and Income Fund, Evergreen International
Growth Fund, Evergreen VA Masters Fund, Evergreen VA Omega Fund, Evergreen VA
Small Cap Value Fund, Evergreen VA Special Equity Fund, Evergreen VA Strategic
Income Fund.
The following underlying mutual fund has voluntarily agreed to limit aggregate
operating expenses (including investment advisory fees, but excluding interest,
brokerage commissions and extraordinary expenses) to 0.30% of average daily net
assets: Evergreen VA Equity Index Fund.
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
BT Insurance Funds Trust - EAFE(R)Equity Index Fund 0.45% 1.21% 0.00% 1.66%
BT Insurance Funds Trust - Equity 500 Index Fund 0.20% 0.99% 0.00% 1.19%
BT Insurance Funds Trust - Small Cap Index Fund 0.35% 1.23% 0.00% 1.58%
Evergreen VA Equity Index Fund 0.35% 0.51% 0.00% 0.86%
Evergreen VA Fund 0.95% 0.19% 0.00% 1.14%
Evergreen VA Foundation Fund 0.83% 0.18% 0.00% 1.01%
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
Evergreen VA Global Leaders Fund 0.95% 0.61% 0.00% 1.56%
Evergreen VA Growth and Income Fund 0.95% 0.21% 0.00% 1.16%
Evergreen VA International Growth Fund 0.75% 7.51% 0.00% 8.26%
Evergreen VA Masters Fund 0.95% 0.42% 0.00% 1.37%
Evergreen VA Omega Fund 0.65% 0.95% 0.00% 1.55%
Evergreen VA Small Cap Value Fund 0.95% 2.52% 0.00% 3.47%
Evergreen VA Special Equity Fund 1.50% 1.12% 0.00% 3.62%
Evergreen VA Strategic Income Fund 0.45% 0.57% 0.00% 1.02%
Fidelity VIP Equity-Income Portfolio: Service Class 0.49% 0.09% 0.10% 0.68%
Fidelity VIP Growth Portfolio: Service Class 0.59% 0.11% 0.10% 0.80%
Fidelity VIP Overseas Portfolio: Service Class 0.74% 0.17% 0.10% 1.01%
Fidelity VIP II Asset Manager Portfolio: Service Class 0.54% 0.14% 0.10% 0.78%
Fidelity VIP II Asset Manager: Growth Portfolio: 0.59% 0.20% 0.10% 0.89%
Service Class
Fidelity VIP II Contrafund Portfolio: Service Class 0.59% 0.11% 0.10% 0.80%
Fidelity VIP III Balanced Portfolio: Service Class 0.44% 0.16% 0.10% 0.70%
Fidelity VIP III Growth & Income Portfolio: Service 0.49% 0.12% 0.10% 0.71%
Class
Fidelity VIP III Growth Opportunities Portfolio: 0.59% 0.11% 0.10% 0.80%
Service Class
Goldman Sachs VIT Growth and Income Fund 0.75% 1.94% 0.00% 2.69%
Goldman Sachs VIT CORE U.S. Equity Fund 0.70% 2.13% 0.00% 2.83%
Goldman Sachs VIT CORE Large Cap Growth Fund 0.70% 2.17% 0.00% 2.87%
Goldman Sachs VIT CORE Small Cap Equity Fund 0.75% 3.17% 0.00% 3.92%
Goldman Sachs VIT Capital Growth Fund 0.75% 4.17% 0.00% 4.92%
Goldman Sachs VIT Mid Cap Value Fund 0.80% 3.99% 0.00% 4.79%
Goldman Sachs VIT International Equity Fund 1.00% 1.97% 0.00% 2.97%
Goldman Sachs VIT Global Income Fund 0.90% 2.40% 0.00% 3.30%
INVESCO VIF - Dynamics Fund 0.60% 14.41% 0.00% 15.01%
INVESCO VIF - Blue Chip Growth Fund 0.85% 11.44% 0.00% 12.29%
INVESCO VIF - Health Sciences Fund 0.75% 3.57% 0.00% 4.32%
INVESCO VIF - High Yield Fund 0.60% 0.47% 0.00% 1.07%
INVESCO VIF - Industrial Equity Income Fund 0.75% 0.42% 0.00% 1.17%
INVESCO VIF - Realty Fund 0.90% 7.88% 0.00% 8.78%
INVESCO VIF - Small Company Growth Fund 0.75% 11.92% 0.00% 12.67%
INVESCO VIF - Technology Fund 0.75% 5.85% 0.00% 6.60%
INVESCO VIF - Total Return Fund 0.75% 0.49% 0.00% 1.24%
INVESCO VIF - Utilities Fund 0.60% 1.24% 0.00% 1.84%
Morgan Stanley Dean Witter Universal Funds, Inc. - 0.80% 1.25% 0.00% 2.05%
Emerging Markets Debt Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc - 0.55% 0.76% 0.00% 1.31%
Equity Growth Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - 0.40% 0.64% 0.00% 1.04%
Fixed Income Portfolio
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
<S> <C> <C> <C> <C>
Morgan Stanley Dean Witter Universal Funds, Inc. - 0.80% 0.83% 0.00% 1.63%
Global Equity Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - High 0.50% 0.65% 0.00% 1.15%
Yield Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - 0.80% 1.00% 0.00% 1.80%
International Magnum Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc - Mid 0.75% 0.82% 0.00% 1.57%
Cap Value Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - U.S. 0.80% 0.93% 0.00% 1.73%
Real Estate Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc. - 0.55% 0.77% 0.00% 1.32%
Value Portfolio
NSAT Capital Appreciation Fund 0.60% 0.22% 0.00% 0.82%
NSAT Government Bond Fund 0.50% 0.22% 0.00% 0.72%
NSAT Money Market Fund 0.40% 0.21% 0.00% 0.61%
NSAT Total Return Fund 0.59% 0.21% 0.00% 0.80%
NSAT Nationwide Balanced Fund 0.75% 0.36% 0.00% 1.11%
NSAT Nationwide Equity Income Fund 0.80% 0.50% 0.00% 1.30%
NSAT Nationwide Global Equity Fund 1.00% 0.61% 0.00% 1.61%
NSAT Nationwide High Income Bond Fund 0.80% 0.47% 0.00% 1.27%
NSAT Nationwide Mid Cap Index Fund 0.50% 0.50% 0.00% 1.00%
NSAT Nationwide Multi Sector Bond Fund 0.75% 0.36% 0.00% 1.11%
NSAT Nationwide Select Advisers Small Cap Growth Fund 1.10% 0.73% 0.00% 1.83%
NSAT Nationwide Small Cap Value Fund 0.90% 0.58% 0.00% 1.48%
NSAT Nationwide Strategic Growth Fund 0.90% 0.80% 0.00% 1.70%
NSAT Nationwide Strategic Value Fund 0.90% 0.48% 0.00% 1.38%
One Group Investment Trust Bond Fund 0.60% 0.21% 0.00% 0.81%
One Group Investment Trust Diversified Equity Portfolio 0.74% 0.28% 0.00% 1.02%
One Group Investment Trust Diversified Mid Cap Portfolio 0.74% 0.78% 0.00% 1.52%
One Group Investment Trust Equity Index Portfolio 0.30% 0.83% 0.00% 1.13%
One Group Investment Trust Government Bond Portfolio 0.45% 0.33% 0.00% 0.78%
One Group Investment Trust Mid Cap Value Portfolio 0.74% 0.53% 0.00% 1.27%
Salomon Brothers Capital Fund 0.85% 2.41% 0.00% 3.26%
Salomon Brothers High Yield Bond Fund 0.70% 1.37% 0.00% 2.07%
Salomon Brothers Investors Fund 0.80% 2.10% 0.00% 2.90%
Salomon Brothers Strategic Bond Fund 0.75% 1.29% 0.00% 2.04%
Salomon Brothers Total Return Fund 0.75% 1.04% 0.00% 1.79%
</TABLE>
12
<PAGE> 16
SYNOPSIS OF THE POLICIES
The policy offered by this prospectus provides for life insurance coverage on
the insured. The death benefit and cash value of the policy may increase or
decrease to reflect the performance of the investment options chosen by the
policy owner (see "Death Benefit Information").
CASH SURRENDER VALUE
If the policy is terminated during the insured's lifetime, a cash surrender
value may be payable under the policy. However, there is no guaranteed cash
surrender value (see "Variation in Cash Value "). The policy will lapse without
value if the cash surrender value falls below what is needed to cover policy
charges.
PREMIUMS
The minimum initial premium for which a policy may be issued is equal to three
monthly deductions. The initial premium is shown on the policy data page. Each
premium payment must be at least $50.
Additional premium payments may be made at any time while the policy is in force
(see "Premium Payments").
TAXATION
The policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code. Nationwide will
monitor compliance with the tests provided by Section 7702 to insure the
policies continue to receive this favored tax treatment (see "Tax Matters").
NONPARTICIPATING POLICIES
The policies are nonparticipating policies on which no dividends are payable.
The policies do not share in the profits or surplus earnings of Nationwide.
RIDERS
A rider may be added to the policy (availability varies by state).
Riders currently include:
o Additional Protection Rider; and
o Change of Insured Rider.
POLICY CANCELLATION
Policy owners may return the policy for any reason within certain time periods
and Nationwide will refund the policy value or the amount required by law (see
"Right to Revoke").
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in February 1981. It is a member of the Nationwide group with its
Home Office at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a
provider of life insurance, annuities and retirement products. It is admitted to
do business in 48 states and the District of Columbia.
CUSTODIAN OF ASSETS
Nationwide serves as the custodian of the assets of the variable account.
OTHER CONTRACTS ISSUED BY NATIONWIDE
Nationwide does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of Nationwide.
NATIONWIDE ADVISORY SERVICES, INC.
The policies are distributed by Nationwide Advisory Services, Inc. ("NAS"),
Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a wholly owned subsidiary
of Nationwide Life Insurance Company.
INVESTING IN THE POLICY
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide VL Separate Account-D is a separate account that invests in the
underlying mutual fund options listed in Appendix A. Nationwide established the
separate account on May 22, 1998, pursuant to Ohio law. Although the separate
account is registered with the SEC as a unit investment trust pursuant to the
Investment Company Act of 1940 ("1940 Act"),
13
<PAGE> 17
the SEC does not supervise the management of Nationwide or the variable account.
Income, gains, and losses credited to, or charged against the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to policy owners under the policies.
The variable account is divided into sub-accounts. Policy owners elect to have
net premiums allocated among the sub-accounts and the fixed account at the time
of application.
Nationwide uses the assets of each sub-account to buy shares of the underlying
mutual funds based on policy owner instructions. A policy's investment
performance depends upon the performance of the underlying mutual fund options
chosen by the policy owner.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. The underlying mutual fund options are available as investment options in
variable life insurance policies or variable annuity contracts issued by life
insurance companies or, in some cases, through participation in certain
qualified pension or retirement plans.
However the underlying mutual funds are NOT directly related to any publicly
traded mutual fund. Policy owners should not compare the performance of a
publicly traded fund with the performance of underlying mutual funds
participating in the variable account. The performance of the underlying mutual
funds could differ substantially from that of any publicly traded funds.
Changes of Investment Policy
Nationwide may materially change the investment policy of the variable account.
Nationwide must inform policy owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the policy owners or if it renders Nationwide's operations hazardous to the
public. If a policy owner objects, the policy owner may elect to transfer all
sub-account cash values to the fixed account. No transfer charge will be
assessed. The policy owner has the later of 60 days (6 months in Pennsylvania)
from the date of the investment policy change or 60 days (6 months in
Pennsylvania) from being informed of the change to make the transfer.
Voting Rights
Policy owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote policy owner shares at
special shareholder meetings based on policy owner instructions. However, if the
law changes allowing Nationwide to vote in its own right, it may elect to do so.
Policy owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholder's vote as soon as possible prior to
the shareholder meeting. Notification will contain proxy materials, and a form
to return to Nationwide with voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
The number of shares which a policy owner may vote is determined by dividing the
cash value of the amount they have allocated to an underlying mutual fund by the
net asset value of that underlying mutual fund. Nationwide will designate a date
for this determination not more than 90 days before the shareholder meeting.
Changes within the Variable Account
Nationwide may, from time to time, create additional sub-accounts in the
variable account. These sub-accounts may not be available to all policy owners.
Nationwide also has the right to eliminate sub-accounts from the variable
account, to combine two or more investment divisions, or to substitute a new
underlying
14
<PAGE> 18
mutual fund for the underlying mutual fund in which a sub-account invests.
A substitution may become necessary if, in Nationwide's judgment, an underlying
mutual fund no longer suits the purposes of the policies. This may happen due
to:
o a change in laws or regulations;
o a change in the underlying mutual fund's investment objectives or
restrictions;
o an underlying mutual fund no longer being available for investment; or
o some other reason.
In general, Nationwide may consider substituting an underlying mutual fund in
which one of the sub-accounts invests under the following circumstances:
o if a conflict of interest arises with the underlying mutual fund's
investment manager or other investors in the same underlying mutual
fund;
o if the personnel of the underlying mutual fund's manager changes in a
way Nationwide deems unfavorable;
o if the underlying mutual fund's manager does not control risks
consistent with the underlying mutual fund's investment objectives and
methods;
o if an underlying mutual fund's investment performance is unsatisfactory
over a period of time compared to relevant benchmarks, taking into
account the underlying mutual fund's investment objectives and methods;
or
o if an underlying mutual fund's investment manager resigns or otherwise
ceases to manage the underlying mutual fund's assets.
The approval of policy owners is not required for such a substitution, and
policy owners have no legal right to compel such a substitution. No substitution
of securities in the variable account may take place without the prior approval
of the SEC, and under such requirements as it and any state insurance department
may impose.
Subject to any required regulatory approvals, Nationwide reserves the right to
transfer assets of the variable account or of any of the sub-accounts to another
separate account or sub-account that Nationwide determines to be associated with
the class of policies to which the policy belongs, to another separate account
or to another investment division.
Where permitted by law, Nationwide reserves the right to:
1. Register or deregister the variable account under the
Investment Company Act of 1940, subject to the approval of the
SEC;
2. Operate the variable account as a managed separate account or
any other form of organization permitted by applicable law;
3. Reserve, restrict, or eliminate any voting rights of policy
owners, or other persons who have voting rights through the
variable account; and
4. Combine the variable account with other separate accounts,
subject to the approval of the SEC.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
15
<PAGE> 19
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks.
Under exemptive and exclusionary provisions, interests in the general account
have not been registered under the Securities Act of 1933 and the general
account has not been registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the general account
nor any interests therein is subject to the provisions of these Acts, and
Nationwide has been advised that the staff of the SEC has not reviewed the
disclosures in this prospectus relating to the fixed account. Disclosures
regarding the general account may, however, be subject to certain generally
applicable provisions of the federal securities laws concerning the accuracy and
completeness of statements made in prospectuses.
Premium payments will be allocated to the fixed account by election of the
policy owner.
The investment income earned by the fixed account will be allocated to the
policies at varying rate(s) set by Nationwide. The guaranteed rate for any
premium payment will be effective for not less than twelve months.
Nationwide guarantees that the rate will not be less than 3.0% per year.
Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The policy 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 premium payments deposited to the contract which are allocated to the fixed
account may receive a different rate of interest than amounts transferred from
the sub-accounts to the fixed account and amounts maturing in the fixed account.
The fixed account is not available for policies issued in the State of Texas.
INFORMATION ABOUT THE POLICIES
MINIMUM REQUIREMENTS FOR POLICY ISSUANCE
This policy provides life insurance coverage with the flexibility to vary the
amount and frequency of premium payments. Minimum requirements for policy
issuance include:
o the insured must be age 80 or younger;
o Nationwide may require satisfactory evidence of insurability
(including a medical exam); and
o a minimum specified amount of $50,000 ($100,000 in
Pennsylvania and New Jersey).
PREMIUM PAYMENTS
Each premium payment must be at least $50. The initial premium is payable in
full at Nationwide's home office or to an authorized agent of Nationwide.
Upon payment of the initial premium, temporary insurance may be provided.
Issuance of the continuing insurance coverage is dependent upon completion of
all underwriting requirements, payment of initial premium, and delivery of the
policy while the insured is still living.
Additional premium payments may be made at any time while the policy is in
force, subject to the following conditions:
o Nationwide may require satisfactory evidence of insurability
before accepting any additional premium payment which results
in an increase in the net amount at risk.
o Premium payments in excess of the premium limit established by
the IRS to qualify the policy as a contract for life insurance
will be refunded.
o Nationwide may require policy indebtedness be repaid prior to
accepting any additional premium payments.
16
<PAGE> 20
Additional premium payments or other changes to the policy may jeopardize the
policy's non-modified endowment status. Nationwide will monitor premiums paid
and other policy transactions and will notify the policy owner when non-modified
endowment contract status is in jeopardy.
Nationwide will send scheduled premium payment reminder notices to policy owners
according to the premium mode shown on the policy data page.
PRICING
Premiums will not be priced when the New York Stock Exchange is closed or on the
following nationally recognized holidays:
o New Year's Day o Independence Day
o Martin Luther King, Jr. Day o Labor Day
o Presidents' Day o Thanksgiving
o Good Friday o Christmas
o Memorial Day
Nationwide also will not price purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities
held in the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for
the protection of security holders.
Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist. If Nationwide is closed on days when the New York Stock
Exchange is open, policy value may be affected since the policy owner would not
have access to their account.
POLICY CHARGES
SALES LOAD
Nationwide deducts a sales load from each premium payment received. It is
guaranteed never to exceed 5.5% of each premium payment during the first 7
policy years and 2% thereafter. Currently, the sales load is 3% of the premium
payment plus 2.5% of premiums up to the target premium during the first 7 policy
years, and 0% on all premiums thereafter. The target premium is a premium level
based upon a percentage of the guideline level premium. It is the level annual
premium amount at which the sales load is reduced on a current basis. The target
premium amount is located on the policy data page.
PREMIUM EXPENSE CHARGE
Nationwide deducts a premium expense charge equal to 3.50% from all premium
payments. This charge reimburses Nationwide for administrative expenses on an
aggregate basis, including premium taxes imposed by various state and local
jurisdictions and for federal taxes imposed under Section 848 of the Internal
Revenue Code. Generally, these tax expenses to Nationwide consist of two
components:
(1) a state premium tax rate of 2.25%; and
(2) a federal tax rate of 1.25%.
Nationwide expects to pay an average state premium tax rate of approximately
2.25% of premiums for all states. State tax rates can range from 0% to 4%. This
charge may be more or less than the amount actually assessed by the state in
which a particular policy owner lives.
The 1.25% federal tax component is designed to reimburse Nationwide for expenses
incurred from federal taxes imposed under Section 848 of the Internal Revenue
Code.
Nationwide does not expect to make a profit from these charges.
MONTHLY COST OF INSURANCE
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. This
deduction is charged proportionately to the cash value in each sub-account and
the fixed account.
If death benefit Option 1 is in effect and there have been increases in the
specified amount, then the cash value will first be considered a part of the
initial specified amount. If the cash value exceeds the initial specified
amount, it will then be considered a part of the additional increases
17
<PAGE> 21
in specified amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will be unisex and will not exceed those
guaranteed in the policy. Guaranteed cost of insurance rates are based on the
1980 Commissioners Standard Ordinary Male Mortality Table, Age Last Birthday,
aggregate as to tobacco status (1980 CSO). Guaranteed cost of insurance rates
for policies issued on a substandard basis are based on appropriate percentage
multiples of the 1980 CSO.
The rate class of an insured may affect the cost of insurance rate. Nationwide
currently places insureds into both standard rate classes and substandard rate
classes that involve a higher mortality risk. In an otherwise identical policy,
an insured in the standard rate class will have a lower cost of insurance than
an insured in a rate class with higher mortality risks. Nationwide may also
issue certain policies on a "non-medical," guaranteed issue, or simplified issue
basis to certain categories of individuals. Due to the underwriting criteria
established for policies issued on a non-medical basis, actual rates will be
higher than the current cost of insurance rates being charged under policies
that are medically underwritten.
MONTHLY ADMINISTRATIVE CHARGE
Nationwide deducts an administrative expense charge proportionately from the
cash value in each sub-account and the fixed account on a monthly basis. This
charge reimburses Nationwide for certain actual expenses related to maintenance
of the policies including accounting and record keeping, and periodic reporting
to policy owners. Nationwide does not expect to recover any amount in excess of
aggregate maintenance expenses from this charge. Currently, this charge is $5
per month in all policy years. Nationwide may, at its sole discretion, increase
this charge. However, Nationwide guarantees that this charge will never exceed
$10 per month in all policy years.
MORTALITY AND EXPENSE RISK CHARGE
Nationwide assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the policies is that the insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the policies may be greater than
expected. In addition, Nationwide assumes risks associated with the non-recovery
of policy issue, underwriting and other administrative expenses due to policies
that lapse or are surrendered in the early policy years.
Nationwide deducts the mortality and expense risk charge from the variable
account on a daily basis. The charge is deducted proportionally from the cash
value in each sub-account. The mortality and expense risk charge compensates
Nationwide for assuming risks associated with mortality and administrative
costs. The charge is not to exceed an annual effective rate of 0.75% of the
daily net assets of the variable account. On a current basis, this rate will be
0.60% during policy years 1-4, 0.40% during policy years 5-20, and 0.25%
thereafter. Policy owners receive quarterly and annual statements, advising
policy owners of the cancellation of accumulation units for mortality and
expense risk charges.
Nationwide may realize a profit from this charge. Unrecovered expenses are borne
by Nationwide's general assets which may include profits, if any, from mortality
and expense risk charges.
INCOME TAX
No charge is assessed to policy owners for income taxes incurred by Nationwide
as a result of the operations of the sub-accounts. However, Nationwide reserves
the right to assess a charge for income taxes against the variable account if
income taxes are incurred.
REDUCTION OF CHARGES
The policy is available for purchase by individuals, corporations and other
groups. Nationwide may reduce or eliminate certain charges (sales load,
mortality and expense risk charge, monthly administrative charge, monthly cost
of insurance charge, or other charges), where the size or nature of the group
results in savings in sales, underwriting, administrative or other costs, to
Nationwide. These charges may be reduced in certain group, sponsored
18
<PAGE> 22
arrangements or special exchange programs made available by Nationwide
(including employees of Nationwide and their families). Eligibility for
reduction in charges and the amount of any reduction is determined by a number
of factors, including:
o the number of insureds;
o the total premium expected to be paid;
o total assets under management for the policy owner;
o the nature of the relationship among individual insureds;
o the purpose for which the policies are being purchased;
o the expected persistency of individual policies; and
o any other circumstances which are rationally related to the
expected reduction in expenses.
The extent and nature of reductions may change from time to time. The charge
structure may vary. Variations are determined in a manner not unfairly
discriminatory to policy owners which reflects differences in costs of services.
SURRENDERING THE POLICY FOR CASH
SURRENDER (REDEMPTION)
Policies may be surrendered for the cash surrender value any time while the
insured is living. The cancellation will be effective as of the date Nationwide
receives the policy accompanied by a signed, written request for cancellation.
In some cases, Nationwide may require additional documentation of a customary
nature.
CASH SURRENDER VALUE
The cash surrender value increases or decreases daily to reflect the investment
experience of the variable account and the daily crediting of interest in the
fixed account and the policy loan account.
The cash surrender value equals the policy's cash value, next computed after the
date Nationwide receives a proper written request for surrender and the policy,
minus any charges, indebtedness or other deductions due on that date, plus 3.5%,
5.5%, or 4.0% of the current premium if that date occurs during policy years
one, two or three, respectively.
Partial Surrenders
After the policy has been in force for one year, the policy owner may request a
partial surrender.
Partial surrenders are permitted if they satisfy the following requirements:
1) the minimum partial surrender is $500;
2) partial surrenders may not reduce the specified amount to less
than $50,000;
3) after the partial surrender, the cash surrender value is
greater than $500 or an amount equal to three times the
current monthly deduction, if higher; and
4) after the partial surrender, the policy continues to qualify
as life insurance.
When a partial surrender is made, the cash value will be reduced by the amount
of the partial surrender. Further, the specified amount will be reduced by the
amount necessary to prevent any increase to the net amount at risk, unless the
partial surrender is treated as a preferred partial surrender.
Preferred Partial Surrenders
A partial surrender is considered a preferred partial surrender if the following
conditions are met:
(1) the surrender occurs before the 15th policy anniversary; and
(2) the surrender amount plus the amount of any previous preferred
policy surrenders in that same policy year does not exceed 10%
of the cash surrender value as of the beginning of the policy
year.
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<PAGE> 23
Reduction of the Specified Amount
When a partial surrender is made, in addition to the cash value being reduced by
the amount of the partial surrender, the specified amount may also be reduced
(except in the case of a preferred partial surrender). The reduction to the
specified amount will be made in the following order:
(1) against the most recent increase in the specified amount;
(2) against the next most recent increases in the specified amount
in succession; and
(3) against the specified amount under the original application.
INCOME TAX WITHHOLDING
Federal law requires Nationwide to withhold income tax from any portion of
surrender proceeds subject to tax. Nationwide will withhold income tax unless
the policy owner advises Nationwide, in writing, of his or her request not to
withhold. If a policy owner requests that taxes not be withheld, or if the taxes
withheld are insufficient, the policy owner may be liable for payment of an
estimated tax. Policy owners should consult a tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(1) the value each year of the life insurance protection provided;
(2) an amount equal to any employer-paid premiums; or
(3) some or all of the amount by which the current value exceeds
the employer's interest in the policy.
Participants should consult with the sponsor or the administrator of the plan,
and/or with their personal tax or legal advisor, to determine the tax
consequences, if any, of their employer-sponsored life insurance arrangements.
VARIATION IN CASH VALUE
On any date during the policy year, the cash value equals the cash value on the
preceding valuation date, plus any net premiums applied since the previous
valuation date, minus any partial surrenders, plus or minus any investment
results, and less any policy charges.
There is no guaranteed cash value. The cash value will vary with the investment
experience of the variable account and/or the daily crediting of interest in the
fixed account and policy loan account depending on the allocation of cash value
by the policy owner.
POLICY PROVISIONS
POLICY OWNER
While the insured is living, all rights in this policy are vested in the policy
owner named in the application or as subsequently changed, subject to
assignment, if any.
The policy owner may name a contingent policy owner or a new policy owner while
the insured is living. Any change must be in a written form satisfactory to
Nationwide and recorded at Nationwide's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by Nationwide before it was recorded. Nationwide may require that
the policy be submitted for endorsement before making a change.
If the policy owner is other than the insured, names no contingent policy owner,
and dies before the insured, the policy owner's rights in this policy belong to
the policy owner's estate.
BENEFICIARY
The beneficiary(ies) will be as named in the application or as subsequently
changed, subject to assignment, if any.
The policy owner may name a new beneficiary while the insured is living. Any
change must be in a written form satisfactory to Nationwide and recorded at
Nationwide's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by
Nationwide before it was recorded.
If any beneficiary predeceases the insured, that beneficiary's interest passes
to any surviving
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<PAGE> 24
beneficiary(ies), unless otherwise provided. Multiple beneficiaries will be paid
in equal shares, unless otherwise provided. If no named beneficiary survives the
insured, the death proceeds will be paid to the policy owner or the policy
owner's estate.
CHANGES IN EXISTING INSURANCE COVERAGE
The policy owner may request certain changes in the insurance coverage under the
policy. Requests must be in writing and received by Nationwide. No change will
take effect unless the cash surrender value after the change is sufficient to
keep the policy in force for at least 3 months.
Specified Amount Increases
The policy owner may request an increase to the specified amount. Any increase
will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the cash surrender value is sufficient to continue the policy
in force for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the monthly anniversary day
on or next following the date Nationwide approves the supplemental application.
Nationwide reserves the right to limit the number of specified amount increases
to one each policy year.
Specified Amount Decreases
After the first policy year, the policy owner may also request a decrease to the
specified amount. Any approved decrease will be effective on the monthly
anniversary day on or next following the date Nationwide receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
Nationwide reserves the right to limit the number of specified amount decreases
to one each policy year. Nationwide will refuse a request for a decrease which
would:
1. reduce the specified amount to less than $50,000 ($100,000 in
New Jersey and Pennsylvania); or
2. disqualify the policy as a contract for life insurance.
OPERATION OF THE POLICY
ALLOCATION OF NET PREMIUM AND CASH VALUE
Nationwide allocates premium payments to sub-accounts or the fixed account as
instructed by policy owners. All percentage allocations must be in whole
numbers, and must be at least 1%. The sum of allocations must equal 100%. Future
premium allocations may be changed by giving written notice to Nationwide.
Premiums allocated to a sub-account on the application are allocated to the NSAT
Money Market Fund during the period a policy owner may cancel the policy, unless
a specific state requires premiums to be allocated to the fixed account. At the
expiration of the cancellation period, these premiums are used to purchase
shares of the underlying mutual funds specified by the policy owner at net asset
value for the respective sub-account(s).
The policy owner may change the allocation of net premiums or may transfer cash
value from one sub-account to another. Changes are subject to the terms and
conditions imposed by each underlying mutual fund and those found in this
prospectus.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The accumulation unit value for a 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 for
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<PAGE> 25
the subsequent valuation period. Though the number of accumulation units will
not change as a result of investment experience, the value of an accumulation
unit may increase or decrease from valuation period to valuation period.
NET INVESTMENT FACTOR
The net investment factor for any valuation period is determined by dividing (a)
by (b) and subtracting (c) from the result where:
(a) is:
(1) the net asset value per share of the underlying mutual fund held
in the sub-account as of the end of the current valuation period;
and
(2) the per share amount of any dividend or income distributions made
by the underlying mutual fund (if the ex-dividend date occurs
during the current valuation period).
(b) is the net asset value per share of the underlying mutual fund determined
as of the end of the immediately preceding valuation period.
(c) is a factor representing the daily mortality and expense risk charge
deducted from the variable account. Such factor is guaranteed not to
exceed an annual effective rate of 0.75% of the daily net assets of the
variable account. On a current basis, this annual effective rate will be
0.60% during policy years 1-4, 0.40% during policy years 5-20, and 0.25%
thereafter.
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 and expense risk charge.
DETERMINING THE CASH VALUE
The cash value is the sum of the value of all variable account accumulation
units attributable to the policy plus amounts credited to the fixed account and
the policy loan account.
The number of accumulation units credited to each sub-account is determined by
dividing the net amount allocated to the sub-account by the accumulation unit
value for the sub-account for the valuation period during which the premium is
received by Nationwide. In the event part or all of the cash value is
surrendered or charges or deductions are made against the cash value, an
appropriate number of accumulation units from the variable account and an
appropriate amount from the fixed account will be deducted in the same
proportion that the policy owner's interest in the variable account and the
fixed account bears to the total cash value.
The cash value in the fixed account and the policy loan account is credited with
interest daily at an effective annual rate which Nationwide periodically
declares. The annual effective rate will never be less than 3%. (For a
description of the annual effective credited rates, see "The Fixed Account" and
"Policy Loans.") Upon request, Nationwide will inform the policy owner of the
then applicable rates for each account.
TRANSFERS
The policy owner may transfer amounts between the fixed account and the variable
account without penalty or adjustment, subject to the following requirements:
o Nationwide reserves the right to limit such transfers to one per policy
year.
o Transfers from the fixed account must be made within 45 days after the
end of an interest rate guarantee period (the period of time for which
the current interest rate is guaranteed by Nationwide).
o Nationwide reserves the right to restrict the amount transferred from
the fixed account to 20% of the portion of the cash value attributable
to the fixed account as of the end of the prior policy year. However,
if the policy owner elects in writing to Nationwide to transfer all of
the cash value attributable to the fixed account, the restriction for
five successive policy years shall be 20%, 25%, 33%, 50% and 100%,
respectively.
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<PAGE> 26
o Transfers to the fixed account may not be made prior to the first
policy anniversary or within 12 months subsequent to a prior transfer.
o Nationwide reserves the right to restrict the amount transferred to the
fixed account to 20% of that portion of the cash value attributable to
the variable account as of the close of business of the prior valuation
period.
o Nationwide reserves the right to refuse a transfer to the fixed account
if the cash value attributable to the fixed account is greater than or
equal to 30% of the cash value.
Transfer Requests
Nationwide will accept transfer requests in writing or in those states that
allow, over the telephone. Nationwide will use reasonable procedures to confirm
that telephone instructions are genuine and will not be liable for following
instructions it reasonably determined to be genuine. Nationwide may withdraw the
telephone exchange privilege upon 30 days written notice to policy owners.
Market-Timing Firms
Some policy owners may use market-timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market- timing firms will submit transfer requests on behalf of
multiple policy owners at the same time. Sometimes this can result in unusually
large transfers of funds. These large transfers might interfere with the ability
of Nationwide or the underlying mutual fund to process transactions. This can
potentially disadvantage policy owners not using market-timing firms. To avoid
this, Nationwide may modify the transfer rights of policy owners who use
market-timing firms (or other third parties) to initiate transfers on their
behalf.
The transfer rights of individual policy owners will not be modified in any way
when instructions are submitted directly by the policy owner, or by the policy
owner's representative (as authorized by the execution of a valid Nationwide
Limited Power of Attorney Form).
To protect policy owners, Nationwide may refuse transfer requests:
o submitted by any agent acting under a power of attorney on
behalf of more than one policy owner; or
o submitted on behalf of individual policy owners who have
executed pre-authorized exchange forms which are submitted by
market-timing firms (or other third parties) on behalf of more
than one policy owner at the same time.
Nationwide will not restrict transfer rights unless Nationwide believes it to be
necessary for the protection of all policy owners.
RIGHT TO REVOKE
Policy owners may return the policy for any reason before the latest of:
o 10 days after receiving the policy;
o 45 days after signing the application; or
o 10 days after Nationwide mails or delivers a Notice of Right
of Withdrawal.
The policy can be mailed to the registered representative who sold it, or
directly to Nationwide.
Returned policies are deemed void from the beginning. Nationwide will refund the
amount prescribed by the state in which the policy was issued within seven days
after it receives the policy. The refunded policy value will reflect the
deduction of any policy charges, unless otherwise required by law. This right
varies by state.
POLICY LOANS
TAKING A POLICY LOAN
The policy owner may take a policy loan at any time using the policy as
security. Maximum policy indebtedness is limited to 90% of the cash value in the
sub-accounts plus 100% of the cash value in the fixed account plus 100% of the
cash value in the policy loan account. Nationwide will not grant a loan for an
amount less than $500 (unless otherwise required by state law). Policy
indebtedness will be deducted from the
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<PAGE> 27
death benefit, cash surrender value upon surrender, or the maturity proceeds.
Any request for a policy loan must be in written form. The request must be
signed and, where permitted, the signature guaranteed by a member firm of the
New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or
by a commercial bank or a savings and loan which is a member of the Federal
Deposit Insurance Corporation. Certain policy loans may result in currently
taxable income and tax penalties.
A policy owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary payments are not made to
keep the policy from lapsing. The amount of the payments necessary to prevent
the policy from lapsing will increase with age.
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the variable account to the policy loan account. If the assets relating to
a policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each sub-account at the time of the
loan. Policy loans will be transferred from the fixed account only when
sufficient amounts are not available in the sub-accounts.
The amount taken out of the variable account will not be affected by the
variable account's investment experience while the loan is outstanding.
INTEREST
The loan interest rate is guaranteed not to exceed 3.75% per year for all policy
loans. On a current basis, the loan interest rate is 3.6% in policy years 1-4,
3.4% in policy years 5-20, and 3.25% thereafter.
On a current and guaranteed basis, the cash value in the policy loan account is
credited with an annual effective rate of 3% in all policy years.
If it is determined that such loans will be treated, as a result of the
differential between the interest crediting rate and the loan interest rate, as
taxable distributions under any applicable ruling, regulation, or court
decision, Nationwide retains the right to increase the net cost (by decreasing
the interest crediting rate) on all subsequent policy loans to an amount that
would result in the transaction being treated as a loan under federal tax law.
If this amount is not prescribed by such ruling, regulation, or court decision,
the amount will be that which Nationwide considers to be more likely to result
in the transaction being treated as a loan under federal tax law.
Amounts transferred to the policy loan account will earn interest daily from the
date of transfer. The earned interest is transferred from the policy loan
account to a variable account or the fixed account on each policy anniversary,
at the time a new loan is requested, or at the time of loan repayment. It will
be allocated according to the fund allocation factors in effect at the time of
the transfer.
Interest is charged daily and is payable at the end of each policy year or at
the time of loan repayment. Unpaid interest will be added to the existing policy
indebtedness as of the due date and will be charged interest at the same rate as
the rest of the indebtedness.
Whenever the total policy indebtedness exceeds the cash value, Nationwide will
send a notice to the policy owner and the assignee, if any. The policy will
terminate without value 61 days after the mailing of the notice unless a
sufficient repayment is made during that period. A repayment is sufficient if it
is large enough to reduce the total policy indebtedness to an amount equal to
the total cash value plus an amount sufficient to continue the policy in force
for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A policy loan, whether or not repaid, will have a permanent effect on the death
benefit and cash value because the investment results of the variable account or
the fixed account will apply only to the non-loaned portion of the cash value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the
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<PAGE> 28
investment results of the variable account or the fixed account while the loan
is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the indebtedness may be repaid at any time while the policy is in
force during the insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the sub-accounts and the fixed account in proportion to the
policy owner's underlying mutual fund allocation factors in effect at the time
of the repayment. Each repayment may not be less than $50. Nationwide reserves
the right to require that any loan repayments resulting from policy loans
transferred from the fixed account must be first allocated to the fixed account.
ASSIGNMENT
While the insured is living, the policy owner may assign his or her rights in
the policy. The assignment must be in writing, signed by the policy owner and
recorded at Nationwide's home office. Prior to being recorded, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted for recording, nor is Nationwide
responsible for the sufficiency or validity of any assignment. Assignments are
subject to any indebtedness owed to Nationwide before being recorded.
POLICY OWNER SERVICES
DOLLAR COST AVERAGING
Dollar Cost Averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from the fixed account and/or certain sub-accounts into other
sub-accounts. Nationwide does not guarantee that this program will result in
profit or protect policy owners from loss.
Policy owners direct Nationwide to automatically transfer specified amounts from
the fixed account and the following underlying mutual fund option: NSAT Money
Market Fund.
The minimum monthly transfer is $100. Transfers from the fixed account must be
equal to or less than 1/30th of the fixed account value at the time the program
is requested.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the policy owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new Dollar Cost Averaging
programs. Nationwide reserves the right to assess a processing fee for this
service.
DEATH BENEFIT INFORMATION
CALCULATION OF THE DEATH BENEFIT
At issue, the policy owner selects the specified amount and the death benefit
option. At issue, the policy owner also irrevocably elects either of the
following tests qualifying the policy as life insurance under Section 7702 of
the Internal Revenue Code: (1) Guideline Premium/Cash Value Corridor Test; or
(2) the Cash Value Accumulation Test.
While the policy is in force, the death benefit will never be less than the
specified amount. The death benefit may vary with the cash value of the policy,
which depends on investment performance.
The policy owner may choose one of three death benefit options.
OPTION 1: the death benefit will be the greater of the specified amount or the
applicable percentage of cash value. Under OPTION 1, the amount of the death
benefit will ordinarily not change for several years to reflect the investment
performance and may not change at all. If investment performance is favorable,
the amount of death benefit may increase. To see how and when investment
performance will begin to affect death benefits, see the illustrations in
Appendix B.
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<PAGE> 29
OPTION 2: the death benefit will be the greater of the specified amount plus the
cash value as of the date of death, or the applicable percentage of cash value
and will vary directly with the investment performance.
OPTION 3: the death benefit is the greater of: (a) the applicable percentage of
the cash value as of the date of death; or (b) the specified amount plus the
lesser of either: (i) the maximum increase amount shown on the policy, or (ii)
the amount of all premium payments and interest accrued at the Option 3 interest
rate as shown in the policy, accumulated up to the date of death, less any
partial surrenders and applicable interest accrued at the Option 3 interest rate
as shown in the policy. Once elected, Option 3 is irrevocable.
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
APPLICABLE PERCENTAGE OF CASH VALUE
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 101%
56 146% 76 105% 96 101%
57 142% 77 105% 97 101%
58 138% 78 105% 98 101%
59 134% 79 105% 99 101%
</TABLE>
In the event the policy owner has a substandard rating, the preceding
percentages will differ.
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<PAGE> 30
CASH VALUE ACCUMULATION TEST
APPLICABLE PERCENTAGE OF CASH VALUE
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C>
44 292.29% 72 141.69%
45 283.37% 73 139.10%
18 667.85% 46 274.79% 74 136.66%
19 648.73% 47 266.55% 75 134.38%
20 630.14% 48 258.61% 76 133.56%
21 611.94% 49 250.98% 77 132.83%
22 594.06% 50 243.65% 78 132.18%
23 576.45% 51 236.59% 79 131.58%
24 559.07% 52 229.82% 80 131.04%
25 541.95% 53 223.34% 81 130.55%
26 525.08% 54 217.13% 82 130.12%
27 508.52% 55 211.19% 83 127.37%
28 492.32% 56 205.51% 84 124.75%
29 476.49% 57 200.06% 85 122.27%
30 461.08% 58 194.84% 86 119.90%
31 446.10% 59 189.84% 87 117.63%
32 431.57% 60 185.03% 88 115.44%
33 417.50% 61 180.43% 89 113.31%
34 403.89% 62 176.02% 90 112.35%
35 390.73% 63 171.81% 91 111.38%
36 378.03% 64 167.80% 92 110.38%
37 365.79% 65 163.98% 93 109.32%
38 354.01% 66 160.34% 94 108.18%
39 342.67% 67 156.86% 95 106.94%
40 331.77% 68 153.54% 96 105.62%
41 321.30% 69 150.37% 97 104.27%
42 311.24% 70 147.33% 98 102.99%
43 301.57% 71 144.44% 99 100.00%
</TABLE>
In the event the policy owner has a substandard rating, the preceding
percentages will differ.
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<PAGE> 31
CHANGES IN THE DEATH BENEFIT OPTION
After the first policy year, the policy owner may elect to change the death
benefit option under the policy from either Option 1 to Option 2, or from Option
2 to Option 1. Initial elections to Option 3 are irrevocable and cannot be
changed. Only one change of death benefit option is permitted per policy year.
The effective date of a change will be the monthly anniversary day following the
date the change is approved by Nationwide.
In order for any change in the death benefit option to become effective, the
cash surrender value, after a change, must be sufficient to keep the policy in
force for at least three months.
Nationwide will adjust the specified amount so that the net amount at risk
remains constant before and after the death benefit option change. A change in
death benefit option will not be permitted if it results in the specified amount
being reduced to an amount in which the total premiums paid exceed the premium
limit required by applicable state law to qualify the policy as a contract for
life insurance.
PROCEEDS PAYABLE ON DEATH
The actual death proceeds payable on the insured's death will be the death
benefit as described above, less any policy indebtedness and less any unpaid
policy charges. Under certain circumstances, the death proceeds may be adjusted
(see "Incontestability," "Error in Age," and "Suicide").
INCONTESTABILITY
Nationwide will not contest payment of the death proceeds based on the initial
specified amount after the policy has been in force during the insured's
lifetime for 2 years from the policy date. For any increase in specified amount
requiring evidence of insurability, Nationwide will not contest payment of the
death proceeds based on such an increase after it has been in force during the
insured's lifetime for 2 years from its effective date.
ERROR IN AGE
If the age of the insured has been misstated, the affected benefits will be
adjusted. The amount of the death benefit will be (1) multiplied by (2) and then
the result added to (3), where:
1. is the amount of the death benefit at the time of the
insured's death reduced by the amount of the cash value at the
time of the insured's death;
2. is the ratio of the monthly cost of insurance applied in the
policy month of death and the monthly cost of insurance that
should have been applied at the true age in the policy month
of death; and
3. is the cash value at the time of the insured's death.
SUICIDE
If the insured dies by suicide, while sane or insane, within two years from the
policy date, Nationwide will pay no more than the sum of the premiums paid, less
any indebtedness and less any partial surrenders. If the insured dies by
suicide, while sane or insane, within two years from the date an application is
accepted for an increase in the specified amount, Nationwide will pay no more
than the amount paid for the additional benefit.
MATURITY PROCEEDS
The maturity date is the policy anniversary on or next following the insured's
100th birthday. Maturity proceeds are payable to the policy owner on the
maturity date. Maturity proceeds are equal to the amount of the policy's cash
value, less any indebtedness.
RIGHT OF CONVERSION
The policy owner may, at any time upon written request to Nationwide within 24
months of the policy date, make an irrevocable, one-time election to transfer
all sub-account cash values to the fixed account. The right of conversion is
subject to state availability.
GRACE PERIOD
If the cash surrender value on a monthly anniversary day is not sufficient to
cover the current policy charges, a grace period will be allowed for the payment
of a premium equal up to three times the current monthly deduction. Nationwide
will send the policy owner a notice
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<PAGE> 32
at the start of the grace period, at the address in the application or another
address specified by the policy owner, stating the amount of premium required.
The grace period will end 61 days after the day the notice is mailed. If
sufficient premium is not received by Nationwide by the end of the grace period,
the policy will lapse without value. If death proceeds become payable during the
grace period, Nationwide will pay the death proceeds.
REINSTATEMENT
If the grace period ends and the policy owner has neither paid the required
premium nor surrendered the policy for its cash surrender value, the policy
owner may reinstate the policy by:
1. submitting a written request at any time within 3 years after
the end of the grace period and prior to the maturity date;
2. providing evidence of insurability satisfactory to Nationwide;
3. paying sufficient premium to cover all policy charges that
were due and unpaid during the grace period;
4. paying sufficient premium to keep the policy in force for 3
months from the date of reinstatement; and
5. paying or reinstating any indebtedness against the policy
which existed at the end of the grace period.
The effective date of a reinstated policy will be the monthly anniversary day on
or next following the date the application for reinstatement is approved by
Nationwide. If the policy is reinstated, the cash value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the cash value at the end of the grace period.
Unless the policy owner has provided otherwise, all amounts will be allocated
based on the underlying mutual fund allocation factors in effect at the start of
the grace period.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Internal Revenue Code provides that if certain tests are
met, a policy will be treated as a life insurance policy for federal tax
purposes. Nationwide will monitor compliance with these tests. The policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the death proceeds payable under a policy are excludable
from gross income of the beneficiary under Section 101 of the Internal Revenue
Code.
Section 7702A of the Internal Revenue Code defines modified endowment contracts
as those policies issued or materially changed on or after June 21, 1988 on
which the total premiums paid during the first seven years exceed the amount
that would have been paid if the policy provided for paid up benefits after
seven level annual premiums (see "Information about the Policies"). The Internal
Revenue Code states that taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions from modified endowment
contracts (other than certain distributions to terminally ill individuals) are
subject to federal income taxes in a manner similar to the way annuities are
taxed. Modified endowment contract distributions are defined by the Internal
Revenue Code as amounts not received as an annuity and are taxable to the extent
the cash value of the policy exceeds, at the time of distribution, the premiums
paid into the policy. A 10% tax penalty generally applies to the taxable portion
of such distributions unless the policy owner is over age 59 1/2 or disabled or
the distribution is part of an annuity to the policy owner as defined in the
Internal Revenue Code. Under certain circumstances, certain distributions made
under a policy on the life of a "terminally ill individual", as that term is
defined in the Internal Revenue Code, are excludable from gross income.
The policies offered by this prospectus may or may not be issued as modified
endowment contracts. Nationwide will monitor premiums paid and will notify the
policy owner when the policy's non-modified endowment status is in
29
<PAGE> 33
jeopardy. If a policy is not a modified endowment contract, a cash distribution
during the first 15 years after a policy is issued which causes a reduction in
death benefits may still become fully or partially taxable to the policy owner
pursuant to Section 7702(f)(7) of the Internal Revenue Code. The policy owner
should carefully consider this potential effect and seek further information
before initiating any changes in the terms of the policy. Under certain
conditions, a policy may become a modified endowment as a result of a material
change or a reduction in benefits as defined by Section 7702A(c) of the Internal
Revenue Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Internal Revenue Code requires that the investments of separate accounts
such as the variable account be adequately diversified. Regulations under 817(h)
provide that a variable life policy that fails to satisfy the diversification
standards will not be treated as life insurance unless such failure was
inadvertent, is corrected, and the policy owner or Nationwide pays an amount to
the IRS. The amount will be based on the tax that would have been paid by the
policy owner if the income, for the period the policy was not diversified, had
been received by the policy owner.
If the failure to diversify is not corrected in this manner, the policy owner
will be deemed the owner of the underlying securities and taxed on the earnings
of his or her account.
Representatives of the IRS have suggested, from time to time, that the number of
underlying mutual funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the U.S. 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 policy would
no longer qualify as life insurance under Section 7702 of the Internal Revenue
Code, Nationwide will take whatever steps are available to remain in compliance.
Nationwide will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the policy by lapse or the maturity of the
policy on its maturity date may have adverse tax consequences. If the amount
received by the policy owner plus total policy indebtedness exceeds the premiums
paid into the policy, the excess generally will be treated as taxable income,
regardless of whether or not the policy is a modified endowment contract.
WITHHOLDING
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
(which cannot be waived). The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise of no Taxpayer Identification Number
is provided to Nationwide, or if the IRS notifies Nationwide that back-up
withholding is required.
FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 1999, an estate of less than $625,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.
When the insured dies, the death benefit will generally be included in the
insured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the insured's estate; or (2) the insured held any "incident of
ownership" in the policy at death or at any time within three years of death. An
incident of ownership is, in
30
<PAGE> 34
general, any right that may be exercised by the policy owner, such as the right
to borrow on the policy, or the right to name a new beneficiary.
If the policy owner (whether or not he or she is the insured) transfers
ownership of the policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such policy owner transfers the policy to
someone two or more generations younger than the policy owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the policy.
Similarly, if the beneficiary is two or more generations younger than the
insured, the payment of the death proceeds at the death of the insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the U.S.
Secretary of the Treasury, Nationwide may be required to withhold a portion of
the death proceeds and pay them directly to the IRS as the GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to the
complexity of these rules, the policy owner should consult with counsel and
other competent advisors regarding these taxes.
NON-RESIDENT ALIENS
Pre-death distributions from modified endowment contracts to nonresident aliens
("NRAs") are generally subject to federal income tax and tax withholding, at a
statutory rate of 30% of the amount of income that is distributed. Nationwide is
required to withhold such amount from the distribution and remit it to the IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to Nationwide sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. In
addition, the NRA must obtain an individual Taxpayer Identification Number from
the IRS, and furnish that number to Nationwide prior to the distribution. If
Nationwide does not have the proper proof of citizenship or residency and a
proper individual Taxpayer Identification Number prior to any distribution,
Nationwide will be required to withhold 30% of the income, regardless of any
treaty provision.
A pre-death distribution may not be subject to withholding where the recipient
sufficiently establishes to Nationwide 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 includible in the recipient's gross income for United
States federal income tax purposes, Any such distributions may be subject to
back-up withholding at the statutory rate (currently 31%) if no Taxpayer
Identification Number, or an incorrect Taxpayer Identification Number, is
provided.
State and local estate, inheritance, income and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
policy owner or beneficiary.
TAXATION OF NATIONWIDE
Nationwide is taxed as a life insurance company under the Internal Revenue Code.
Since the variable account is not a separate entity from Nationwide and its
operations form a part of Nationwide, it will not be taxed separately as a
"regulated investment company" under Sub-chapter M of the Internal Revenue Code.
Investment income and realized capital gains on the assets of the variable
account are reinvested and taken into account in determining the value of
accumulation units. As a result, such investment income and realized capital
gains are automatically applied to increase reserves under the policies.
Nationwide does not initially expect to incur any federal income tax liability
that would be chargeable to the variable account. Based upon these expectations,
no charge is currently being made against the variable account for federal
income taxes. If, however, Nationwide determines that on a separate company
basis such taxes may be incurred, it reserves the right to assess a charge for
such taxes against the variable account.
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<PAGE> 35
Nationwide may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
TAX CHANGES
The foregoing discussion, which is based on Nationwide's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.
The Internal Revenue 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 policies. It is
reasonable to believe that such proposals, and future proposals, may be enacted
into law. In addition, the U.S. Treasury Department may amend existing
regulations, issue new regulations, or adopt new interpretations of existing law
that may be at 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 policy.
If the policy owner, insured, or beneficiary or other person receiving any
benefit or interest in or from the policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the policy, the
death proceeds, or other distributions and/or ownership of the policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a policy may be changed retroactively. There
is no way of predicting if, when, or to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
The foregoing is a general explanation as to certain tax matters pertaining to
insurance policies. 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.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women. Thus the policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this policy.
YEAR 2000 COMPLIANCE ISSUES
Nationwide has developed and implemented a plan to address issues related to the
Year 2000. The problem relates to many existing computer systems using only two
digits to identify a year in a date field. These systems were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer systems could fail or create erroneous results
when processing information dated after December 31, 1999. Like many
organizations, Nationwide is required to renovate or replace many computer
systems so that the systems will function properly after December 31, 1999.
Nationwide has completed an inventory and assessment of all computer systems and
has implemented a plan to renovate or replace all applications that were
identified as not Year 2000 compliant. Nationwide has renovated all applications
that required renovation. Testing of the renovated programs included running
each application in a Year 2000 environment and was completed as planned during
1998. For applications being replaced, Nationwide had all
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<PAGE> 36
replacement systems in place and functioning as planned by year-end 1998. The
shareholder services system that supports mutual fund products was fully
deployed during the first quarter 1999. Conversion of existing traditional life
policies to the new compliant system was completed by July 1999.
Nationwide has completed an inventory and assessment of all vendor products and
has tested and certified that each vendor product is Year 2000 compliant. Any
vendor products that could not be certified as Year 2000 compliant were replaced
or eliminated in 1998.
Nationwide's facilities in Columbus, Ohio have been inventoried, assessed and
tested as being Year 2000 compliant. Mission-critical systems supporting
Nationwide's infrastructure such as telecommunications, voice and networks were
renovated and brought into compliance as planned during the second quarter.
Nationwide has also addressed issues associated with the exchange of electronic
data with external organizations. Nationwide has completed an inventory and
assessment of all business partners utilizing electronic interfaces with
Nationwide and processes have been put in place to allow Nationwide to accept
data regardless of the format. Contingency plans were completed in the third
quarter that will allow Nationwide to continue to send or receive data in the
event of failures related to other exchanges of data.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
conducting a due diligence effort with significant external organizations,
including mutual fund organizations, financial institutions and wholesale
producers, to assess if they will be Year 2000 compliant. To-date, 87% of our
critical business partners have reported that they are compliant. Our
communication efforts will continue until compliance is assured or until
regulatory rulings indicate actions to be taken related to non-compliant firms.
Contingency plans have been developed for mutual fund organizations, financial
institutions and wholesale producers who may not become compliant prior to the
end of 1999.
As part of its risk management strategy, Nationwide has identified risk
scenarios including the identification of external risk factors that could cause
business interruptions from Year 2000 related events. These risk scenarios
include increased customer service volume, increased producer service volume,
utility failures, technology failures and disruptions in business operations,
finance and cash flow. Nationwide has completed its mitigation and contingency
plans to address these risks that would, except for complete utility failure,
permit uninterrupted service to customers and producers.
During 1998 and the first nine months of 1999 communications regarding
Nationwide's Year 2000 readiness have been sent to all our customers and
producers, on several different occasions in the form of brochures and
literature included with statements and billings. This process will continue for
the remainder of 1999.
Operating expenses in 1998 and 1997 include approximately $44.7 million and
$45.4 million, respectively, for technology projects, including costs related to
Year 2000. Expenditures for Year 2000 projects for the first nine months of 1999
totaled $5.3 million. These expenses do not have an effect on the assets of the
variable account and are not charged through to the contract owner.
Management does not anticipate that the completion of Year 2000 renovation and
replacement activities will result in a reduction in operating expenses. Rather,
personnel and resources currently allocated to Year 2000 issues will be assigned
to other technology-related projects.
STATE REGULATION
Nationwide is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
Nationwide for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine Nationwide's contract
33
<PAGE> 37
liabilities and reserves so that the Insurance Department may certify the items
are correct. Nationwide's books and accounts are subject to review by the
Insurance Department at all times and a full examination of its operations is
conducted periodically by the National Association of Insurance Commissioners.
Such regulation does not, however, involve any supervision of management or
investment practices or policies. In addition, Nationwide is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
REPORTS TO POLICY OWNERS
Nationwide will mail to the policy owner at the last known address of record:
o an annual statement containing: the amount of the current death benefit,
cash value, cash surrender value, premiums paid, monthly charges deducted,
amounts invested in the fixed account and the sub-accounts, and policy
indebtedness;
o annual and semi-annual reports containing all applicable information and
financial statements or their equivalent, which must be sent to the
underlying mutual fund beneficial shareholders as required by the rules
under the Investment Company Act of 1940 for the variable account; and
o statements of significant transactions, such as changes in specified
amount, changes in death benefit options, changes in future premium
allocations, transfers among sub-accounts, premium payments, loans, loan
repayments, reinstatement and termination.
ADVERTISING
Nationwide is ranked and rated by independent financial rating services,
including 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
Nationwide. The ratings are not intended to reflect the investment experience or
financial strength of the variable account. Nationwide may advertise these
ratings from time to time. In addition, Nationwide may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend Nationwide or the policies. Furthermore,
Nationwide 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.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance and
annuity pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
On October 29, 1998, Nationwide was named in a lawsuit filed in Ohio state court
related to the sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide
Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The amended
complaint is brought as a class action on behalf of all persons who purchased
individual deferred annuity contracts or participated in group annuity contracts
sold by Nationwide and the other named Nationwide affiliates which were used to
fund certain tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. On June 11, 1999, Nationwide and
the other named defendants filed a motion to dismiss the amended complaint.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
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<PAGE> 38
The general distributor, NAS, is not engaged in any litigation of any material
nature.
EXPERTS
The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the variable account, Nationwide, and the policies
offered hereby. Statements contained in this prospectus as to the content of
policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the policies described herein are being passed
upon by Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus, Ohio
43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
DISTRIBUTION OF THE POLICIES
The policies will be sold by licensed insurance agents in those states where the
policies may lawfully be sold. Agents are registered representatives of broker
dealers registered under the Securities Exchange Act of 1934 who are member
firms of the National Association of Securities Dealers, Inc. ("NASD"). The
policies will be distributed by the general distributor, NAS. NAS was organized
as an Ohio corporation on April 8, 1965. NAS is a wholly owned subsidiary of
Nationwide and a member of the NASD.
NAS acts as general distributor for the following separate accounts, all of
which are separate investment accounts of Nationwide or its affiliates:
o Nationwide Multi-Flex Variable Account
o Nationwide Variable Account-II
o Nationwide VLI Separate Account-3
o Nationwide VLI Separate Account-4
o Nationwide VLI Separate Account-5
o Nationwide Variable Account
o Nationwide Variable Account-5
o Nationwide Variable Account-6
o Nationwide Variable Account-8
o Nationwide Variable Account-9
o Nationwide Variable Account-10
o Nationwide VA Separate Account-A
o Nationwide VA Separate Account-B
o Nationwide VA Separate Account-C
o Nationwide VL Separate Account-A
o Nationwide VL Separate Account-B
o Nationwide VL Separate Account-C
o Nationwide VL Separate Account-D.
NAS also acts as principal underwriter for the following open-end management
investment companies:
o Nationwide Mutual Funds;
o Nationwide Separate Account Trust;
o Financial Horizons Investment Trust; and
o Nationwide Asset Allocation Trust.
Gross first year commissions plus any expense allowance payments made by
Nationwide on the sale of these policies distributed by NAS will not exceed 40%
of target premium plus 5% of any excess premium payments in year one and 25% of
target premium plus 5% on the excess premium in years two through four. Gross
renewal commissions paid at the beginning of policy year five and beyond by
Nationwide will not exceed greater of 5% of target premium plus 5% on the excess
premium or an annual effective rate of 0.20%, paid quarterly, of the cash value
as of the end of the prior quarter. For single premium modified endowment
contracts issued on or after May 1, 1999, gross renewal commissions paid at the
beginning of policy year two and beyond will not exceed an annual rate of 0.20%,
paid quarterly, of the cash value as of the end of the prior quarter.
No underwriting commissions have been paid by Nationwide to NAS.
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NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
Dimon R. McFerson Chairman of the Board of Directors and Chairman and Chief Executive
One Nationwide Plaza Officer and Director
Columbus, OH 43215
Robert A. Oakley Executive Vice President - Chief Financial Officer and Director
One Nationwide Plaza
Columbus, OH 43215
Susan A. Wolken Director
One Nationwide Plaza
Columbus, OH 43215
Paul J. Hondros Director
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer and Director
One Nationwide Plaza
Columbus, OH 43215
Edwin P. McCausland, Jr. Senior Vice President-Fixed Income Securities
One Nationwide Plaza
Columbus, OH 43215
Charles S. Bath Vice President - Investments
One Nationwide Plaza
Columbus, OH 43215
Alan A. Todryk Vice President - Taxation
One Nationwide Plaza
Columbus, OH 43215
Dennis W. Click Vice President and Secretary
One Nationwide Plaza
Columbus, OH 43215
William G. Goslee Vice President One Nationwide Plaza
Columbus, OH 43215
James F. Laird, Jr. Vice President and General Manager
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President - Compliance
One Nationwide Plaza
Columbus, OH 43215
Christopher A. Cray Treasurer
One Nationwide Plaza
Columbus, OH 43215
Elizabeth A. Davin Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
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<PAGE> 40
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
David E. Simaitis Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
Patricia J. Smith Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
ADDITIONAL INFORMATION ABOUT NATIONWIDE
The life insurance business, including annuities, is the only business in which
Nationwide is engaged.
Nationwide markets its policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
Nationwide serves as depositor for the following separate accounts, each of
which is a registered investment company:
o Nationwide VL Separate Account-A,
o Nationwide VL Separate Account-B,
o Nationwide VL Separate Account-C,
o Nationwide VL Separate Account-D,
o Nationwide VA Separate Account-A,
o Nationwide VA Separate Account-B, and
o Nationwide VA Separate Account-C.
Nationwide, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
Nationwide operates in the highly competitive field of life insurance. There are
approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
Nationwide shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
Nationwide does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. Nationwide shares home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
Company Management
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual
Fire Insurance Company, Nationwide Property and Casualty Insurance Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide group. The companies listed above have substantially common boards of
directors and officers.
Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of
Nationwide. NFS serves as a holding company for other financial institutions.
Nationwide is the sole owner of Nationwide Life and Annuity Insurance Company.
Each of the directors and officers listed below is a director or officer
respectively of at least one or more of the other major insurance affiliates of
the Nationwide Insurance Enterprise. Messrs. McFerson, Gasper, Woodward and Ms.
Thomas
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<PAGE> 41
are also trustees of one or more of the registered investment companies
distributed by Nationwide Advisory Services, a registered broker-dealer
affiliated with the Nationwide Insurance Enterprise.
DIRECTORS OF NATIONWIDE
<TABLE>
<CAPTION>
DIRECTORS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES
ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator (1)
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
Kenneth D. Davis Director Farm Owner and Operator (1)
7229 Woodmansee Road
Leesburg, Ohio 45135
Keith W. Eckel Director Partner, Fred W. Eckel Sons; President, Eckel
1647 Falls Road Farms, Inc. (1)
Clarks Summit, PA 18411
Willard J. Engel Director Retired General Manager, Lyon County Co-operative
301 East Marshall Street Oil Company (1)
Marshall, MN 44691
Fred C. Finney Director Owner and Operator, Moreland Fruit Farm; Operator,
1558 West Moreland Road Melrose Orchard (1)
Wooster, OH 44691
Joseph J. Gasper President and Chief President and Chief Operating Officer, Nationwide
One Nationwide Plaza Operating Officer and Life Insurance Company and Nationwide Life and
Columbus, OH 43215 Director Annuity Insurance Company (2)
Dimon R. McFerson Chairman and Chief Chairman and Chief Executive Officer- (2)
One Nationwide Plaza Executive Officer and
Columbus, OH 43215 Director
David O. Miller Chairman of the Board and President, Owen Potato Farm, Inc.; Partner, M&M
115 Sprague Drive Director Enterprises (1)
Hebron, OH 43025
Yvonne L. Montgomery Director Senior Vice President-General Manager Southern
Suite 1600 Customer Operations for U.S. Customer Operations,
2859 Paces Ferry Road Xerox Corporation (2)
Atlanta, GA 30339
Ralph M. Paige Director Executive Director Federation of Southern
2769 Church Street Cooperatives/Land Assistance Fund
East Point, GA 30344
James F. Patterson Director Vice President, Pattersons, Inc.; President,
8765 Mulberry Road Patterson Farms, Inc. (1)
Chesterland, OH 44026
Arden L. Shisler Director President and Chief Executive Officer, K&B
1356 North Wenger Road Transport, Inc. (1)
Dalton, OH 44618
Robert L. Stewart Director Owner and Operator Sunnydale Farms and Mining (1)
88740 Fairview Road
Jewett, OH 43986
</TABLE>
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<PAGE> 42
<TABLE>
<CAPTION>
DIRECTORS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES
ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION
<S> <C> <C>
Nancy C. Thomas Director Farm Owner and Operator, Da-Ma-Lor Farms (1)
1733A Westwood Avenue
Alliance, OH 44601
</TABLE>
(1) Principal occupation for last 5 years.
(2) Prior to assuming this current position, held other executive management
positions with the same or affiliated companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company. Messrs. McFerson and Gasper are directors of Nationwide Advisory
Services, Inc., a registered broker-dealer.
Messrs. McFerson, Miller, Patterson, and Shisler are directors of Nationwide
Financial Services, Inc. Mr. McFerson and Ms. Thomas are trustees of Nationwide
Mutual Funds, a registered investment company. Messrs. McFerson, Gasper and
Woodward are trustees of Nationwide Separate Account Trust and Nationwide Asset
Allocation Trust, registered investment companies. Mr. McFerson is trustee of
Financial Horizons Investment Trust and Nationwide Mutual Funds, registered
investment companies. Mr. Engel is a director of Western Cooperative Transport.
EXECUTIVE OFFICERS OF NATIONWIDE
<TABLE>
<CAPTION>
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
<S> <C>
Dennis W. Click Vice President - Secretary
One Nationwide Plaza
Columbus, OH 43215
Robert A. Oakley Executive Vice President-Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
James E. Brock Senior Vice President - Corporate Development
One Nationwide Plaza
Columbus, OH 43215
John R. Cook, Jr. Senior Vice President - Chief Communications Officer
One Nationwide Plaza
Columbus, OH 43215
Phillip C. Gath Senior Vice President and Chief Actuary
One Nationwide Plaza
Columbus, OH 43215
Richard D. Headley Senior Vice President - Chief Information Technology Officer
One Nationwide Plaza
Columbus, OH 43215
Donna A. James Senior Vice President - Human Resources
One Nationwide Plaza
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales and Financial Services
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
<S> <C>
Douglas C. Robinette Senior Vice President - Marketing and Product Management
One Nationwide Plaza
Columbus, OH 43215
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
Bruce C. Barnes Vice President - Technology Strategy and Planning
One Nationwide Plaza
Columbus, OH 43215
David A. Diamond Vice President - Enterprise Controller
One Nationwide Plaza
Columbus, OH 43215
Matthew S. Easley Vice President - Investment Life Actuarial
One Nationwide Plaza
Columbus, OH 43215
R. Dennis Noice Vice President - Systems
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President - Office of Product and Market Compliance
One Nationwide Plaza
Columbus, OH 43215
Mark R. Thresher
One Nationwide Plaza Vice President - Finance and Treasurer
Columbus, OH 43215
</TABLE>
JOSEPH J. GASPER has been President and Chief Operating Officer of Nationwide
and Director since April 1996. Previously, he was Executive Vice President -
Property/Casualty Operations of Nationwide Mutual Insurance Company from April
1995 to April 1996. He was Senior Vice President - Property/Casualty Operations
of Nationwide Mutual Insurance Company from September 1993 to April 1995. Prior
to that time, Mr. Gasper held numerous positions within Nationwide. Mr. Gasper
has been with Nationwide for 32 years.
BRUCE C. BARNES has been Vice President - Technology Strategy and Planning since
May 1998. Previously, Mr. Barnes was Vice President - Information Systems from
February 1997 to May 1998. Mr. Barnes was Vice President - Life Systems from May
1996 to May 1998. Previously, he was Vice President - Investment Product Systems
from April 1995 to May 1996. Prior to that time, Mr. Barnes was Vice President -
Individual Investment Products/Common Systems from May 1994 to April 1995 and
Associate Vice President - Individual Investment Products/Common Systems from
May 1992 to May 1994. Mr. Barnes was Vice President - Information Services of
PHP Benefits Systems, Inc. from January 1987 to January 1992. Mr. Barnes has
been with Nationwide for 7 years.
A. I. BELL has been a Director of Nationwide since April, 1998. Mr. Bell has
served as a state trustee of the Ohio Farm Bureau Federation from 1991 to 1998
and as president that last four years. He oversees the Bell family farm in
Zanesville, Ohio. The farm is the hub of a multi-family swine network, in
addition to grain and beef operations. Mr. Bell has represented the Ohio Farm
Bureau at state and national level activities, and has traveled internationally
representing Ohio agriculture. In 1995, he was introduced into The Ohio State
University Department of Animal Sciences Hall of Fame.
JAMES E. BROCK has been Senior Vice President - Corporate Development since July
1997. Previously, he was Senior Vice President - Company Operations from
December 1996 to
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<PAGE> 44
July 1997 and was also Senior Vice President - Life Company Operations from
April 1996 to July 1997. Mr. Brock was Senior Vice President - Investment
Products Operations from November 1990 to April 1996. Prior to that time, Mr.
Brock held several positions within Nationwide. Mr. Brock has been with
Nationwide for 29 years.
DENNIS W. CLICK has been Vice President - Secretary since December 1997.
Previously, he was Vice President - Assistant Secretary from December 1996 to
December 1997. Mr. Click was Vice President - Assistant Secretary from August
1994 to December 1997. Mr. Click was Associate Vice President and Assistant
Secretary from August 1989 to August 1994. Prior to that time, he held several
positions within Nationwide. Mr. Click has been with Nationwide for 38 years.
JOHN R. COOK, JR. has been Senior Vice President - Chief Communications Officer
since May 1997. Previously, Mr. Cook was Senior Vice President - Chief
Communications Officer of USAA from July 1989 to May 1997.
KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis
has been Chairman of the Board of South Central Power Company since August 1979,
and currently oversees the Davis family farm located in Leesburg, Ohio. Mr.
Davis served as Director of the Farm Bureau Bancorp from October 1998 to March
1998. In addition, Mr. Davis has served in various officer positions with the
Ohio Farm Bureau Federation since December 1989, with his most recent position
as Trustee and President, a position he held from March 1998 to March 1999. Mr.
Davis also held officer positions with the Highland County Farm Bureau from June
1997 to September 1997, including Trustee and President from September 1984 to
September 1997.
DAVID A. DIAMOND has been Vice President - Enterprise Controller since August
1996. Previously, he was Vice President - Controller from October 1993 to August
1996. Prior to that time, Mr. Diamond held several positions within Nationwide.
Mr. Diamond has been with Nationwide for 10 years.
MATTHEW S. EASLEY has been Vice President - Investment Life Actuarial since June
1998. Mr. Easley was Vice President - Marketing and Administrative Services from
December 1996 to June 1998. Mr. Easley was Vice President - Life Marketing and
Administrative Services from May 1996 to June 1998. Mr. Easley was Vice
President - Annuity and Pension Actuarial from August 1989 to May 1996. Prior to
that time, Mr. Easley held several positions within Nationwide. Mr. Easley has
been with Nationwide for 16 years.
KEITH W. ECKEL has been a Director of Nationwide since April 1996. Mr. Eckel is
a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc., in northeast
Pennsylvania. He received the Master Farmer award from Penn State University in
1982. He is a former president of the Pennsylvania Farm Bureau, a position he
held for 15 years, and the Lackawanna County Cooperative Extension Association.
Mr. Eckel has served as a board member and executive committee member of the
American Farm Bureau. He is a former vice president of the Pennsylvania Council
of Cooperative Extension Associations, and former board member of the
Pennsylvania Vegetable Grower's Association.
PHILIP C. GATH has been Senior Vice President - Chief Actuary since May 1998.
Previously, Mr. Gath was Vice President - Product Manager - Individual Variable
Annuity from July 1997 to May 1998. Mr. Gath was Vice President - Individual
Life Actuary from August 1989 to July 1997. Prior to that time, Mr. Gath held
several positions within Nationwide. Mr. Gath has been with Nationwide for 30
years.
RICHARD D. HEADLEY has been Senior Vice President - Chief Information Technology
Officer since October 1997. Previously, Mr. Headley was Chairman and Chief
Executive Officer of Banc One Services Corporation from 1992 to October 1997.
From January 1975 until 1992 Mr. Headley held several positions with Banc One
Corporation.
DONNA A. JAMES has been Senior Vice President - Human Resources since December
1997. Previously, she was Vice President - Human Resources from July 1996 to
December
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<PAGE> 45
1997. Prior to that time Ms. James was Vice President Assistant to the CEO from
March 1996 to July 1996. From May 1994 to March 1996 she was Associate Vice
President - Assistant to the CEO. Prior to that time Ms. James held several
positions within Nationwide. Ms. James has been with Nationwide for 17 years.
RICHARD A. KARAS has been Senior Vice President - Sales - Financial Services
since March 1993. Previously, he was Vice President - Sales - Financial Services
from February 1989 to March 1993. Prior to that time, Mr. Karas held several
positions within Nationwide. Mr. Karas has been with Nationwide for 34 years.
DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr.
Miller has been a farm owner and land developer since 1962. He is the President
of the Owen Potato Farm Inc. and is a partner of M&M Enterprises in Licking
County, Ohio. He is Chairman of the Board of the Wausau Insurance Companies and
serves on the board of directors of several companies of the Nationwide group.
He is also a director of the National Cooperative Business Association.
YVONNE L. MONTGOMERY has been a Director since April, 1998. Ms. Montgomery is
senior vice president/general manager of southern customer operations for United
States Customer Operations for Xerox Corporation. A resident of Atlanta,
Georgia, Ms. Montgomery oversees eight customer business units across the
southern United States as well as all business and marketing functions in the
regions. Ms. Montgomery joined Xerox in 1976 as a sales representative and
progressed through management positions, including Vice President - Field
Operations, and Executive Assistant to the Chairman and CEO.
R. DENNIS NOICE has been Vice President - Systems since April 1998. Previously,
he was Vice President - Retail Operations from March 1997 to April 1998. Prior
to that time, Mr. Noice was Vice President - Individual Investment Products from
October 1989 to March 1997. Prior to that time, Mr. Noice held several positions
within Nationwide. Mr. Noice has been with Nationwide for 27 years.
ROBERT A. OAKLEY has been Executive Vice President - Chief Financial Officer
since April 1995. Previously, he was Senior Vice President - Chief Financial
Officer from October 1993 to April 1995. Prior to that time, Mr. Oakley held
several positions within Nationwide. Mr. Oakley has been with Nationwide for 23
years.
RALPH M. PAIGE has been a Director of Nationwide since April 1999. Mr. Paige has
been the Executive Director of the Federation of Southern Cooperatives/Land
Assistance Fund since 1969. Mr. Paige also served as the National Field
Director/Georgia State Director from 1981 to 1984.
JOSEPH P. RATH has been Vice President - Product and Market Compliance since
April 1997. Previously, he was Vice President - Associate General Counsel from
October 1988 to April 1997. Prior to that time, Mr. Rath held several positions
within Nationwide. Mr. Rath has been with Nationwide for 22 years.
DOUGLAS C. ROBINETTE has been Senior Vice President - Marketing and Product
Management since May 1998. Previously, Mr. Robinette was Executive Vice
President, Customer Services of Employers Insurance of Wausau (Wausau), a member
of the Nationwide group until December 1998, from September 1996 to May 1998.
Prior to that time he was Executive Vice President, Finance and Insurance
Services of Wausau from May 1995 to September 1996. From November 1994 to May
1995 Mr. Robinette was Senior Vice President, Finance and Insurance Services of
Wausau. From May 1993 to November 1994 he was Senior Vice President, Finance of
Wausau. Prior to that time, Mr. Robinette held several positions within the
Nationwide group. Mr. Robinette has been with the Nationwide group for 12 years.
MARK R. THRESHER has been Vice President - Controller since August 1996. He was
Vice President and Treasurer from November 1996 to February 1997. Previously, he
was Vice President and Treasurer from June 1996 to August 1996. Prior to joining
Nationwide, Mr. Thresher served as a partner with KPMG LLP.
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<PAGE> 46
SUSAN A. WOLKEN has been Senior Vice President - Life Company Operations since
June 1997. Previously, she was Senior Vice President - Enterprise Administration
from July 1996 to June 1997. Prior to that time, she was Senior Vice President -
Human Resources from April 1995 to July 1996. From September 1993 to April 1995,
Ms. Wolken was Vice President - Human Resources. From October 1989 to September
1993 she was Vice President - Individual Life and Health Operations. Ms. Wolken
has been with Nationwide for 24 years.
ROBERT J. WOODWARD, JR. has been Executive Vice President - Chief Investment
Officer since August 1995. Previously, he was Senior Vice President - Fixed
Income Investments from March 1991 to August 1995. Prior to that time, Mr.
Woodward held several positions within Nationwide. Mr. Woodward has been with
Nationwide for 34 years.
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<PAGE> 47
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investment
vehicles for variable annuity contracts and variable life insurance policies
issued by insurance companies.
There is no guarantee that the investment objectives will be met.
BT INSURANCE FUNDS TRUST
BT Insurance Funds Trust (the "Trust") is an open-end management investment
company currently offering shares in the Funds listed below. Shares are
available only through the purchase of certain variable annuity and variable
life insurance contracts issued by various insurance companies. Bankers Trust
Company is the Funds' investment adviser.
EAFE(R) EQUITY INDEX FUND
Investment Objective: To replicate as closely as possible the
performance of the Morgan Stanley Capital International Europe,
Australia, Far East (EAFE(R)) Index (the "EAFE(R) Index").
EQUITY 500 INDEX FUND
Investment Objective: To seek to replicate as closely as possible the
performance of the Standard & Poor's 500 Composite Stock Price Index.
SMALL CAP INDEX FUND
Investment Objective: To seek to replicate as closely as possible the
performance of the Russell 2000 Small Stock Index.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company incorporated under Maryland law on July 20, 1992
and commenced operations on October 7, 1993. The Fund offers its shares only as
investment vehicles for variable annuity and variable life insurance products of
insurance companies. The Dreyfus Corporation serves as the Fund's investment
adviser. NCM Capital Management Group, Inc. serves as the Fund's sub-investment
adviser and provides day-to-day management of the Fund's portfolio.
Investment Objective: Capital growth through equity investment in
companies that, in the opinion of the Fund's advisers, not only meet
traditional investment standards, but which also show evidence that
they conduct their business in a manner that contributes to the
enhancement of the quality of life in America. Current income is
secondary to the primary goal.
DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified,
management investment company incorporated under Maryland law on January 24,
1989 and commenced operations on September 29, 1989. The Fund offers its shares
only as investment vehicles for variable annuity and variable life insurance
products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as
the Fund's manager, while Mellon Equity Associates, an affiliate of Dreyfus,
serves as the Fund's index manager. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation.
Investment Objective: To provide investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund ("Fund") is an open-end, management investment
company. It was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts on October 29, 1986 and commenced operations
on August 31, 1990. The Fund offers its shares only as investment vehicles for
variable annuity and variable life insurance products of insurance companies.
The
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<PAGE> 48
Dreyfus Corporation ("Dreyfus") serves as the Fund's manager.
CAPITAL APPRECIATION PORTFOLIO
Investment Objective: The Portfolio's primary investment objective is
to provide long-term capital growth consistent with the preservation of
capital; current income is a secondary investment objective. This
Portfolio invests primarily in thecommon stocks of domestic and foreign
issuers.
DISCIPLINED STOCK PORTFOLIO
Investment Objective: The Portfolio's investment objective is to
provide investment results that are greater than the total return
performance of publicly-traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index.
This Series will use quantitative statistical modeling techniques to
construct a portfolio in an attempt to achieve its investment
objective, without assuming undue risk relative to the broad stock
market.
INTERNATIONAL VALUE PORTFOLIO
Investment Objective: The Portfolio's investment objective is long-term
capital growth. This Series invests primarily in a portfolio of
publicly-traded equity securities of foreign issuers which would be
characterized as "value" companies according to criteria established by
Dreyfus.
LIMITED TERM HIGH INCOME PORTFOLIO
Investment Objective: The Portfolio's investment objective is to
maximize total return, consisting of capital appreciation and current
income. This Series seeks to achieve its objective by investing up to
all of its assets in a portfolio of lower rated fixed-income securities
that, under normal market conditions, have an effective duration of
three and one-half years or less and an effective average portfolio
maturity of four years or less. INVESTMENTS IN LOWER RATED FIXED-INCOME
SECURITIES ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-
PAYMENT OF INTEREST. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE SERIES.
QUALITY BOND PORTFOLIO
Investment Objective: The Portfolio's investment objective is to
provide the maximum amount of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity. This
Series invests principally in debt obligations of corporations, the
U.S. Government and its agencies and instrumentalities, and U.S. major
banking institutions.
SMALL COMPANY STOCK PORTFOLIO
Investment Objective: The Portfolio's investment objective is to
provide investment results that are greater than the total return
performance of publicly-traded common stocks in the aggregate, as
represented by the Russell 2500tradement Index. This Series invests
primarily in a portfolio of equity securities of small- to medium-sized
domestic issuers, while attempting to maintain volatility and
diversification similar to that of the Russell 2500trademark Index.
DREYFUS INVESTMENT PORTFOLIOS
Dreyfus Investment Portfolio (the "Fund") is an open-end, management investment
company known as a mutual fund. Shares are offered only to variable annuity and
variable life insurance separate accounts established by insurance companies to
fund variable annuity contracts and variable life insurance policies and to
qualified pension and retirement plans. Individuals may not purchase shares
directly from the Fund. The Dreyfus Corporation serves as the Fund's investment
adviser.
MID CAP STOCK PORTFOLIO
Investment Objective: The Portfolio's investment objective is to
provide investment results that are greater than the total return
performance of publicly-traded common stocks of medium-size domestic
companies in the aggregate, as represented by Standard & Poor's MidCap
400 Index. This Portfolio invest primarily in a portfolio of equity
securities of medium-sized domestic insurers, while attempting to
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maintain volatility and diversification similar to that of the Standard
& Poor's MidCap 400 Index.
EVERGREEN VARIABLE TRUST
The Evergreen Variable Trust ("Trust") is an open-end management investment
company commonly referred to as a Mutual Fund. The Trust is designed to provide
investors with a selection of investment alternatives which seek to provide
capital growth, income and diversification through its investment series (the
"Funds"). Shares of the Funds are sold to separate accounts funding variable
annuity contracts and variable life insurance policies issued by life insurance
companies.
The investment adviser to the Evergreen VA Fund, Evergreen VA Foundation Fund,
Evergreen VA Growth and Income Fund and Evergreen VA Global Leaders Fund is
Evergreen Asset Management Corp., a wholly-owned subsidiary of First Union
National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First
Union Corporation. The Capital Management Group of FUNB serves as investment
adviser to Evergreen VA Aggressive Growth Fund. The investment adviser to the
Evergreen VA Strategic Income Fund is Keystone Investment Management Company, a
wholly-owned subsidiary of FUNB.
EVERGREEN VA EQUITY INDEX FUND
Investment Objective: Seeks investment results that achieve price and
yield performance similar to the Standard and Poor's 500 Composite
Stock Price Index.
EVERGREEN VA FUND
Investment Objective: Seeks to achieve capital appreciation by
primarily investing in common stock and securities convertible into or
exchangeable for common stock of little-known or relatively small
companies, or companies undergoing changes which the Adviser believes
will have favorable consequences. Income will not be a factor in the
selection of portfolio investments.
EVERGREEN VA FOUNDATION FUND
Investment Objective: Seeks, in order of priority, reasonable income,
conservation of capital and capital appreciation by investing
principally in income-producing common and preferred stocks, securities
convertible into or exchangeable for common stocks and fixed income
securities. The Fund's common stock investments will include those
which (at the time of purchase) pay dividends and in the view of the
Adviser have potential for capital enhancement. The Fund may also
invest up to 25% of its assets in foreign securities. While income will
be a factor in the selection of equity securities, the Adviser will
attempt to identify securities that offer potential for long term
capital appreciation, but that do not exhibit any speculative
characteristics.
EVERGREEN VA GLOBAL LEADERS FUND
Investment Objective: Seeks to achieve capital appreciation by
investing primarily in a diversified portfolio of U.S. and non-U.S.
equity securities of companies located in the world's major
industrialized countries. The Fund's investment adviser will attempt to
screen the largest companies in the world's major industrialized
countries and cause the Fund to invest, in the opinion of the Fund's
investment adviser, in the 100 best, based on certain qualitative and
quantitative criteria.
EVERGREEN VA GROWTH AND INCOME FUND
Investment Objective: Seeks to achieve a return composed of capital
appreciation in the value of its shares and current income. The Fund
will attempt to meet its objective by investing primarily in common
stock and securities convertible into or exchangeable for common stock
of companies which are undervalued in the market place relative to
those companies' assets, breakup value, earnings, or potential growth
earnings. These companies are often found among those which have had a
record of financial success but are currently in disfavor in the market
place for reasons the Adviser perceives as temporary or erroneous. The
Fund may invest up to 25% of its assets in foreign securities, as well
as invest up to 5% of its total assets in debt securities which are
rated below investment grade, commonly known as "junk bonds." There can
be no
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assurance that the Fund's investment objective will be achieved.
EVERGREEN VA INTERNATIONAL GROWTH FUND
Investment Objective: Seeks long-term growth of capital, with modest
income as a secondary objective. The Fund invests primarily in equity
securities issued by well-established, quality companies located in
countries with developed markets. The Fund may invest a portion of its
assets in equity securities of companies located in certain emerging
markets countries and the formerly communist countries of eastern
Europe.
EVERGREEN VA MASTERS FUND
Investment Objectives: The Fund's investment objective is to seek long-
term capital appreciation by investing at least 65% of its assets in
equity securities. The Fund's investment program is based on the
Manager of Managers Strategy of First Union National Bank's Capital
Management Group (CMG). CMG allocates the Fund's portfolio assets on an
approximately equal basis among a number of investment management
organizations, each of which employs a different style. CMG has
ultimate responsibility for the investment performance of the Fund. The
style of each investment management organization is described below.
CMG will continuously monitor the performance and investment styles of
the Fund's portfolio managers. There can be no assurance that the
Fund's investment objectives will be achieved.
Evergreen Asset Management Corp. ("Evergreen") will invest it's segment
of the Fund's assets according to a value oriented strategy. Evergreen
will invest in equity securities of U.S. and foreign companies with
market capitalizations between approximately $500 million and $5
billion. Evergreen will invest in companies it believes the market has
temporarily undervalued in relation to such factors as the company's
assets, cash flow and earnings potential.
MFS Institutional Advisors, Inc. ("MFS") will invest its segment of the
portfolio according to its growth oriented investment strategy by
primarily investing in equity securities of companies with market
capitalizations between approximately $500 million and $5 billion. Such
companies generally would be expected to show earnings growth over time
that is well above the growth rate of the overall economy and the rate
of inflation, and would have the products, management and market
opportunities which are usually necessary to continue sustained growth.
MFS may invest up to 25% (and generally expects to invest between 1%
and 10%) of its segment of the Fund's assets in foreign securities.
OppenheimerFunds, Inc. ("Oppenheimer") manages its segment of the
portfolio in accordance with a blended growth and value investment
strategy. Investments are primarily in equity securities of those
companies with market capitalizations over $5 billion; however,
Oppenheimer may, when it deems advisable, invest in the equity
securities of mid-cap and small-cap companies. In purchasing portfolio
securities, Oppenheimer may invest without limit in foreign securities
and may, to a limited degree, invest in non-convertible debt securities
and preferred stocks which have the potential for capital appreciation.
Putnam Investment Management, Inc. ("Putnam") invests its segment of
the portfolio primarily, in accordance with its growth oriented
investment strategy, in equity securities of U.S. and foreign issuers
with market capitalizations of $2 billion or more. Putnam may also
purchase non-convertible debt securities which offer the opportunity
for capital appreciation. Putnam believes that evaluating a company's
probably future earnings, dividends, financial strength, working assets
and competitive position will prove more profitable in the long run
than simply seeking current dividend income.
Each manager may also invest its segment of the portfolio in short-term
obligations for
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temporary defensive purposes. Such obligations may include U.S.
government securities, master demand notes, commercial paper and notes,
bank deposits and other financial obligations.
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. However, the
Fund has adopted certain fundamental investment policies which are
mainly designed to limit the Fund's exposure to risk. The Fund's
fundamental policies cannot be changed without a shareholder vote.
EVERGREEN VA OMEGA FUND
Investment Objective: Seeks capital growth by investing primarily in
common stocks and securities convertible into common stocks.
EVERGREEN VA SMALL CAP VALUE FUND
Investment Objective: Seeks current income and capital growth in the
value of its shares.
EVERGREEN VA SPECIAL EQUITY FUND
Investment Objective: The Fund seeks capital growth.
EVERGREEN VA STRATEGIC INCOME FUND
Investment Objective: Seeks high current income from interest on debt
securities and secondarily, considers potential for growth of capital
in selecting securities.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and its
portfolios.
VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR
also will consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite
yield on the securities comprising the Standard & Poor's 500 Composite
Stock Price Index.
VIP GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation. This Portfolio will invest
in the securities of both well-known and established companies, and
smaller, less well-known companies which may have a narrow product line
or whose securities are thinly traded. These latter securities will
often involve greater risk than may be found in the ordinary investment
security. FMR's analysis and expertise plays an integral role in the
selection of securities and, therefore, the performance of the
Portfolio. Many securities which FMR believes would have the greatest
potential may be regarded as speculative, and investment in the
Portfolio may involve greater risk than is inherent in other underlying
mutual funds. It is also important to point out that this Portfolio
makes sense for you if you can afford to ride out changes in the stock
market because it invests primarily in common stocks. FMR can also make
temporary investments in securities such as investment-grade bonds,
high-quality preferred stocks and short-term notes, for defensive
purposes when it believes market conditions warrant.
VIP HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: High level of current income by investing
primarily in high-risk, lower-rated, high-yielding, fixed-income
securities, while also considering growth of capital. FMR will seek
high current income normally by investing the Portfolio's assets as
follows:
o at least 65% in income-producing debt securities and
preferred stocks, including convertible securities;
and
o up to 20% in common stocks and other equity
securities when consistent with the Portfolio's
primary objective or acquired as part of a unit
combining fixed-income and equity securities.
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Higher yields are usually available on securities that are lower-rated
or that are unrated. Lower-rated securities are usually defined as Ba
or lower by Moody's Investor Service, Inc. ("Moody's"); BB or lower by
Standard & Poor's and may be deemed to be of a speculative nature. The
Portfolio may also purchase lower-quality bonds such as those rated Ca3
by Moody's or C- by Standard & Poor's which provide poor protection for
payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see
the "Risks of Lower-Rated Debt Securities" section of the Portfolio's
prospectus.
VIP OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a means for
investors to diversify their own portfolios by participating in
companies and economies outside the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II (VIP II) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP II and its portfolios.
VIP II ASSET MANAGER PORTFOLIO: SERVICE CLASS
Investment Objective: High total return with reduced risk over the long
term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed income instruments.
VIP II ASSET MANAGER: GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Maximum total return over the long-term by
allocating assets among the following classes or types of investment in
a neutral mix: the stock class, the bond class, short-term class/ money
market class. The Portfolio's more aggressive approach focuses
primarily on stocks for high potential returns.
Asset Manager Growth Range Neutral Mix
Stock Class 50-100% 75%
Bond Class 0-50% 25%
Short-term Class 0-50% 5%
VIP II CONTRAFUND PORTFOLIO: SERVICE CLASS
Investment Objective: To seek capital appreciation by investing
primarily in companies that FMR believes to be undervalued due to an
overly pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign companies, small and large, many of
which may not be well known. The Portfolio primarily invests in common
stock and securities convertible into common stock, but it has the
flexibility to invest in any type of security that may produce capital
appreciation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III (VIP III) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on July 14, 1994. VIP III's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP III and it's portfolios.
VIP III BALANCED PORTFOLIO: SERVICE CLASS
Investment Objective: Income and growth of capital using a balanced
approach to provide the best possible total return from investments in
a diversified portfolio of equity and fixed-income securities with
income, growth of income and capital appreciation potential. FMR
manages the Portfolio to maintain a balance between stocks and bonds.
When FMR's outlook is neutral, it will invest approximately 60% of the
Portfolio's assets in stocks or other equity securities and the
remainder in bonds. The Portfolio will always invest at least 25% of
its total assets in fixed-income senior securities.
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VIP III GROWTH & INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: High total return through a combination of
current income and capital appreciation by investing mainly in equity
securities.
VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
Investment Objective: Capital growth by investing primarily in common
stocks and securities convertible into common stocks. The Portfolio,
under normal conditions, will invest at least 65% of its total assets
in securities of companies that FMR believes have long-term growth
potential. Although the Portfolio invests primarily in common stock and
securities convertible into common stock, it has the ability to
purchase other securities, such as preferred stock and bonds that may
produce capital growth. The Portfolio may invest in foreign securities
without limitation.
VIP III MID CAP PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term growth of capital by investing in
equity securities of companies with medium market capitalizations. FMR
normally invests at least 65% of the Portfolio's total assets in these
securities. The Portfolio has the flexibility, however, to invest the
balance in other market capitalizations and security types. Medium
market capitalization companies are those whose market capitalization
is similar to the market capitalization of companies in the S&P MidCap
400 at the time of the Portfolio's investment. The S&P MidCap 400 is an
unmanaged index of medium capitalization stocks. Companies whose
capitalization no longer meets this definition after purchase continue
to be considered medium-capitalized for purposes of the 65% policy. The
Portfolio also reserves the right to invest in preferred stocks and
investment-grade debt instruments for temporary, defensive purposes.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
The Goldman Sachs Variable Insurance Trust (the "Trust") is an open-end,
management investment company (mutual fund) providing a series of equity and
fixed-income investment options. Shares of the Trust may be purchased and held
by the separate account of participating life insurance companies for the
purpose of funding variable annuity contracts and variable life insurance
policies. Shares of the Trust are not offered directly to the general public.
GOLDMAN SACHS VIT GROWTH AND INCOME FUND
Investment Objective: To seek long-term growth of capital and growth of
income through investments in equity securities that are considered to
have favorable prospects for capital appreciation and/or dividend
paying ability. Goldman Sachs Asset Management serves as the Fund's
investment adviser.
GOLDMAN SACHS VIT CORE U.S. EQUITY FUND
Investment Objective: To seek long-term growth of capital and dividend
income through a broadly diversified portfolio of large cap and blue
chip equity securities representing all major sectors of the U.S.
economy. Goldman Sachs Asset Management serves as the Fund's investment
adviser.
GOLDMAN SACHS VIT CORE LARGE CAP GROWTH FUND
Investment Objective: To seek long-term growth of capital through a
broadly diversified portfolio of equity securities of large cap U.S.
issuers that are expected to have better prospects for earning growth
than the growth rate of the general domestic economy. Dividend income
is a secondary consideration. Goldman Sachs Asset Management serves as
the Fund's investment adviser.
GOLDMAN SACHS VIT CORE SMALL CAP EQUITY FUND
Investment Objective: To seek long-term growth of capital through a
broadly diversified portfolio of equity securities of U.S. issuers
which are included in the Russell 2000 Index at the time of investment.
Goldman Sachs Asset
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Management serves as the Fund's investment adviser.
GOLDMAN SACHS VIT CAPITAL GROWTH FUND
Investment Objective: To seek long-term growth of capital through
diversified investments in equity securities of companies that are
considered to have long-term capital appreciation potential. Goldman
Sachs Asset Management serves as the Fund's investment adviser.
GOLDMAN SACHS VIT MID CAP VALUE FUND (FORMERLY GOLDMAN SACHS VIT MID
CAP EQUITY FUND)
Investment Objective: To seek long-term capital appreciation primarily
through investments in equity securities of companies with public stock
market capitalizations within the range of the market capitalization of
companies constituting the Russell MidCap Index at the time of
investment (currently between $400 million and $16 billion).
GOLDMAN SACHS VIT INTERNATIONAL EQUITY FUND
Investment Objective: To seek long-term capital appreciation through
investments in equity securities of companies that are organized
outside the U.S. or whose securities are principally traded outside the
U.S. Goldman Sachs Asset Management International serves as the Fund's
investment adviser.
GOLDMAN SACHS VIT GLOBAL INCOME FUND
Investment Objective: To seek high total return, emphasizing current
income and, to a lesser extent, providing opportunities for capital
appreciation. The Fund invests primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and foreign
currencies. Goldman Sachs Asset Management International serves as the
Fund's investment adviser.
GOLDMAN SACHS VIT CONSERVATIVE STRATEGY PORTFOLIO
Investment Objective: To seek current income, consistent with the
preservation of capital and secondarily also considers the potential
for capital appreciation. Goldman Sachs Asset Management serves as the
Portfolio's investment adviser.
GOLDMAN SACHS VIT BALANCED STRATEGY PORTFOLIO
Investment Objective: To seek current income and long-term capital
appreciation. Goldman Sachs asset Management serves as the Portfolio's
investment adviser.
GOLDMAN SACHS VIT GROWTH AND INCOME STRATEGY PORTFOLIO
Investment Objective: To seek long-term capital appreciation and
current income. Goldman Sachs Asset Management serves as the
Portfolio's investment adviser.
GOLDMAN SACHS VIT GROWTH STRATEGY PORTFOLIO
Investment Objective: To seek long-term capital appreciation and
secondarily current income. Goldman Sachs Asset Management serves as
the Portfolio's investment adviser.
GOLDMAN SACHS VIT AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Investment Objective: To seek long-term capital appreciation. Goldman
Sachs Asset Management serves as the Portfolio's investment adviser.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc., a Maryland Corporation, is an open-end
management investment company that offers shares of common stock of ten
diversified investment portfolios. The Company's shares are not offered directly
to the public, but are sold exclusively to life insurance companies as a pooled
funding vehicle for variable annuity and variable life insurance contracts
issued by separate accounts of participating insurance companies.
INVESCO VIF - DYNAMICS FUND
Investment Objective: The Dynamics Fund seeks appreciation of capital
through aggressive investment policies. The Fund invests primarily in
common stocks of U.S. companies traded on national securities exchanges
and over-the-counter. INVESCO Funds Group, Inc. is the Fund's
investment adviser.
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INVESCO VIF - GROWTH FUND
Investment Objective: The Growth Fund seeks long-term capital growth.
The Fund also seeks, as a secondary objective, to obtain investment
income through the purchase of securities of carefully selected
companies representing major fields of business and industrial
activity. In pursuing its objectives, the Fund invests primarily in
common stocks, but may also invest in other kinds of securities,
including convertible and straight issues of debentures and preferred
stock. INVESCO Funds Group, Inc. is the Fund's investment adviser.
INVESCO VIF - HEALTH SCIENCES FUND
Investment Objective: The Health Sciences Fund seeks capital
appreciation. The Fund normally invests at least 80% of its total
assets in equity securities of companies that develop, produce, or
distribute products or services related to health care. INVESCO Funds
Group, Inc. is the Fund's investment adviser.
INVESCO VIF - HIGH YIELD FUND
Investment Objective: The High Yield Fund seeks a high level of current
income by investing substantially all of its assets in lower-rated
bonds and other debt securities and in preferred stock. The Fund
pursues its investment objective through investment in a variety of
long-term, intermediate-term, and short-term bonds. Potential capital
appreciation is a factor in the selection of investments, but is
secondary to the Fund's primary objective.
INVESCO VIF - INDUSTRIAL EQUITY INCOME FUND
Investment Objective: The Industrial Income Fund seeks the best
possible current income while following sound investment practices.
Capital growth potential is an additional consideration in the
selection of portfolio securities. The Fund normally invests at least
65% of its total assets in dividend-paying common stocks. Up to 10% of
the Fund's total assets may be invested in equity securities that do
not pay regular dividends. The remaining assets are invested in other
income-producing securities, such as corporate bonds. The Fund also has
the flexibility to invest in other types of securities. INVESCO Funds
Group, Inc. is the Fund's investment adviser.
INVESCO VIF - REALTY FUND
Investment Objective: The Realty Fund seeks to provide long-term
capital growth. Above-average current income is an additional
consideration in selecting securities for the Fund's investment
portfolio. The Fund normally invests at least 65% of its total assets
in publicly-traded stocks of companies principally engaged in the real
estate industry. The remaining assets are invested in other
income-producing securities such as corporate bonds. INVESCO Funds
Group, Inc. is the Fund's investment adviser.
INVESCO VIF - SMALL COMPANY GROWTH FUND
Investment Objective: The Small Company Growth Fund seeks long-term
capital growth. The Fund invests primarily in equity securities of
small-capitalization U.S. companies traded "over-the-counter. INVESCO
Funds Group, Inc. is the Fund's investment adviser.
INVESCO VIF - TECHNOLOGY FUND
Investment Objective: The Technology Fund seeks capital appreciation.
The Fund normally invests at least 80% of its total assets in equity
securities of companies in technology-related industries such as
computers, communications, video, electronics, oceanography, office and
factory automation, and robotics. INVESCO Funds Group, Inc. is the
Fund's investment adviser.
INVESCO VIF - TOTAL RETURN FUND
Investment Objective: The Total Return Fund seeks a high total return
of investment through capital appreciation and current income. The Fund
seeks to achieve its investment objective by investing in a combination
of equity securities (consisting of common stocks and, to a lesser
degree, securities convertible into common stock) and fixed income
securities.
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INVESCO VIF - UTILITIES FUND
Investment Objective: The Utilities Fund seeks capital appreciation and
income. The assets of the Fund are invested primarily in equity securities
of companies principally engaged in business as public utilities.
INVESCO Funds Group, Inc. is the Fund's investment adviser.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
Morgan Stanley Dean Witter Universal Funds, Inc. is a mutual fund designed to
provide investment vehicles for variable annuity contracts and variable life
insurance policies and for certain tax-qualified investors.
EMERGING MARKETS DEBT PORTFOLIO
Investment Objective: High total return by investing primarily in dollar
and non-dollar denominated fixed income securities of government and
government-related issuers located in emerging market countries, which
securities provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived
creditworthiness of the issuer improves due to improving economic,
financial, political, social or other conditions in the country in which
the issuer is located. Morgan Stanley Dean Witter Investment Management
Inc. is the Portfolio's investment adviser.
EQUITY GROWTH PORTFOLIO
Investment Objective: Long-term capital appreciation by investing primarily
in equity securities of medium and large capitalization companies that, in
the investment adviser's judgement provide above-average potential for
capital growth. Morgan Stanley Dean Witter Investment Management Inc. is
the Portfolio's investment adviser.
FIXED INCOME PORTFOLIO
Investment Objective: Above-average total return over a market cycle of
three to five years by investing primarily in a diversified portfolio of
U.S. Governments and Agencies, corporate bonds, MBS's, foreign bonds and
other fixed income securities and derivatives. The Portfolio's average
weighted maturity will ordinarily exceed five years and will usually be
between five and fifteen years. Miller Anderson & Sherrerd, LLP is the
Portfolio's investment adviser.
GLOBAL EQUITY PORTFOLIO
Investment Objective: Long-term capital appreciation by investing primarily
in equity securities of issuers throughout the world, including U.S.
issuers, using an approach that is oriented to the selection of individual
stocks that the Portfolio's investment adviser believes are undervalued.
Morgan Stanley Dean Witter Investment Management Inc. is the Portfolio's
investment adviser.
HIGH YIELD PORTFOLIO
Investment Objective: Above-average total return over a market cycle of
three to five years by investing primarily in a diversified portfolio of
high yield Securities, including corporate bonds and other fixed income
securities and derivatives. High yield securities are rated below
investment grade and are commonly referred to as "junk bonds." The
Portfolio's average weighted maturity will ordinarily exceed five years and
will usually be between five and fifteen years. Miller Anderson & Sherrerd,
LLP is the Portfolio's investment adviser.
INTERNATIONAL MAGNUM PORTFOLIO
Investment Objective: Long-term capital appreciation by investing primarily
in equity securities of non-U.S. issuers. The countries in which the
Portfolio will invest are primarily those comprising the Morgan Stanley
International EAFE Index, which includes Australia, Japan, New Zealand,
most nations located in Western Europe and certain developed countries in
Asia, such as Hong Kong and Singapore. Morgan Stanley Dean Witter
Investment Management Inc. is the Portfolio's investment adviser.
MIDCAP GROWTH PORTFOLIO
Investment Objective: Long-term capital growth by investing primarily in
common stocks and other equity securities of issuers with equity
capitalizations in the range of the companies represented in the Standard &
Poor's Rating Group ("S & P") MidCap 400
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Index. Such range is generally $500 million to $6 billion but the range
fluctuates over time with changes in the equity market. Miller Anderson &
Sherrerd, LLP is the Portfolio's investment adviser.
MID CAP VALUE PORTFOLIO
Investment Objective: Above-average total return over a market cycle of
three to five years by investing in common stock and other equity
securities of issuers with equity capitalizations in the range of the
companies represented in the S & P MidCap 400 Index. Such range is
generally $500 million to $6 billion but the range fluctuates over time
with changes in the equity market. Miller Anderson & Sherrerd, LLP is the
Portfolio's investment adviser.
U.S. REAL ESTATE PORTFOLIO
Investment Objective: Above-average current income and long-term capital
appreciation by investing primarily in equity securities of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry,
including real estate investment trusts. Morgan Stanley Dean Witter
Investment Management Inc. is the Portfolio's investment adviser.
VALUE PORTFOLIO
Investment Objective: Above-average total return over a market cycle of
three to five years by investing primarily in a diversified portfolio of
common stocks and other equity securities that are deemed by Miller
Anderson & Sherrerd, LLP to be relatively undervalue based on various
measures such as price/earnings ratios and price/book ratios. Miller
Anderson & Sherrerd, LLP is the Portfolio's investment adviser.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified openend management
investment company created under the laws of Massachusetts. NSAT offers shares
in the mutual funds listed below, each with its own investment objectives.
Shares of NSAT will be sold primarily to separate accounts to fund the benefits
under variable life insurance policies and variable annuity contracts issued by
life insurance companies. The assets of NSAT are managed by Villanova Mutual
Fund Capital Trust ("VMF"), an affiliate of NAS and an indirect subsidiary of
Nationwide Financial Services, Inc.
CAPITAL APPRECIATION FUND
Investment Objective: Long-term capital appreciation.
GOVERNMENT BOND FUND
Investment Objective: As high a level of income as is consistent with the
preservation of capital by investing in a diversified portfolio of
securities issued or backed by the U.S. Government, its agencies or
instrumentalities.
MONEY MARKET FUND
Investment Objective: As high a level of current income as is considered
consistent with the preservation of capital and maintenance of liquidity.
TOTAL RETURN FUND
Investment Objective: To obtain a reasonable, long-term total return on
invested capital.
SUBADVISED NSAT FUNDS
NATIONWIDE BALANCED FUND
Subadviser: Salomon Brothers Asset Management, Inc.
Investment Objective: Primarily seeks above-average income compared to a
portfolio entirely invested in equity securities. The Fund's secondary
objective is to take advantage of opportunities for growth of capital and
income. The Fund seeks its objective primarily through investments in a
broad variety of securities, including equity securities, fixed-income
securities and short term obligations. Under normal market conditions, it
is anticipated that the Fund will invest at least 40% of the Fund's total
assets in equity securities and at least 25% in fixed-income senior
securities. The Fund's subadviser, Salomon Brothers Asset Management, Inc.,
will have discretion to invest in the full range of maturities of
fixed-income securities. Generally, most of the Fund's long-term debt
investments will consist of "investment grade" securities, but the Fund may
invest
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up to 20% of its net assets in non-convertible fixed-income securities
rated below investment grade or determined by the subadviser to be of
comparable quality. These securities are commonly known as junk bonds. In
addition, the Fund may invest an unlimited amount in convertible securities
rated below investment grade.
NATIONWIDE EQUITY INCOME FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks above average income and capital appreciation
by investing at least 65% of its assets in income-producing equity
securities. Such equity securities include common stocks, preferred stocks,
and securities (including debt securities) that are convertible into common
stocks. The portion of the Fund's total assets invested in each type of
equity security will vary according to the Fund's subadviser's assessment
of market, economic conditions and outlook.
NATIONWIDE GLOBAL EQUITY FUND
Subadviser: J. P. Morgan Investment Management Inc.
Investment Objective: To provide high total return from a globally
diversified portfolio of equity securities. Total return will consist of
income plus realized and unrealized capital gains and losses. The Fund
seeks its investment objective through country allocation, stock selection
and management of currency exposure. Under normal market conditions, J.P.
Morgan Investment Management Inc., intends to keep the Fund essentially
fully invested with at least 65% of the value of its total assets in equity
securities consisting of common stocks and other securities with equity
characteristics such as preferred stocks, warrants, rights, convertible
securities, trust certificates, limited partnership interests and equity
participations. The Fund's primary equity instruments are the common stock
of companies based in the developed countries around the world. The assets
of the Fund will ordinarily be invested in the securities of at least five
different countries.
NATIONWIDE HIGH INCOME BOND FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks to provide high current income by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities. To meet its objective, the Fund intends to invest at
least 65% of its assets in lower-rated fixed income securities such as
preferred stocks, bonds, debentures, notes, equipment lease certificates
and equipment trust certificates which are rated BBB or lower by Standard &
Poor's or Fitch Investors Service or Baa or lower by Moody's (or if not
rated, are determined by the Fund's subadviser to be of a comparable
quality). Such investments are commonly referred to as "junk bonds." For a
further discussion of lower-rated securities, please see the "High Yield
Securities" section of the Fund's prospectus.
NATIONWIDE MID CAP INDEX FUND
Subadviser: The Dreyfus Corporation
Investment Objective: Capital appreciation. The Fund seeks to match the
performance of the Standard & Poor's MidCap 400 Index. To pursue this goal,
the Fund generally is fully invested in all 400 stocks included in this
index in proportion to their weighting in the index, and in futures whose
performance is tied to the index. The Fund is neither sponsored by nor
affiliated with Standard & Poor's Corporation.
NATIONWIDE MULTI SECTOR BOND FUND
Subadviser: Salomon Brothers Asset Management, Inc. with Salomon Brothers
Asset Management Limited
Investment Objective: Primarily seeks a high level of current income.
Capital appreciation is a secondary objective. The Fund seeks to achieve
its objectives by investing in a globally diverse portfolio of fixed-income
investments and by giving the subadviser, Salomon Brothers Asset
Management, Inc. broad discretion to deploy the Fund's assets among certain
segments of the fixed-income market that the subadviser believes will best
contribute to achievement of the Fund's investment objectives. The Fund
reserves the right to invest
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predominantly in securities rated in medium or lower categories, or as
determined by the subadviser to be of comparable quality, commonly referred
to as "junk bonds." Although the subadviser has the ability to invest up to
100% of the Fund's assets in lower-rated securities, the subadviser does
not anticipate investing in excess of 75% of the Fund's assets in such
securities. The Subadviser has entered into a subadvisory agreement with
its London based affiliate, Salomon Brothers Asset Management Limited,
pursuant to which the subadviser has delegated to Salomon Brothers Asset
Management Limited responsibility for management of the Fund's investments
in non-dollar denominated debt securities and currency transactions.
NATIONWIDE SELECT ADVISERS SMALL CAP GROWTH FUND
Subadvisers: Franklin Advisers, Inc., Miller Anderson & Sherrerd, LLP,
Neuberger Berman, LLC.
Investment Objective: Seeks capital growth by investing in a broadly
diversified portfolio of equity securities issued by U.S. and foreign
companies with market capitalizations in the range of companies represented
by the Russell 2000, known as small cap companies. Under normal market
conditions, the Fund will invest at least 65% of its total assets in the
equity securities of small cap companies. The balance of the Fund's assets
may be invested in equity securities of larger cap companies. The Fund may
also invest in foreign securities.
NATIONWIDE SMALL CAP VALUE FUND
Subadviser: The Dreyfus Corporation
Investment Objective: The Fund intends to pursue its investment objective
by investing, under normal market conditions, at least 75% of the Fund's
total assets in equity securities of companies whose equity market
capitalizations at the time of investment are similar to the market
capitalizations of companies in the Russell 2000 Small Stock Index.
NATIONWIDE SMALL COMPANY FUND
Subadvisers: The Dreyfus Corporation, Neuberger Berman, L.P., Lazard Asset
Management, Strong Capital Management, Inc. and Credit Suisse Asset
Management, LLC.
Investment Objective: Under normal market conditions, the Fund will invest
at least 65% of its total assets in equity securities of companies whose
equity market capitalizations at the time of investment are similar to the
market capitalizations of companies in the Russell 2000 Small Stock Index.
NATIONWIDE STRATEGIC GROWTH FUND
Subadviser: Strong Capital Management Inc.
Investment Objective: Capital growth by investing primarily in equity
securities that the Fund's subadviser believes have above-average growth
prospects. The Fund will generally invest in companies whose earnings are
believed to be in a relatively strong growth trend, and to a lesser extent,
in companies in which significant further growth is not anticipated but
whose market value is thought to be undervalued. Under normal market
conditions, the Fund will invest at least 65% of its total assets in equity
securities, including common stocks, preferred stocks, and securities
convertible into common or preferred stocks, such as warrants and
convertible bonds. The Fund may invest up to 35% of its total assets in
debt obligations, including intermediate- to long-term corporate or U.S.
Government debt securities.
NATIONWIDE STRATEGIC VALUE FUND
Subadviser: Strong Capital Management Inc./Schafer Capital Management Inc.
Investment Objective: Primarily long-term capital appreciation; current
income is a secondary objective. The Fund seeks to meet its objectives by
investing in securities which are believed to offer the possibility of
increase in value, primarily common stocks of established companies having
a strong financial position and a low stock market valuation at the time of
purchase in relation to investment value. Other than considered
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appropriate for cash reserves, the Fund will generally maintain a fully
invested position in common stocks of publicly held companies, primarily in
stocks of companies listed on a national securities exchange or other
equity securities (common stock or securities convertible into common
stock). Investments may also be made in debt securities which are
convertible into common stocks and in warrants or other rights to purchase
common stock, which in such case are considered equity securities by the
Fund. Strong Capital Management, Inc. has subcontracted with Schafer
Capital Management, Inc. to subadvise the Fund.
ONE GROUP(R) INVESTMENT TRUST
One Group Investment Trust is a diversified, open-end management investment
company organized under the laws of Massachusetts by a Declaration of Trust,
dated June 7, 1993. One Group Investment Trust offers shares in the separate
mutual funds (the "Funds") shown below, each with its own investment objective.
The shares of the Funds are sold to life insurance companies to fund variable
annuity contracts and variable life insurance policies. The assets of One Group
Investment Trust are managed by Banc One Investment Advisors Corporation.
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO (FORMERLY ASSET ALLOCATION
FUND)
Investment Objective: The Portfolio seeks to provide total return while
preserving capital.
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO
Investment Objective: The Portfolio seeks to maximize total return by
investing primarily in a diversified portfolio of intermediate and
long-term debt securities.
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO
Investment Objective: The Portfolio seeks long-term capital growth and
growth of income with a secondary objective of providing a moderate level
of current income.
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO
Investment Objective: The Portfolio seeks long term capital growth by
investing primarily in equity securities of companies with intermediate
capitalizations.
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO
Investment Objective: The Portfolio seeks investment results that
correspond to the aggregated price and dividend performance of securities
in the Standard & Poor's 500 Composite Stock Price Index* ("S&P 500").
*"S&P 500" is a registered service mark of Standard & Poor's Corporation,
which does not sponsor and is in no way affiliated with the Portfolio.
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO
Investment Objective: The Portfolio seeks a high level of current income
with liquidity and safety of principal.
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO (FORMERLY LARGE
COMPANY GROWTH FUND)
Investment Objective: The Portfolio seeks long-term capital appreciation
and growth of income by investing primarily in equity securities.
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO (FORMERLY GROWTH
OPPORTUNITIES FUND)
Investment Objective: The Portfolio seeks growth of capital and,
secondarily, current income, by investing primarily in equity securities.
Issuers will include medium sized companies with a history of above-average
growth or companies that are expected to enter periods of above-average
growth, and smaller companies which are positioned in emerging growth
industries.
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ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO
Investment Objective: The Portfolio seeks capital appreciation with the
secondary goal of achieving current income by investing primarily in equity
securities.
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
The Salomon Brothers Variable Series Funds is an open-end investment company
incorporated in Maryland on October 1, 1997. Shares of the Funds are sold only
to separate accounts of insurance companies to fund benefits for variable
annuity contracts and variable life insurance policies, and to qualified pension
and retirement plans. Salomon Brothers Asset Management, Inc. ("SBAM") serves as
the Variable Series Funds investment adviser.
CAPITAL FUND
Investment Objective: The objective of the Fund is to seek capital
appreciation through investments primarily in common stock, or securities
convertible into common stocks, which are believed to have above-average
price appreciation potential and which may also involve above-average risk.
Current income is an incidental consideration.
HIGH YIELD BOND FUND
Investment Objective: The Fund's objective is to maximize current income.
As a secondary objective, the Fund seeks capital appreciation. The Fund
seeks to achieve its objectives by investing primarily in a diversified
portfolio of high yield fixed-income securities rated in medium or lower
rating categories or determined by SBAM to be of comparable quality.
INVESTORS FUND
Investment Objective: The primary investment objective of the Fund is to
seek long-term growth of capital. Current income is a secondary objective.
The Fund seeks to achieve its objectives primarily through investments in
common stocks of well-known companies.
STRATEGIC BOND FUND
Investment Objective: The primary investment objective of the Fund is to
seek a high level of current income. As a secondary objective, the Fund
will seek capital appreciation. The Fund seeks to achieve its objectives by
investing in a globally diverse portfolio of fixed-income investments and
by giving SBAM broad discretion to deploy the Fund's assets among certain
segments of the fixed-income market that the investment manager believes
will best contribute to achievement of the Fund's investment objectives. In
pursuing its investment objectives, the Fund reserves the right to invest
predominantly in securities rated in medium or lower rating categories or
as determined by the investment manager to be of comparable quality.
Although the investment manager has the ability to invest up to 100% of the
Fund's assets in lower-rated securities, the investment manager does not
anticipate investing in excess of 75% of the assets in such securities.
TOTAL RETURN FUND
Investment Objective: The Fund seeks to obtain above-average income
(compared to a portfolio entirely invested in equity securities). As a
secondary objective, the Fund seeks to take advantage of opportunities for
growth of capital and income. The Fund seeks to achieve its objectives
primarily through investments in a broad variety of securities, including
equity securities, fixed-income securities and short-term obligations.
58
<PAGE> 62
APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH
BENEFITS FOR ONE INVESTOR CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
The illustrations in this prospectus have been prepared to help show how values
under the policies change with investment performance. The illustrations
illustrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the policies would go into default, at which time additional
premium payments would be required to continue the policy in force. The
illustrations also assume there is no policy indebtedness, no additional premium
payments are made, no cash values are allocated to the fixed account, and there
are no changes in the specified amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. Beginning in the fourth policy year, cash surrender
value equals cash value less indebtedness, or other deductions. In policy years
one, two, and three only, cash surrender value equals cash value less
indebtedness or other deductions increased by 3.5%, 5.5%, and 4.0%,
respectively, of the current premium. The guaranteed mortality and expense risk
charges for policy years one through four are equivalent to an annual effective
rate of 0.75% of the daily net assets value of the variable account. The current
mortality and expense risk charges for policy years one through four are
equivalent to an annual effective rate of 0.60% of the daily net assets of the
variable account. The current mortality and expense risk charges for policy
years five through twenty are equivalent to an annual effective rate of 0.40% of
the daily net assets of the variable account. The current mortality and expense
risk charges for policy years twenty-one and beyond are equivalent to an annual
effective rate of 0.25% of the daily net assets of the variable account. In
addition, the net investment returns also reflect the deduction of underlying
mutual fund investment advisory fees and other expenses which are equivalent to
an annual effective rate of 0.90% of the daily net assets of the variable
account. This effective rate is based on the average of the fund expenses, after
expense reimbursement, for all underlying mutual fund options available under
the policy as of April 13,1999. Some underlying mutual funds are subject to fee
waivers and expense reimbursements. Absent fee waivers and expense
reimbursements, the annual effective rate would have been 1.05%. Nationwide
anticipates that the expense reimbursement and fee waiver arrangements will
continue past the current year. Should there be an increase or decrease in the
expense reimbursements and fee waivers of these underlying mutual funds, such
change will be reflected in the net asset value of the corresponding underlying
mutual fund.
Considering current charges for mortality and expense risks and underlying
mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.50%, 4.50% and
10.50% for policy years one through four, and rates of -1.30%, 4.70% and 10.70%,
for policy years five through twenty, and rates of -1.15%, 4.85% and 10.85%, for
policy years twenty-one and beyond. Considering guaranteed charges for mortality
and expense risks and underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -1.65%, 4.35% and 10.35%, for all policy years.
59
<PAGE> 63
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in lower
cash values and death benefits than those illustrated.
The illustrations also reflect the fact that Nationwide deducts a sales load
from each premium payment received guaranteed not to exceed 5.5% of each premium
payment for the first seven policy years and 2% thereafter. On a current basis,
the sales load is 3.0% of premium payments plus 2.5% of premiums up to the
target premium during the first seven policy years, and 0% of all premiums
thereafter. Nationwide also deducts a tax expense charge of 3.5%, both current
and guaranteed, from all premium payments. The illustrations also reflect the
fact that Nationwide deducts a charge for state premium taxes at a rate of 2.25%
and for federal tax at a rate of 1.25% (imposed under Section 848 of the
Internal Revenue Code) of all premium payments.
In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. This
monthly administrative expense charge is currently $5 per month and guaranteed
not to exceed $10. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the variable account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax returns
shown in the illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insured's age, smoking classification, rating classification and
premium payment requested.
60
<PAGE> 64
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE/NONTOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 87,965 91,465 1,703,050 93,400 96,900 1,703,050 98,838 102,338 1,703,050
2 215,250 174,518 180,018 1,703,050 190,914 196,414 1,703,050 207,967 213,467 1,703,050
3 331,013 260,013 264,013 1,703,050 293,097 297,097 1,703,050 328,878 332,878 1,703,050
4 452,563 344,415 344,415 1,703,050 400,139 400,139 1,703,050 462,826 462,826 1,703,050
5 580,191 428,316 428,316 1,703,050 512,997 512,997 1,703,050 612,112 612,112 1,703,050
6 714,201 511,203 511,203 1,703,050 631,387 631,387 1,703,050 777,476 777,476 1,894,246
7 854,911 593,141 593,141 1,703,050 755,516 755,516 1,787,449 959,785 959,785 2,270,723
8 897,656 582,074 582,074 1,703,050 788,122 788,122 1,811,260 1,058,397 1,058,397 2,432,403
9 942,539 570,741 570,741 1,703,050 822,024 822,024 1,835,846 1,166,983 1,166,983 2,606,250
10 989,666 559,093 559,093 1,703,050 857,251 857,251 1,861,295 1,286,513 1,286,513 2,793,323
11 1,039,150 547,120 547,120 1,703,050 893,873 893,873 1,887,716 1,418,106 1,418,106 2,994,812
12 1,091,107 534,774 534,774 1,703,050 931,933 931,933 1,915,125 1,562,949 1,562,949 3,211,864
13 1,145,662 522,039 522,039 1,703,050 971,502 971,502 1,943,558 1,722,391 1,722,391 3,445,763
14 1,202,945 508,868 508,868 1,703,050 1,012,635 1,012,635 1,973,004 1,897,881 1,897,881 3,697,805
15 1,263,093 495,073 495,073 1,703,050 1,055,279 1,055,279 2,003,251 2,090,797 2,090,797 3,968,989
16 1,326,247 480,555 480,555 1,703,050 1,099,460 1,099,460 2,034,296 2,302,781 2,302,781 4,260,764
17 1,392,560 465,195 465,195 1,703,050 1,145,199 1,145,199 2,066,182 2,535,612 2,535,612 4,574,784
18 1,462,188 448,825 448,825 1,703,050 1,192,486 1,192,486 2,098,949 2,791,157 2,791,157 4,912,842
19 1,535,297 431,263 431,263 1,703,050 1,241,317 1,241,317 2,132,659 3,071,442 3,071,442 5,276,926
20 1,612,062 412,332 412,332 1,703,050 1,291,702 1,291,702 2,167,396 3,378,709 3,378,709 5,669,265
21 1,692,665 394,016 394,016 1,703,050 1,346,704 1,346,704 2,208,229 3,723,801 3,723,801 6,106,020
22 1,777,298 375,683 375,683 1,703,050 1,404,611 1,404,611 2,252,042 4,105,782 4,105,782 6,582,884
23 1,866,163 356,209 356,209 1,703,050 1,464,865 1,464,865 2,297,770 4,526,505 4,526,505 7,100,222
24 1,959,471 335,073 335,073 1,703,050 1,527,323 1,527,323 2,345,038 4,989,090 4,989,090 7,660,206
25 2,057,445 312,063 312,063 1,703,050 1,592,049 1,592,049 2,393,851 5,497,586 5,497,586 8,266,332
26 2,160,317 286,923 286,923 1,703,050 1,659,104 1,659,104 2,444,307 6,056,394 6,056,393 8,922,698
27 2,268,333 259,404 259,404 1,703,050 1,728,574 1,728,574 2,496,625 6,670,418 6,670,418 9,634,263
28 2,381,750 229,189 229,189 1,703,050 1,800,528 1,800,528 2,551,082 7,344,962 7,344,962 10,406,722
29 2,500,837 195,878 195,878 1,703,050 1,875,020 1,875,020 2,607,991 8,085,736 8,085,736 11,246,562
30 2,625,879 158,997 158,997 1,703,050 1,952,090 1,952,090 2,667,642 8,898,923 8,898,923 12,160,882
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $5
ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE
61
<PAGE> 65
BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE
MADE BY NATIONWIDE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
62
<PAGE> 66
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 81,796 85,296 1,703,050 86,981 90,481 1,703,050 92,170 95,670 1,703,050
2 215,250 162,037 167,537 1,703,050 177,538 183,038 1,703,050 193,670 199,170 1,703,050
3 331,013 240,773 244,773 1,703,050 271,887 275,887 1,703,050 305,565 309,565 1,703,050
4 452,563 318,044 318,044 1,703,050 370,253 370,253 1,703,050 429,044 429,044 1,703,050
5 580,191 393,867 393,867 1,703,050 472,860 472,860 1,703,050 565,428 565,428 1,703,050
6 714,201 468,271 468,271 1,703,050 579,964 579,964 1,703,050 716,193 716,193 1,744,935
7 854,911 541,244 541,244 1,703,050 691,817 691,817 1,703,050 880,778 880,778 2,083,803
8 897,656 522,556 522,556 1,703,050 713,012 713,012 1,703,050 960,701 960,701 2,207,881
9 942,539 503,065 503,065 1,703,050 734,496 734,496 1,703,050 1,047,414 1,047,414 2,339,215
10 989,666 482,648 482,648 1,703,050 756,241 756,241 1,703,050 1,141,427 1,141,427 2,478,308
11 1,039,150 461,188 461,188 1,703,050 778,230 778,230 1,703,050 1,243,306 1,243,306 2,625,662
12 1,091,107 438,573 438,573 1,703,050 800,462 800,462 1,703,050 1,353,678 1,353,678 2,781,812
13 1,145,662 414,684 414,684 1,703,050 822,942 822,942 1,703,050 1,473,228 1,473,228 2,947,296
14 1,202,945 389,379 389,379 1,703,050 845,669 845,669 1,703,050 1,602,689 1,602,689 3,122,655
15 1,263,093 362,469 362,469 1,703,050 868,621 868,621 1,703,050 1,742,813 1,742,813 3,308,407
16 1,326,247 333,693 333,693 1,703,050 891,750 891,750 1,703,050 1,894,356 1,894,356 3,505,068
17 1,392,560 302,715 302,715 1,703,050 914,980 914,980 1,703,050 2,058,067 2,058,067 3,713,190
18 1,462,188 269,139 269,139 1,703,050 938,229 938,229 1,703,050 2,234,714 2,234,714 3,933,421
19 1,535,297 232,522 232,522 1,703,050 961,413 961,413 1,703,050 2,425,105 2,425,105 4,166,480
20 1,612,062 192,373 192,373 1,703,050 984,461 984,461 1,703,050 2,630,109 2,630,109 4,413,161
21 1,692,665 148,209 148,209 1,703,050 1,007,337 1,007,337 1,703,050 2,850,736 2,850,736 4,674,432
22 1,777,298 99,507 99,507 1,703,050 1,030,022 1,030,022 1,703,050 3,088,108 3,088,108 4,951,227
23 1,866,163 45,694 45,694 1,703,050 1,052,514 1,052,514 1,703,050 3,343,479 3,343,479 5,244,543
24 1,959,471 - - - 1,074,784 1,074,784 1,703,050 3,618,136 3,618,136 5,555,255
25 2,057,445 - - - 1,096,744 1,096,744 1,703,050 3,913,297 3,913,297 5,884,148
26 2,160,317 - - - 1,118,254 1,118,254 1,703,050 4,230,087 4,230,087 6,232,057
27 2,268,333 - - - 1,139,118 1,139,118 1,703,050 4,569,519 4,569,519 6,599,878
28 2,381,750 - - - 1,159,094 1,159,094 1,703,050 4,932,479 4,932,479 6,988,591
29 2,500,837 - - - 1,177,924 1,177,924 1,703,050 5,319,847 5,319,847 7,399,450
30 2,625,879 - - - 1,195,404 1,195,404 1,703,050 5,732,779 5,732,779 7,834,167
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR
63
<PAGE> 67
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
64
<PAGE> 68
APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH
BENEFITS FOR BANKERS TRUST COMPANY CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE
POLICIES
The illustrations in this prospectus have been prepared to help show how values
under the policies change with investment performance. The illustrations
illustrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the policies would go into default, at which time additional
premium payments would be required to continue the policy in force. The
illustrations also assume there is no policy indebtedness, no additional premium
payments are made, no cash values are allocated to the fixed account, and there
are no changes in the specified amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. Beginning in the fourth policy year, cash surrender
value equals cash value less indebtedness, or other deductions. In policy years
one, two, and three only, cash surrender value equals cash value less
indebtedness or other deductions increased by 3.5%, 5.5%, and 4.0%,
respectively, of the current premium. The guaranteed mortality and expense risk
charges for policy years one through four are equivalent to an annual effective
rate of 0.75% of the daily net assets value of the variable account. The current
mortality and expense risk charges for policy years one through four are
equivalent to an annual effective rate of 0.60% of the daily net assets of the
variable account. The current mortality and expense risk charges for policy
years five through twenty are equivalent to an annual effective rate of 0.40% of
the daily net assets of the variable account. The current mortality and expense
risk charges for policy years twenty-one and beyond are equivalent to an annual
effective rate of 0.25% of the daily net assets of the variable account. In
addition, the net investment returns also reflect the deduction of underlying
mutual fund investment advisory fees and other expenses which are equivalent to
an annual effective rate of 0.80% of the daily net assets of the variable
account. This effective rate is based on the average of the fund expenses, after
expense reimbursement, for all underlying mutual fund options available under
the policy as of April 13,1999. Some underlying mutual funds are subject to fee
waivers and expense reimbursements. Absent fee waivers and expense
reimbursements, the annual effective rate would have been 1.60%. Nationwide
anticipates that the expense reimbursement and fee waiver arrangements will
continue past the current year. Should there be an increase or decrease in the
expense reimbursements and fee waivers of these underlying mutual funds, such
change will be reflected in the net asset value of the corresponding underlying
mutual fund.
Considering current charges for mortality and expense risks and underlying
mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.40%, 4.60% and
10.60% for policy years one through four, and rates of -1.20%, 4.80% and 10.80%,
for policy years five through twenty, and rates of -1.05%, 4.95% and 10.95%, for
policy years twenty-one and beyond. Considering guaranteed charges for mortality
and expense risks and underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -1.55%, 4.45% and 10.45%, for all policy years.
65
<PAGE> 69
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in lower
cash values and death benefits than those illustrated.
The illustrations also reflect the fact that Nationwide deducts a sales load
from each premium payment received guaranteed not to exceed 5.5% of each premium
payment for the first seven policy years and 2% thereafter. On a current basis,
the sales load is 3.0% of premium payments plus 2.5% of premiums up to the
target premium during the first seven policy years, and 0% of all premiums
thereafter. Nationwide also deducts a tax expense charge of 3.5%, both current
and guaranteed, from all premium payments. The illustrations also reflect the
fact that Nationwide deducts a charge for state premium taxes at a rate of 2.25%
and for federal tax at a rate of 1.25% (imposed under Section 848 of the
Internal Revenue Code) of all premium payments.
In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. This
monthly administrative expense charge is currently $5 per month and guaranteed
not to exceed $10. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the variable account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax returns
shown in the illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insured's age, smoking classification, rating classification and
premium payment requested.
66
<PAGE> 70
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE/NONTOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 88,056 91,556 1,703,050 93,491 96,991 1,703,050 98,928 102,428 1,703,050
2 215,250 174,786 180,286 1,703,050 191,193 196,693 1,703,050 208,256 213,756 1,703,050
3 331,013 260,543 264,543 1,703,050 293,671 297,671 1,703,050 329,498 333,498 1,703,050
4 452,563 345,290 345,290 1,703,050 401,125 401,125 1,703,050 463,934 463,934 1,703,050
5 580,191 429,619 429,619 1,703,050 514,525 514,525 1,703,050 613,897 613,897 1,703,050
6 714,201 513,015 513,015 1,703,050 633,600 633,600 1,703,050 780,147 780,147 1,900,753
7 854,911 595,542 595,542 1,703,050 758,545 758,545 1,794,617 963,598 963,598 2,279,743
8 897,656 585,049 585,049 1,703,050 792,036 792,036 1,820,255 1,063,558 1,063,558 2,444,265
9 942,539 574,277 574,277 1,703,050 826,893 826,893 1,846,719 1,173,730 1,173,730 2,621,318
10 989,666 563,175 563,175 1,703,050 863,150 863,150 1,874,101 1,295,116 1,295,116 2,812,003
11 1,039,150 551,735 551,735 1,703,050 900,881 900,881 1,902,515 1,428,875 1,428,875 3,017,554
12 1,091,107 539,909 539,909 1,703,050 940,133 940,133 1,931,976 1,576,236 1,576,236 3,239,169
13 1,145,662 527,679 527,679 1,703,050 980,983 980,983 1,962,526 1,738,598 1,738,598 3,478,187
14 1,202,945 515,002 515,002 1,703,050 1,023,492 1,023,492 1,994,156 1,917,465 1,917,465 3,735,961
15 1,263,093 501,687 501,687 1,703,050 1,067,609 1,067,609 2,026,656 2,114,274 2,114,274 4,013,555
16 1,326,247 487,638 487,638 1,703,050 1,113,365 1,113,365 2,060,024 2,330,735 2,330,735 4,312,486
17 1,392,560 472,737 472,737 1,703,050 1,160,787 1,160,787 2,094,306 2,568,704 2,568,704 4,634,488
18 1,462,188 456,814 456,814 1,703,050 1,209,869 1,209,869 2,129,545 2,830,130 2,830,130 4,981,440
19 1,535,297 439,689 439,689 1,703,050 1,260,611 1,260,611 2,165,807 3,117,133 3,117,133 5,355,427
20 1,612,062 421,187 421,187 1,703,050 1,313,028 1,313,028 2,203,181 3,432,059 3,432,059 5,758,784
21 1,692,665 403,294 403,294 1,703,050 1,370,242 1,370,242 2,246,825 3,786,006 3,786,006 6,208,021
22 1,777,298 385,367 385,367 1,703,050 1,430,522 1,430,522 2,293,586 4,178,128 4,178,127 6,698,877
23 1,866,163 366,288 366,288 1,703,050 1,493,309 1,493,309 2,342,387 4,610,411 4,610,411 7,231,836
24 1,959,471 345,540 345,540 1,703,050 1,558,462 1,558,462 2,392,849 5,086,146 5,086,146 7,809,225
25 2,057,445 322,912 322,912 1,703,050 1,626,055 1,626,055 2,444,984 5,609,581 5,609,581 8,434,731
26 2,160,317 298,146 298,146 1,703,050 1,696,156 1,696,156 2,498,894 6,185,336 6,185,336 9,112,665
27 2,268,333 270,996 270,996 1,703,050 1,768,860 1,768,860 2,554,812 6,818,567 6,818,567 9,848,238
28 2,381,750 241,143 241,143 1,703,050 1,844,246 1,844,246 2,613,024 7,514,852 7,514,852 10,647,431
29 2,500,837 208,189 208,189 1,703,050 1,922,376 1,922,376 2,673,859 8,280,209 8,280,209 11,517,058
30 2,625,879 171,660 171,660 1,703,050 2,003,298 2,003,298 2,737,621 9,121,159 9,121,159 12,464,580
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $5
ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE
67
<PAGE> 71
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
68
<PAGE> 72
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 81,883 85,383 1,703,050 87,067 90,567 1,703,050 92,256 95,756 1,703,050
2 215,250 162,290 167,790 1,703,050 177,801 183,301 1,703,050 193,944 199,444 1,703,050
3 331,013 241,271 245,271 1,703,050 272,427 276,427 1,703,050 306,149 310,149 1,703,050
4 452,563 318,863 318,863 1,703,050 371,178 371,178 1,703,050 430,083 430,083 1,703,050
5 580,191 395,082 395,082 1,703,050 474,287 474,287 1,703,050 567,096 567,096 1,703,050
6 714,201 469,954 469,954 1,703,050 582,022 582,022 1,703,050 718,687 718,687 1,751,012
7 854,911 543,466 543,466 1,703,050 694,646 694,646 1,703,050 884,296 884,296 2,092,126
8 897,656 525,296 525,296 1,703,050 716,677 716,677 1,703,050 965,408 965,408 2,218,697
9 942,539 506,303 506,303 1,703,050 739,065 739,065 1,703,050 1,053,494 1,053,494 2,352,793
10 989,666 486,364 486,364 1,703,050 761,787 761,787 1,703,050 1,149,088 1,149,088 2,494,940
11 1,039,150 465,362 465,362 1,703,050 784,834 784,834 1,703,050 1,252,778 1,252,778 2,645,666
12 1,091,107 443,185 443,185 1,703,050 808,213 808,213 1,703,050 1,365,221 1,365,221 2,805,532
13 1,145,662 419,714 419,714 1,703,050 831,936 831,936 1,703,050 1,487,129 1,487,129 2,975,106
14 1,202,945 394,807 394,807 1,703,050 856,011 856,011 1,703,050 1,619,270 1,619,270 3,154,962
15 1,263,093 368,275 368,275 1,703,050 880,428 880,428 1,703,050 1,762,432 1,762,432 3,345,648
16 1,326,247 339,858 339,858 1,703,050 905,151 905,151 1,703,050 1,917,407 1,917,407 3,547,718
17 1,392,560 309,218 309,218 1,703,050 930,120 930,120 1,703,050 2,084,987 2,084,987 3,761,761
18 1,462,188 275,962 275,962 1,703,050 955,271 955,271 1,703,050 2,265,986 2,265,986 3,988,464
19 1,535,297 239,644 239,644 1,703,050 980,542 980,542 1,703,050 2,461,258 2,461,258 4,228,593
20 1,612,062 199,772 199,772 1,703,050 1,005,887 1,005,887 1,703,050 2,671,724 2,671,724 4,482,988
21 1,692,665 155,864 155,864 1,703,050 1,031,300 1,031,300 1,703,050 2,898,452 2,898,452 4,752,673
22 1,777,298 107,393 107,393 1,703,050 1,056,797 1,056,797 1,703,050 3,142,627 3,142,627 5,038,639
23 1,866,163 53,785 53,785 1,703,050 1,082,414 1,082,414 1,703,050 3,405,574 3,405,574 5,341,943
24 1,959,471 - - - 1,108,172 1,108,172 1,703,050 3,688,653 3,688,653 5,663,526
25 2,057,445 - - - 1,134,047 1,134,047 1,705,187 3,993,162 3,993,162 6,004,236
26 2,160,317 - - - 1,159,969 1,159,969 1,708,946 4,320,308 4,320,308 6,364,977
27 2,268,333 - - - 1,185,824 1,185,824 1,712,717 4,671,185 4,671,185 6,746,717
28 2,381,750 - - - 1,211,469 1,211,469 1,716,472 5,046,764 5,046,764 7,150,517
29 2,500,837 - - - 1,236,770 1,236,770 1,720,241 5,448,014 5,448,014 7,577,718
30 2,625,879 - - - 1,261,657 1,261,657 1,724,126 5,876,184 5,876,184 8,030,138
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR
69
<PAGE> 73
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
70
<PAGE> 74
APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH
BENEFITS FOR FIDELITY INVESTMENTS CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE
POLICIES
The illustrations in this prospectus have been prepared to help show how values
under the policies change with investment performance. The illustrations
illustrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the policies would go into default, at which time additional
premium payments would be required to continue the policy in force. The
illustrations also assume there is no policy indebtedness, no additional premium
payments are made, no cash values are allocated to the fixed account, and there
are no changes in the specified amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. Beginning in the fourth policy year, cash surrender
value equals cash value less indebtedness, or other deductions. In policy years
one, two, and three only, cash surrender value equals cash value less
indebtedness or other deductions increased by 3.5%, 5.5%, and 4.0%,
respectively, of the current premium. The guaranteed mortality and expense risk
charges for policy years one through four are equivalent to an annual effective
rate of 0.75% of the daily net assets value of the variable account. The current
mortality and expense risk charges for policy years one through four are
equivalent to an annual effective rate of 0.60% of the daily net assets of the
variable account. The current mortality and expense risk charges for policy
years five through twenty are equivalent to an annual effective rate of 0.40% of
the daily net assets of the variable account. The current mortality and expense
risk charges for policy years twenty-one and beyond are equivalent to an annual
effective rate of 0.25% of the daily net assets of the variable account. In
addition, the net investment returns also reflect the deduction of underlying
mutual fund investment advisory fees and other expenses which are equivalent to
an annual effective rate of 0.80% of the daily net assets of the variable
account. This effective rate is based on the average of the fund expenses, after
expense reimbursement, for all underlying mutual fund options available under
the policy as of April 13,1999. Some underlying mutual funds are subject to fee
waivers and expense reimbursements. Absent fee waivers and expense
reimbursements, the annual effective rate would have been .85%. Nationwide
anticipates that the expense reimbursement and fee waiver arrangements will
continue past the current year. Should there be an increase or decrease in the
expense reimbursements and fee waivers of these underlying mutual funds, such
change will be reflected in the net asset value of the corresponding underlying
mutual fund.
Considering current charges for mortality and expense risks and underlying
mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.40%, 4.60% and
10.60% for policy years one through four, and rates of -1.20%, 4.80% and 10.80%,
for policy years five through twenty, and rates of -1.05%, 4.95% and 10.95%, for
policy years twenty-one and beyond. Considering guaranteed charges for mortality
and expense risks and underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -1.55%, 4.45% and 10.45%, for all policy years.
71
<PAGE> 75
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in lower
cash values and death benefits than those illustrated.
The illustrations also reflect the fact that Nationwide deducts a sales load
from each premium payment received guaranteed not to exceed 5.5% of each premium
payment for the first seven policy years and 2% thereafter. On a current basis,
the sales load is 3.0% of premium payments plus 2.5% of premiums up to the
target premium during the first seven policy years, and 0% of all premiums
thereafter. Nationwide also deducts a tax expense charge of 3.5%, both current
and guaranteed, from all premium payments. The illustrations also reflect the
fact that Nationwide deducts a charge for state premium taxes at a rate of 2.25%
and for federal tax at a rate of 1.25% (imposed under Section 848 of the
Internal Revenue Code) of all premium payments.
In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. This
monthly administrative expense charge is currently $5 per month and guaranteed
not to exceed $10. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the variable account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax returns
shown in the illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insured's age, smoking classification, rating classification and
premium payment requested.
72
<PAGE> 76
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE/NONTOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 88,056 91,556 1,703,050 93,491 96,991 1,703,050 98,928 102,428 1,703,050
2 215,250 174,786 180,286 1,703,050 191,193 196,693 1,703,050 208,256 213,756 1,703,050
3 331,013 260,543 264,543 1,703,050 293,671 297,671 1,703,050 329,498 333,498 1,703,050
4 452,563 345,290 345,290 1,703,050 401,125 401,125 1,703,050 463,934 463,934 1,703,050
5 580,191 429,619 429,619 1,703,050 514,525 514,525 1,703,050 613,897 613,897 1,703,050
6 714,201 513,015 513,015 1,703,050 633,600 633,600 1,703,050 780,147 780,147 1,900,753
7 854,911 595,542 595,542 1,703,050 758,545 758,545 1,794,617 963,598 963,598 2,279,743
8 897,656 585,049 585,049 1,703,050 792,036 792,036 1,820,255 1,063,558 1,063,558 2,444,265
9 942,539 574,277 574,277 1,703,050 826,893 826,893 1,846,719 1,173,730 1,173,730 2,621,318
10 989,666 563,175 563,175 1,703,050 863,150 863,150 1,874,101 1,295,116 1,295,116 2,812,003
11 1,039,150 551,735 551,735 1,703,050 900,881 900,881 1,902,515 1,428,875 1,428,875 3,017,554
12 1,091,107 539,909 539,909 1,703,050 940,133 940,133 1,931,976 1,576,236 1,576,236 3,239,169
13 1,145,662 527,679 527,679 1,703,050 980,983 980,983 1,962,526 1,738,598 1,738,598 3,478,187
14 1,202,945 515,002 515,002 1,703,050 1,023,492 1,023,492 1,994,156 1,917,465 1,917,465 3,735,961
15 1,263,093 501,687 501,687 1,703,050 1,067,609 1,067,609 2,026,656 2,114,274 2,114,274 4,013,555
16 1,326,247 487,638 487,638 1,703,050 1,113,365 1,113,365 2,060,024 2,330,735 2,330,735 4,312,486
17 1,392,560 472,737 472,737 1,703,050 1,160,787 1,160,787 2,094,306 2,568,704 2,568,704 4,634,488
18 1,462,188 456,814 456,814 1,703,050 1,209,869 1,209,869 2,129,545 2,830,130 2,830,130 4,981,440
19 1,535,297 439,689 439,689 1,703,050 1,260,611 1,260,611 2,165,807 3,117,133 3,117,133 5,355,427
20 1,612,062 421,187 421,187 1,703,050 1,313,028 1,313,028 2,203,181 3,432,059 3,432,059 5,758,784
21 1,692,665 403,294 403,294 1,703,050 1,370,242 1,370,242 2,246,825 3,786,006 3,786,006 6,208,021
22 1,777,298 385,367 385,367 1,703,050 1,430,522 1,430,522 2,293,586 4,178,128 4,178,127 6,698,877
23 1,866,163 366,288 366,288 1,703,050 1,493,309 1,493,309 2,342,387 4,610,411 4,610,411 7,231,836
24 1,959,471 345,540 345,540 1,703,050 1,558,462 1,558,462 2,392,849 5,086,146 5,086,146 7,809,225
25 2,057,445 322,912 322,912 1,703,050 1,626,055 1,626,055 2,444,984 5,609,581 5,609,581 8,434,731
26 2,160,317 298,146 298,146 1,703,050 1,696,156 1,696,156 2,498,894 6,185,336 6,185,336 9,112,665
27 2,268,333 270,996 270,996 1,703,050 1,768,860 1,768,860 2,554,812 6,818,567 6,818,567 9,848,238
28 2,381,750 241,143 241,143 1,703,050 1,844,246 1,844,246 2,613,024 7,514,852 7,514,852 10,647,431
29 2,500,837 208,189 208,189 1,703,050 1,922,376 1,922,376 2,673,859 8,280,209 8,280,209 11,517,058
30 2,625,879 171,660 171,660 1,703,050 2,003,298 2,003,298 2,737,621 9,121,159 9,121,159 12,464,580
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $5
ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE
73
<PAGE> 77
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
74
<PAGE> 78
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 81,883 85,383 1,703,050 87,067 90,567 1,703,050 92,256 95,756 1,703,050
2 215,250 162,290 167,790 1,703,050 177,801 183,301 1,703,050 193,944 199,444 1,703,050
3 331,013 241,271 245,271 1,703,050 272,427 276,427 1,703,050 306,149 310,149 1,703,050
4 452,563 318,863 318,863 1,703,050 371,178 371,178 1,703,050 430,083 430,083 1,703,050
5 580,191 395,082 395,082 1,703,050 474,287 474,287 1,703,050 567,096 567,096 1,703,050
6 714,201 469,954 469,954 1,703,050 582,022 582,022 1,703,050 718,687 718,687 1,751,012
7 854,911 543,466 543,466 1,703,050 694,646 694,646 1,703,050 884,296 884,296 2,092,126
8 897,656 525,296 525,296 1,703,050 716,677 716,677 1,703,050 965,408 965,408 2,218,697
9 942,539 506,303 506,303 1,703,050 739,065 739,065 1,703,050 1,053,494 1,053,494 2,352,793
10 989,666 486,364 486,364 1,703,050 761,787 761,787 1,703,050 1,149,088 1,149,088 2,494,940
11 1,039,150 465,362 465,362 1,703,050 784,834 784,834 1,703,050 1,252,778 1,252,778 2,645,666
12 1,091,107 443,185 443,185 1,703,050 808,213 808,213 1,703,050 1,365,221 1,365,221 2,805,532
13 1,145,662 419,714 419,714 1,703,050 831,936 831,936 1,703,050 1,487,129 1,487,129 2,975,106
14 1,202,945 394,807 394,807 1,703,050 856,011 856,011 1,703,050 1,619,270 1,619,270 3,154,962
15 1,263,093 368,275 368,275 1,703,050 880,428 880,428 1,703,050 1,762,432 1,762,432 3,345,648
16 1,326,247 339,858 339,858 1,703,050 905,151 905,151 1,703,050 1,917,407 1,917,407 3,547,718
17 1,392,560 309,218 309,218 1,703,050 930,120 930,120 1,703,050 2,084,987 2,084,987 3,761,761
18 1,462,188 275,962 275,962 1,703,050 955,271 955,271 1,703,050 2,265,986 2,265,986 3,988,464
19 1,535,297 239,644 239,644 1,703,050 980,542 980,542 1,703,050 2,461,258 2,461,258 4,228,593
20 1,612,062 199,772 199,772 1,703,050 1,005,887 1,005,887 1,703,050 2,671,724 2,671,724 4,482,988
21 1,692,665 155,864 155,864 1,703,050 1,031,300 1,031,300 1,703,050 2,898,452 2,898,452 4,752,673
22 1,777,298 107,393 107,393 1,703,050 1,056,797 1,056,797 1,703,050 3,142,627 3,142,627 5,038,639
23 1,866,163 53,785 53,785 1,703,050 1,082,414 1,082,414 1,703,050 3,405,574 3,405,574 5,341,943
24 1,959,471 - - - 1,108,172 1,108,172 1,703,050 3,688,653 3,688,653 5,663,526
25 2,057,445 - - - 1,134,047 1,134,047 1,705,187 3,993,162 3,993,162 6,004,236
26 2,160,317 - - - 1,159,969 1,159,969 1,708,946 4,320,308 4,320,308 6,364,977
27 2,268,333 - - - 1,185,824 1,185,824 1,712,717 4,671,185 4,671,185 6,746,717
28 2,381,750 - - - 1,211,469 1,211,469 1,716,472 5,046,764 5,046,764 7,150,517
29 2,500,837 - - - 1,236,770 1,236,770 1,720,241 5,448,014 5,448,014 7,577,718
30 2,625,879 - - - 1,261,657 1,261,657 1,724,126 5,876,184 5,876,184 8,030,138
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR
75
<PAGE> 79
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
76
<PAGE> 80
APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH
BENEFITS FOR GOLDMAN SACHS CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
The illustrations in this prospectus have been prepared to help show how values
under the policies change with investment performance. The illustrations
illustrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the policies would go into default, at which time additional
premium payments would be required to continue the policy in force. The
illustrations also assume there is no policy indebtedness, no additional premium
payments are made, no cash values are allocated to the fixed account, and there
are no changes in the specified amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. Beginning in the fourth policy year, cash surrender
value equals cash value less indebtedness, or other deductions. In policy years
one, two, and three only, cash surrender value equals cash value less
indebtedness or other deductions increased by 3.5%, 5.5%, and 4.0%,
respectively, of the current premium. The guaranteed mortality and expense risk
charges for policy years one through four are equivalent to an annual effective
rate of 0.75% of the daily net assets value of the variable account. The current
mortality and expense risk charges for policy years one through four are
equivalent to an annual effective rate of 0.60% of the daily net assets of the
variable account. The current mortality and expense risk charges for policy
years five through twenty are equivalent to an annual effective rate of 0.40% of
the daily net assets of the variable account. The current mortality and expense
risk charges for policy years twenty-one and beyond are equivalent to an annual
effective rate of 0.25% of the daily net assets of the variable account. In
addition, the net investment returns also reflect the deduction of underlying
mutual fund investment advisory fees and other expenses which are equivalent to
an annual effective rate of 0.75% of the daily net assets of the variable
account. This effective rate is based on the average of the fund expenses, after
expense reimbursement, for all underlying mutual fund options available under
the policy as of April 13,1999. Some underlying mutual funds are subject to fee
waivers and expense reimbursements. Absent fee waivers and expense
reimbursements, the annual effective rate would have been 1.90%. Nationwide
anticipates that the expense reimbursement and fee waiver arrangements will
continue past the current year. Should there be an increase or decrease in the
expense reimbursements and fee waivers of these underlying mutual funds, such
change will be reflected in the net asset value of the corresponding underlying
mutual fund.
Considering current charges for mortality and expense risks and underlying
mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.35%, 4.65% and
10.65% for policy years one through four, and rates of -1.15%, 4.85% and 10.85%,
for policy years five through twenty, and rates of -1.00%, 5.00% and 11.00%, for
policy years twenty-one and beyond. Considering guaranteed charges for mortality
and expense risks and underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -1.50%, 4.50% and 10.50%, for all policy years.
77
<PAGE> 81
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in lower
cash values and death benefits than those illustrated.
The illustrations also reflect the fact that Nationwide deducts a sales load
from each premium payment received guaranteed not to exceed 5.5% of each premium
payment for the first seven policy years and 2% thereafter. On a current basis,
the sales load is 3.0% of premium payments plus 2.5% of premiums up to the
target premium during the first seven policy years, and 0% of all premiums
thereafter. Nationwide also deducts a tax expense charge of 3.5%, both current
and guaranteed, from all premium payments. The illustrations also reflect the
fact that Nationwide deducts a charge for state premium taxes at a rate of 2.25%
and for federal tax at a rate of 1.25% (imposed under Section 848 of the
Internal Revenue Code) of all premium payments.
In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. This
monthly administrative expense charge is currently $5 per month and guaranteed
not to exceed $10. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the variable account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax returns
shown in the illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insured's age, smoking classification, rating classification and
premium payment requested.
78
<PAGE> 82
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE/NONTOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 88,101 91,601 1,703,050 93,536 97,036 1,703,050 98,974 102,474 1,703,050
2 215,250 174,920 180,420 1,703,050 191,332 196,832 1,703,050 208,401 213,901 1,703,050
3 331,013 260,808 264,808 1,703,050 293,958 297,958 1,703,050 329,808 333,808 1,703,050
4 452,563 345,728 345,728 1,703,050 401,619 401,619 1,703,050 464,488 464,488 1,703,050
5 580,191 430,272 430,272 1,703,050 515,291 515,291 1,703,050 614,792 614,792 1,703,050
6 714,201 513,924 513,923 1,703,050 634,709 634,709 1,703,050 781,486 781,486 1,904,015
7 854,911 596,746 596,746 1,703,050 760,065 760,065 1,798,211 965,510 965,510 2,284,267
8 897,656 586,542 586,542 1,703,050 794,000 794,000 1,824,768 1,066,148 1,066,148 2,450,217
9 942,539 576,052 576,052 1,703,050 829,337 829,337 1,852,178 1,177,117 1,177,117 2,628,883
10 989,666 565,227 565,227 1,703,050 866,113 866,113 1,880,536 1,299,438 1,299,438 2,821,387
11 1,039,150 554,055 554,055 1,703,050 904,403 904,403 1,909,954 1,434,288 1,434,288 3,028,986
12 1,091,107 542,492 542,492 1,703,050 944,258 944,258 1,940,453 1,582,919 1,582,919 3,252,903
13 1,145,662 530,520 530,520 1,703,050 985,757 985,757 1,972,075 1,746,755 1,746,755 3,494,506
14 1,202,945 518,093 518,093 1,703,050 1,028,961 1,028,961 2,004,813 1,927,328 1,927,328 3,755,178
15 1,263,093 505,024 505,024 1,703,050 1,073,824 1,073,824 2,038,455 2,126,105 2,126,105 4,036,015
16 1,326,247 491,214 491,214 1,703,050 1,120,380 1,120,380 2,073,004 2,344,833 2,344,833 4,338,570
17 1,392,560 476,547 476,547 1,703,050 1,168,656 1,168,656 2,108,504 2,585,403 2,585,403 4,664,617
18 1,462,188 460,854 460,854 1,703,050 1,218,650 1,218,650 2,145,002 2,849,810 2,849,810 5,016,080
19 1,535,297 443,953 443,953 1,703,050 1,270,365 1,270,365 2,182,565 3,140,221 3,140,221 5,395,093
20 1,612,062 425,671 425,671 1,703,050 1,323,817 1,323,817 2,221,284 3,459,035 3,459,035 5,804,048
21 1,692,665 407,997 407,997 1,703,050 1,382,159 1,382,159 2,266,364 3,817,481 3,817,481 6,259,630
22 1,777,298 390,280 390,280 1,703,050 1,443,649 1,443,649 2,314,632 4,214,757 4,214,757 6,757,606
23 1,866,163 371,406 371,406 1,703,050 1,507,729 1,507,729 2,365,006 4,652,922 4,652,922 7,298,519
24 1,959,471 350,860 350,860 1,703,050 1,574,259 1,574,259 2,417,104 5,135,353 5,135,353 7,884,776
25 2,057,445 328,431 328,431 1,703,050 1,643,319 1,643,319 2,470,943 5,666,399 5,666,399 8,520,164
26 2,160,317 303,862 303,862 1,703,050 1,714,980 1,714,980 2,526,627 6,250,796 6,250,796 9,209,106
27 2,268,333 276,906 276,906 1,703,050 1,789,342 1,789,342 2,584,394 6,893,828 6,893,828 9,956,939
28 2,381,750 247,244 247,244 1,703,050 1,866,488 1,866,488 2,644,537 7,601,215 7,601,215 10,769,796
29 2,500,837 214,479 214,479 1,703,050 1,946,485 1,946,485 2,707,393 8,379,135 8,379,135 11,654,656
30 2,625,879 178,137 178,137 1,703,050 2,029,388 2,029,388 2,773,273 9,234,284 9,234,284 12,619,172
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $5
ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE
79
<PAGE> 83
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
80
<PAGE> 84
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 81,926 85,426 1,703,050 87,110 90,610 1,703,050 92,300 95,800 1,703,050
2 215,250 162,417 167,917 1,703,050 177,933 183,433 1,703,050 194,081 199,581 1,703,050
3 331,013 241,520 245,520 1,703,050 272,697 276,697 1,703,050 306,441 310,441 1,703,050
4 452,563 319,273 319,273 1,703,050 371,640 371,640 1,703,050 430,603 430,603 1,703,050
5 580,191 395,691 395,691 1,703,050 475,001 475,001 1,703,050 567,932 567,932 1,703,050
6 714,201 470,797 470,797 1,703,050 583,053 583,053 1,703,050 719,937 719,937 1,754,058
7 854,911 544,581 544,581 1,703,050 696,065 696,065 1,703,050 886,060 886,060 2,096,300
8 897,656 526,672 526,672 1,703,050 718,516 718,516 1,703,050 967,769 967,769 2,224,124
9 942,539 507,930 507,930 1,703,050 741,358 741,358 1,703,050 1,056,546 1,056,546 2,359,610
10 989,666 488,232 488,232 1,703,050 764,573 764,573 1,703,050 1,152,936 1,152,936 2,503,295
11 1,039,150 467,462 467,462 1,703,050 788,155 788,155 1,703,050 1,257,540 1,257,540 2,655,721
12 1,091,107 445,506 445,506 1,703,050 812,114 812,114 1,703,050 1,371,026 1,371,026 2,817,463
13 1,145,662 422,247 422,247 1,703,050 836,465 836,465 1,703,050 1,494,126 1,494,126 2,989,104
14 1,202,945 397,544 397,544 1,703,050 861,223 861,223 1,703,050 1,627,621 1,627,621 3,171,233
15 1,263,093 371,205 371,205 1,703,050 886,383 886,383 1,703,050 1,772,319 1,772,319 3,364,417
16 1,326,247 342,971 342,971 1,703,050 911,915 911,915 1,703,050 1,929,032 1,929,032 3,569,227
17 1,392,560 312,506 312,506 1,703,050 937,768 937,768 1,703,050 2,098,573 2,098,573 3,786,272
18 1,462,188 279,414 279,414 1,703,050 963,886 963,886 1,703,050 2,281,777 2,281,777 4,016,260
19 1,535,297 243,251 243,251 1,703,050 990,220 990,220 1,703,050 2,479,527 2,479,527 4,259,979
20 1,612,062 203,524 203,524 1,703,050 1,016,736 1,016,736 1,706,020 2,692,767 2,692,767 4,518,297
21 1,692,665 159,750 159,750 1,703,050 1,043,433 1,043,433 1,710,947 2,922,596 2,922,596 4,792,262
22 1,777,298 111,402 111,402 1,703,050 1,070,324 1,070,324 1,716,072 3,170,232 3,170,232 5,082,897
23 1,866,163 57,903 57,903 1,703,050 1,097,434 1,097,434 1,721,421 3,437,035 3,437,035 5,391,293
24 1,959,471 - - - 1,124,760 1,124,760 1,726,947 3,724,406 3,724,406 5,718,420
25 2,057,445 - - - 1,152,247 1,152,247 1,732,553 4,033,681 4,033,681 6,065,161
26 2,160,317 - - - 1,179,787 1,179,787 1,738,144 4,366,111 4,366,111 6,432,457
27 2,268,333 - - - 1,207,220 1,207,220 1,743,621 4,722,834 4,722,834 6,821,314
28 2,381,750 - - - 1,234,364 1,234,364 1,748,910 5,104,863 5,104,863 7,232,834
29 2,500,837 - - - 1,261,069 1,261,069 1,754,039 5,513,212 5,513,212 7,668,403
30 2,625,879 - - - 1,287,262 1,287,262 1,759,117 5,949,184 5,949,184 8,129,896
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR
81
<PAGE> 85
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
82
<PAGE> 86
APPENDIX B: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH
BENEFITS FOR INVESCO CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
The illustrations in this prospectus have been prepared to help show how values
under the policies change with investment performance. The illustrations
illustrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the policies would go into default, at which time additional
premium payments would be required to continue the policy in force. The
illustrations also assume there is no policy indebtedness, no additional premium
payments are made, no cash values are allocated to the fixed account, and there
are no changes in the specified amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. Beginning in the fourth policy year, cash surrender
value equals cash value less indebtedness, or other deductions. In policy years
one, two, and three only, cash surrender value equals cash value less
indebtedness or other deductions increased by 3.5%, 5.5%, and 4.0%,
respectively, of the current premium. The guaranteed mortality and expense risk
charges for policy years one through four are equivalent to an annual effective
rate of 0.75% of the daily net assets value of the variable account. The current
mortality and expense risk charges for policy years one through four are
equivalent to an annual effective rate of 0.60% of the daily net assets of the
variable account. The current mortality and expense risk charges for policy
years five through twenty are equivalent to an annual effective rate of 0.40% of
the daily net assets of the variable account. The current mortality and expense
risk charges for policy years twenty-one and beyond are equivalent to an annual
effective rate of 0.25% of the daily net assets of the variable account. In
addition, the net investment returns also reflect the deduction of underlying
mutual fund investment advisory fees and other expenses which are equivalent to
an annual effective rate of 1.10% of the daily net assets of the variable
account. This effective rate is based on the average of the fund expenses, after
expense reimbursement, for all underlying mutual fund options available under
the policy as of April 13,1999. Some underlying mutual funds are subject to fee
waivers and expense reimbursements. Absent fee waivers and expense
reimbursements, the annual effective rate would have been 3.15%. Nationwide
anticipates that the expense reimbursement and fee waiver arrangements will
continue past the current year. Should there be an increase or decrease in the
expense reimbursements and fee waivers of these underlying mutual funds, such
change will be reflected in the net asset value of the corresponding underlying
mutual fund.
Considering current charges for mortality and expense risks and underlying
mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.70%, 4.30% and
10.30% for policy years one through four, and rates of -1.50%, 4.50% and 10.50%,
for policy years five through twenty, and rates of -1.35%, 4.65% and 10.65%, for
policy years twenty-one and beyond. Considering guaranteed charges for mortality
and expense risks and underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -1.85%, 4.15% and 10.15%, for all policy years.
83
<PAGE> 87
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in lower
cash values and death benefits than those illustrated.
The illustrations also reflect the fact that Nationwide deducts a sales load
from each premium payment received guaranteed not to exceed 5.5% of each premium
payment for the first seven policy years and 2% thereafter. On a current basis,
the sales load is 3.0% of premium payments plus 2.5% of premiums up to the
target premium during the first seven policy years, and 0% of all premiums
thereafter. Nationwide also deducts a tax expense charge of 3.5%, both current
and guaranteed, from all premium payments. The illustrations also reflect the
fact that Nationwide deducts a charge for state premium taxes at a rate of 2.25%
and for federal tax at a rate of 1.25% (imposed under Section 848 of the
Internal Revenue Code) of all premium payments.
In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. This
monthly administrative expense charge is currently $5 per month and guaranteed
not to exceed $10. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the variable account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax returns
shown in the illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insured's age, smoking classification, rating classification and
premium payment requested.
84
<PAGE> 88
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE/NONTOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 87,784 91,284 1,703,050 93,219 96,719 1,703,050 98,656 102,156 1,703,050
2 215,250 173,983 179,483 1,703,050 190,357 195,857 1,703,050 207,388 212,888 1,703,050
3 331,013 258,955 262,955 1,703,050 291,951 295,951 1,703,050 327,640 331,640 1,703,050
4 452,563 342,670 342,670 1,703,050 398,173 398,173 1,703,050 460,618 460,618 1,703,050
5 580,191 425,720 425,720 1,703,050 509,952 509,952 1,703,050 608,555 608,555 1,703,050
6 714,201 507,597 507,597 1,703,050 626,984 626,984 1,703,050 772,160 772,160 1,881,293
7 854,911 588,368 588,368 1,703,050 749,492 749,492 1,773,198 952,204 952,204 2,252,787
8 897,656 576,166 576,166 1,703,050 780,350 780,350 1,793,398 1,048,145 1,048,145 2,408,844
9 942,539 563,730 563,730 1,703,050 812,368 812,368 1,814,280 1,153,598 1,153,598 2,576,358
10 989,666 551,011 551,011 1,703,050 845,568 845,568 1,835,928 1,269,467 1,269,467 2,756,312
11 1,039,150 537,996 537,996 1,703,050 880,012 880,012 1,858,443 1,396,796 1,396,796 2,949,808
12 1,091,107 524,638 524,638 1,703,050 915,734 915,734 1,881,836 1,536,689 1,536,689 3,157,901
13 1,145,662 510,921 510,921 1,703,050 952,797 952,797 1,906,138 1,690,402 1,690,402 3,381,768
14 1,202,945 496,797 496,797 1,703,050 991,247 991,247 1,931,331 1,859,278 1,859,278 3,622,592
15 1,263,093 482,075 482,075 1,703,050 1,031,023 1,031,023 1,957,205 2,044,581 2,044,581 3,881,256
16 1,326,247 466,657 466,657 1,703,050 1,072,142 1,072,142 1,983,751 2,247,823 2,247,823 4,159,076
17 1,392,560 450,422 450,422 1,703,050 1,114,617 1,114,617 2,011,006 2,470,639 2,470,639 4,457,559
18 1,462,188 433,202 433,202 1,703,050 1,158,431 1,158,431 2,039,007 2,714,737 2,714,737 4,778,332
19 1,535,297 414,811 414,811 1,703,050 1,203,570 1,203,570 2,067,807 2,981,968 2,981,968 5,123,204
20 1,612,062 395,074 395,074 1,703,050 1,250,037 1,250,037 2,097,486 3,274,375 3,274,375 5,494,200
21 1,692,665 375,965 375,965 1,703,050 1,300,783 1,300,783 2,132,931 3,602,312 3,602,312 5,906,812
22 1,777,298 356,877 356,877 1,703,050 1,354,131 1,354,131 2,171,107 3,964,679 3,964,679 6,356,650
23 1,866,163 336,670 336,670 1,703,050 1,409,530 1,409,530 2,210,973 4,363,071 4,363,071 6,843,862
24 1,959,471 314,819 314,819 1,703,050 1,466,829 1,466,829 2,252,157 4,800,294 4,800,294 7,370,330
25 2,057,445 291,112 291,112 1,703,050 1,526,079 1,526,079 2,294,658 5,280,023 5,280,022 7,939,197
26 2,160,317 265,291 265,291 1,703,050 1,587,327 1,587,327 2,338,559 5,806,241 5,806,241 8,554,156
27 2,268,333 237,108 237,108 1,703,050 1,650,641 1,650,641 2,384,065 6,383,388 6,383,388 9,219,697
28 2,381,750 206,245 206,245 1,703,050 1,716,077 1,716,077 2,431,426 7,016,249 7,016,249 9,940,984
29 2,500,837 172,302 172,302 1,703,050 1,783,670 1,783,670 2,480,932 7,709,963 7,709,963 10,723,894
30 2,625,879 134,805 134,805 1,703,050 1,853,449 1,853,449 2,532,843 8,470,078 8,470,078 11,574,842
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $5
ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE
85
<PAGE> 89
BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE
MADE BY NATIONWIDE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
86
<PAGE> 90
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL GROSS INVESTMENT 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT
RETURN RETURN RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 81,624 85,124 1,703,050 86,808 90,308 1,703,050 91,997 95,497 1,703,050
2 215,250 161,531 167,031 1,703,050 177,011 182,511 1,703,050 193,122 198,622 1,703,050
3 331,013 239,779 243,779 1,703,050 270,809 274,809 1,703,050 304,400 308,400 1,703,050
4 452,563 316,410 316,410 1,703,050 368,410 368,410 1,703,050 426,972 426,972 1,703,050
5 580,191 391,447 391,447 1,703,050 470,018 470,018 1,703,050 562,104 562,104 1,703,050
6 714,201 464,922 464,922 1,703,050 575,869 575,869 1,703,050 711,224 711,224 1,732,829
7 854,911 536,826 536,826 1,703,050 686,191 686,191 1,703,050 873,779 873,779 2,067,243
8 897,656 517,114 517,114 1,703,050 705,735 705,735 1,703,050 951,349 951,349 2,186,387
9 942,539 496,644 496,644 1,703,050 725,437 725,437 1,703,050 1,035,348 1,035,348 2,312,267
10 989,666 475,291 475,291 1,703,050 745,258 745,258 1,703,050 1,126,244 1,126,244 2,445,341
11 1,039,150 452,938 452,938 1,703,050 765,169 765,169 1,703,050 1,224,556 1,224,556 2,586,065
12 1,091,107 429,472 429,472 1,703,050 785,156 785,156 1,703,050 1,330,860 1,330,860 2,734,921
13 1,145,662 404,773 404,773 1,703,050 805,208 805,208 1,703,050 1,445,784 1,445,784 2,892,392
14 1,202,945 378,702 378,702 1,703,050 825,306 825,306 1,703,050 1,569,997 1,569,997 3,058,960
15 1,263,093 351,068 351,068 1,703,050 845,410 845,410 1,703,050 1,704,186 1,704,186 3,235,079
16 1,326,247 321,609 321,609 1,703,050 865,446 865,446 1,703,050 1,849,030 1,849,030 3,421,202
17 1,392,560 289,991 289,991 1,703,050 885,310 885,310 1,703,050 2,005,202 2,005,202 3,617,811
18 1,462,188 255,818 255,818 1,703,050 904,885 904,885 1,703,050 2,173,386 2,173,386 3,825,476
19 1,535,297 218,646 218,646 1,703,050 924,048 924,048 1,703,050 2,354,301 2,354,301 4,044,833
20 1,612,062 177,986 177,986 1,703,050 942,677 942,677 1,703,050 2,548,716 2,548,716 4,276,589
21 1,692,665 133,359 133,359 1,703,050 960,685 960,685 1,703,050 2,757,535 2,757,535 4,521,608
22 1,777,298 84,246 84,246 1,703,050 977,987 977,987 1,703,050 2,981,762 2,981,762 4,780,720
23 1,866,163 30,079 30,079 1,703,050 994,507 994,507 1,703,050 3,222,520 3,222,520 5,054,806
24 1,959,471 - - - 1,010,124 1,010,124 1,703,050 3,480,954 3,480,954 5,344,627
25 2,057,445 - - - 1,024,635 1,024,635 1,703,050 3,758,137 3,758,137 5,650,845
26 2,160,317 - - - 1,037,750 1,037,750 1,703,050 4,055,044 4,055,044 5,974,172
27 2,268,333 - - - 1,049,083 1,049,083 1,703,050 4,372,534 4,372,534 6,315,367
28 2,381,750 - - - 1,058,141 1,058,141 1,703,050 4,711,340 4,711,340 6,675,270
29 2,500,837 - - - 1,064,352 1,064,352 1,703,050 5,072,183 5,072,183 7,054,970
30 2,625,879 - - - 1,067,125 1,067,125 1,703,050 5,456,039 5,456,039 7,455,986
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR
87
<PAGE> 91
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
88
<PAGE> 92
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life and Annuity Insurance Company:
We have audited the accompanying balance sheets of Nationwide Life and Annuity
Insurance Company, a wholly owned subsidiary of Nationwide Life Insurance
Company, as of December 31, 1998 and 1997, and the related statements of income,
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 financial statements referred to above present fairly, in
all material respects, the financial position of Nationwide Life and Annuity
Insurance Company as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Columbus, Ohio
January 29, 1999
<PAGE> 2
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Balance Sheets
($000's omitted, except per share amounts)
<TABLE>
<CAPTION>
December 31,
Assets 1998 1997
---- ----
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $ 904,946 $ 796,919
Equity securities 20,853 14,767
Mortgage loans on real estate, net 268,894 218,852
Real estate, net 2,250 2,824
Policy loans 332 215
Short-term investments 2,277 18,968
---------- ----------
1,199,552 1,052,545
---------- ----------
Cash 2 5,163
Accrued investment income 11,645 10,778
Deferred policy acquisition costs 53,007 30,087
Other assets 41,542 15,624
Assets held in separate accounts 1,533,690 891,101
---------- ----------
$2,839,438 $2,005,298
========== ==========
Liabilities and Shareholder's Equity
Future policy benefits and claims $1,163,829 $ 986,191
Other liabilities 25,933 29,426
Liabilities related to separate accounts 1,533,690 891,101
---------- ----------
2,723,452 1,906,718
---------- ----------
Commitments and contingencies (note 7 and 11)
Shareholder's equity:
Common stock, $40 par value. Authorized, issued and outstanding 66,000 shares 2,640 2,640
Additional paid-in capital 52,960 52,960
Retained earnings 50,331 35,812
Accumulated other comprehensive income 10,055 7,168
---------- ----------
115,986 98,580
---------- ----------
$2,839,438 $2,005,298
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Income
($000's omitted)
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Policy charges $ 28,549 $ 11,244 $ 6,656
Life insurance premiums 63 363 246
Net investment income 11,314 11,577 51,045
Realized gains (losses) on investments 696 (246) (3)
Other income 1,165 1,057 --
-------- -------- --------
41,787 23,995 57,944
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 4,881 3,948 34,711
Other benefits and claims 1,586 433 813
Amortization of deferred policy acquisition costs 4,348 1,402 7,380
Other operating expenses 8,952 1,860 7,247
-------- -------- --------
19,767 7,643 50,151
-------- -------- --------
Income before federal income tax expense 22,020 16,352 7,793
Federal income tax expense 7,501 5,749 2,707
-------- -------- --------
Net income $ 14,519 $ 10,603 $ 5,086
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Shareholder's Equity
Years ended December 31, 1998, 1997 and 1996
($000's omitted)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholder's
stock capital earnings income equity
----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ 2,640 $ 52,960 $ 20,123 $ 4,454 $ 80,177
Comprehensive income:
Net income -- -- 5,086 -- 5,086
Net unrealized losses on securities
available-for-sale arising during the -- -- -- (1,226) (1,226)
year
---------
Total comprehensive income 3,860
--------- --------- --------- --------- ---------
December 31, 1996 2,640 52,960 25,209 3,228 84,037
Comprehensive income:
Net income -- -- 10,603 -- 10,603
Net unrealized gains on securities
available-for-sale arising during the -- -- -- 3,940 3,940
year
---------
Total comprehensive income 14,543
--------- --------- --------- --------- ---------
December 31, 1997 2,640 52,960 35,812 7,168 98,580
Comprehensive income:
Net income -- -- 14,519 -- 14,519
Net unrealized gains on securities
available-for-sale arising during the -- -- -- 2,887 2,887
year
---------
Total comprehensive income 17,406
--------- --------- --------- --------- ---------
December 31, 1998 $ 2,640 $ 52,960 $ 50,331 $ 10,055 $ 115,986
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Statements of Cash Flows
($000's omitted)
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 14,519 $ 10,603 $ 5,086
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to policyholder account balances 4,881 3,948 34,711
Capitalization of deferred policy acquisition costs (29,216) (20,099) (19,987)
Amortization of deferred policy acquisition costs 4,348 1,402 7,380
Commission and expense allowances under coinsurance
agreement with affiliate -- -- 26,473
Amortization and depreciation (479) 250 1,721
Realized (gains) losses on invested assets, net (696) 246 3
Increase in accrued investment income (867) (1,589) (725)
(Increase) decrease in other assets (25,919) 21,858 (32,539)
Increase (decrease) in policy liabilities and funds withheld
on coinsurance agreement with affiliate 139,991 228,898 (7,101)
(Decrease) increase in other liabilities (3,883) (7,488) 23,198
--------- --------- ---------
Net cash provided by operating activities 102,679 238,029 38,220
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 117,228 95,366 73,966
Proceeds from sale of securities available-for-sale 17,403 30,431 2,480
Proceeds from repayments of mortgage loans on real estate 28,180 15,199 10,975
Proceeds from sale of real estate 707 -- --
Proceeds from repayments of policy loans 99 67 23
Cost of securities available-for-sale acquired (242,516) (267,899) (179,671)
Cost of mortgage loans on real estate acquired (78,180) (84,736) (57,395)
Cost of real estate acquired (3) (13) --
Policy loans issued (216) (155) (55)
Short-term investments, net 16,691 (18,476) 4,352
--------- --------- ---------
Net cash used in investing activities (140,607) (230,216) (145,325)
--------- --------- ---------
Cash flows from financing activities:
Increase in investment product and universal life insurance
product account balances 74,828 6,952 200,575
Decrease in investment product and universal life insurance
product account balances (42,061) (13,898) (89,174)
--------- --------- ---------
Net cash provided by (used in) financing activities 32,767 (6,946) 111,401
--------- --------- ---------
Net (decrease) increase in cash (5,161) 867 4,296
Cash, beginning of year 5,163 4,296 --
--------- --------- ---------
Cash, end of year $ 2 $ 5,163 $ 4,296
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements
December 31, 1998, 1997 and 1996
($000's omitted)
(1) Organization and Description of Business
Nationwide Life and Annuity Insurance Company (the Company) is a wholly
owned subsidiary of Nationwide Life Insurance Company (NLIC).
The Company provides long-term savings and retirement products,
including variable annuities, fixed annuities and life insurance.
(2) Summary of Significant Accounting Policies
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles, which differ from statutory
accounting practices prescribed or permitted by regulatory authorities.
An Annual Statement, filed with the Department of Insurance of the
State of Ohio (the Department), is prepared on the basis of accounting
practices prescribed or permitted by the Department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as
state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not
so prescribed. The Company has no material permitted statutory
accounting practices.
In preparing the 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 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) 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, 1998 or 1997.
<PAGE> 7
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to 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 is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
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.
(b) Revenues and Benefits
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual variable and
fixed deferred annuities. Universal life insurance products
include universal life insurance, variable universal life
insurance, corporate owned 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 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.
(c) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses
on fixed maturity securities available-for-sale as described in
note 2(a).
(d) 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
statements of income and cash flows except for the fees the
Company receives.
<PAGE> 8
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(e) 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. The average interest rate credited on investment product
policy reserves was 5.1%, 5.1% and 5.6% for the years ended
December 31, 1998, 1997 and 1996, respectively.
(f) Federal Income Tax
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC). The members of the
consolidated tax return group have a tax sharing agreement which
provides, in effect, for each member to bear essentially the same
federal income tax liability as if separate tax returns were
filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(g) Reinsurance Ceded
Reinsurance revenues ceded and reinsurance recoveries on benefits
and expenses incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis.
(h) Statements of Cash Flows
The Company routinely invests its available cash balances in
highly liquid, short-term investments with affiliated companies.
See note 10. As such, the Company had no cash balance as of
December 31, 1995.
(i) Recently Issued Accounting Pronouncements
On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures
about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for
Segments of a Business Enterprise. SFAS 131 establishes standards
for public business enterprises to report information about
operating segments in annual financial statements and selected
information about operating segments in interim financial reports.
SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The
adoption of SFAS 131 did not affect results of operations or
financial position, nor did it affect the manner in which the
Company defines its operating segments. The segment information
required for annual financial statements is included in note 12.
On January 1, 1998, the Company adopted SFAS No. 132 - Employers'
Disclosures about Pensions and Other Postretirement Benefits. SFAS
132 revises employers' disclosures about pension and other
postretirement benefit plans. The Statement does not change the
measurement or recognition of benefit plans in the financial
statements. The revised disclosures required by SFAS 132 are
included in note 8.
<PAGE> 9
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
In June 1998, the FASB issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. Contracts that contain
embedded derivatives, such as certain insurance contracts, are
also addressed by the Statement. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. The Statement is effective for fiscal years beginning
after June 15, 1999. It may be implemented earlier provided
adoption occurs as of the beginning of any fiscal quarter after
issuance. The Company plans to adopt this Statement in first
quarter 2000 and is currently evaluating the impact on results of
operations and financial condition.
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position 98-1 - Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1). SOP
98-1 provides guidance intended to standardize accounting
practices for costs incurred to develop or obtain computer
software for internal use. Specifically, SOP 98-1 provides
guidance for determining whether computer software is for internal
use and when costs incurred for internal use software are to be
capitalized. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does
not expect the adoption of SOP 98-1, which occurred on January 1,
1999, to have a material impact on the Company's financial
statements.
(j) Reclassification
Certain items in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation.
(3) Investments
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1998 and
1997 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 15,577 $ 232 $ (11) $ 15,798
Obligations of states and political subdivisions 332 1 -- 333
Debt securities issued by foreign governments 4,015 23 -- 4,038
Corporate securities 602,925 15,446 (358) 618,013
Mortgage-backed securities 261,225 5,605 (66) 266,764
--------- --------- --------- ---------
Total fixed maturity securities 884,074 21,307 (435) 904,946
Equity securities 15,323 5,530 -- 20,853
--------- --------- --------- ---------
$ 899,397 $ 26,837 $ (435) $ 925,799
========= ========= ========= =========
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 5,923 $ 109 $ (27) $ 6,005
Obligations of states and political subdivisions 267 5 -- 272
Debt securities issued by foreign governments 6,077 57 (1) 6,133
Corporate securities 482,478 10,964 (509) 492,933
Mortgage-backed securities 285,224 6,458 (106) 291,576
--------- --------- --------- ---------
Total fixed maturity securities 779,969 17,593 (643) 796,919
Equity securities 11,704 3,063 -- 14,767
--------- --------- --------- ---------
$ 791,673 $ 20,656 $ (643) $ 811,686
========= ========= ========= =========
</TABLE>
<PAGE> 10
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1998, by expected
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.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
---- ----------
<S> <C> <C>
Fixed maturity securities available-for-sale:
Due in one year or less $121,769 $122,931
Due after one year through five years 606,626 621,349
Due after five years through ten years 126,215 130,402
Due after ten years 29,464 30,264
-------- --------
$884,074 $904,946
======== ========
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Gross unrealized gains $ 26,402 $ 20,013
Adjustment to deferred policy acquisition costs (10,933) (8,985)
Deferred federal income tax (5,414) (3,860)
-------- --------
$ 10,055 $ 7,168
======== ========
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ 3,922 $ 9,177 $ (8,764)
Equity securities 2,467 1,663 249
-------- -------- --------
$ 6,389 $ 10,840 $ (8,515)
======== ======== ========
</TABLE>
Proceeds from the sale of securities available-for-sale during 1998,
1997 and 1996 were $17,403, $30,431 and $2,480, respectively. During
1998, gross gains of $509 ($825 and $181 in 1997 and 1996,
respectively) and gross losses of $0 ($1,124 and none in 1997 and 1996,
respectively) were realized on those sales. See note 10.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1998 was $890 (none as of December 31,
1997). No valuation allowance has been recorded for these loans as of
December 31, 1998. During 1998, the average recorded investment in
impaired mortgage loans on real estate was approximately $178 ($386 in
1997) and interest income recognized on those loans was $15 (none in
1997), 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:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Allowance, beginning of year $ 750 $ 934
Reductions credited to operations -- (53)
Direct write-downs charged against the allowance -- (131)
----- -----
Allowance, end of year $ 750 $ 750
===== =====
</TABLE>
<PAGE> 11
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Real estate is presented at cost less accumulated depreciation of $105
as of December 31, 1998 ($153 as of December 31, 1997). There was a
valuation allowance of $229 as of December 31, 1997.
The Company has no investments which were non-income producing for the
twelve month periods preceding December 31, 1998 and 1997.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $56,398 $53,491 $40,552
Equity securities -- 375 598
Mortgage loans on real estate 21,124 14,862 9,991
Real estate 379 318 214
Short-term investments 1,361 899 507
Other 178 90 57
------- ------- -------
Total investment income 79,440 70,035 51,919
Less:
Investment expenses 1,773 1,386 874
Net investment income ceded (note 9) 66,353 57,072 --
------- ------- -------
Net investment income $11,314 $11,577 $51,045
======= ======= =======
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturity securities available-for-sale $ 509 $(299) $ 181
Mortgage loans on real estate -- 53 (184)
Real estate and other 187 -- --
----- ----- -----
$ 696 $(246) $ (3)
===== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $3,562 and $3,383
as of December 31, 1998 and 1997, respectively, were on deposit with
various regulatory agencies as required by law.
<PAGE> 12
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(4) Federal Income Tax
The Company's current federal income tax liability was $1,522 and $806
as of December 31, 1998 and 1997, respectively.
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 16,670 $ 13,168
Liabilities in Separate Accounts 12,477 8,080
Mortgage loans on real estate and real estate 263 336
Other assets and other liabilities -- 48
-------- --------
Total gross deferred tax assets 29,410 21,632
-------- --------
Deferred tax liabilities:
Fixed maturity securities 8,669 7,186
Deferred policy acquisition costs 8,103 6,159
Equity securities 1,935 1,072
Other 10,422 7,892
-------- --------
Total gross deferred tax liabilities 29,129 22,309
-------- --------
$ 281 $ (677)
======== ========
</TABLE>
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. All future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. The
Company has determined that valuation allowances are not necessary as
of December 31, 1998, 1997 and 1996 based on its analysis of future
deductible amounts.
Federal income tax expense for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable $ 10,014 $ 2,458 $ 9,612
Deferred tax (benefit) expense (2,513) 3,291 (6,905)
-------- -------- --------
$ 7,501 $ 5,749 $ 2,707
======== ======== ========
</TABLE>
Total federal income tax expense for the years ended December 31, 1998,
1997 and 1996 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $ 7,707 35.0 $ 5,723 35.0 $ 2,728 35.0
Tax exempt interest and dividends
received deduction (223) (1.0) -- (0.0) (175) (2.3)
Other, net 17 0.1 26 (0.2) 154 2.0
------- ------ ------- ------ ------- ------
Total (effective rate of each year) $ 7,501 34.1 $ 5,749 35.2 $ 2,707 34.7
======= ====== ======= ====== ======= ======
</TABLE>
Total federal income tax paid was $9,298, $9,566 and $2,335 during the
years ended December 31, 1998, 1997 and 1996, respectively.
<PAGE> 13
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(5) Comprehensive Income
Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the
Company adopted January 1, 1998, the Consolidated Statements of
Shareholder's Equity include a new measure called "Comprehensive
Income". Comprehensive Income includes net income as well as certain
items that are reported directly within separate components of
shareholders' equity that bypass net income. Currently, the Company's
only component of Other Comprehensive Income is unrealized gains
(losses) on securities available-for-sale. The related before and after
federal tax amounts are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Unrealized gains (losses) on securities available-
for-sale arising during the period:
Gross $ 6,898 $ 10,541 $ (8,334)
Adjustment to deferred policy acquisition costs (1,947) (4,778) 6,628
Related federal income tax (expense) benefit (1,733) (2,017) 362
-------- -------- --------
Net 3,218 3,746 (1,344)
-------- -------- --------
Reclassification adjustment for net (gains) losses on
securities available-for-sale realized during the
period:
Gross (509) 299 (181)
Related federal income tax expense (benefit) 178 (105) 63
-------- -------- --------
Net (331) 194 118
-------- -------- --------
Total Other Comprehensive Income $ 2,887 $ 3,940 $ (1,226)
======== ======== ========
</TABLE>
(6) Fair Value of Financial Instruments
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
<PAGE> 14
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
Mortgage loans on real estate: 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.
Policy loans, short-term investments and cash: The carrying amount
reported in the balance sheets for these instruments approximates
their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which is net of certain surrender
charges.
Investment contracts: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
Policy reserves on life insurance contracts: The estimated fair
value is the amount payable on demand. Also included are
disclosures for the Company's limited payment policies, which the
Company has used discounted cash flow analyses similar to those
used for investment contracts with known maturities to estimate
fair value.
Commitments to extend credit: Commitments to extend credit have
nominal value because of the short-term nature of such
commitments. See note 7.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------- --------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $ 904,946 $ 904,946 $ 796,919 $ 796,919
Equity securities 20,853 20,853 14,767 14,767
Mortgage loans on real estate, net 268,894 276,387 218,852 229,881
Policy loans 332 332 215 215
Short-term investments 2,277 2,277 18,968 18,968
Cash 2 2 5,163 5,163
Assets held in separate accounts 1,533,690 1,533,690 891,101 891,101
Liabilities:
Investment contracts 1,153,930 1,113,584 980,263 950,105
Policy reserves on life insurance contracts 9,899 10,517 5,928 6,076
Liabilities related to separate accounts 1,533,690 1,501,255 891,101 868,056
</TABLE>
<PAGE> 15
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(7) Risk Disclosures
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties which owe the Company money, will
not pay. The Company minimizes this risk by adhering to a conservative
investment strategy, by maintaining credit and collection policies and
by providing for any amounts deemed uncollectible.
Interest Rate Risk: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by operating throughout the
United States, thus reducing its exposure to any single jurisdiction,
and also by employing underwriting practices which identify and
minimize the adverse impact of this risk.
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
balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $9,500 extending into
1999 were outstanding as of December 31, 1998.
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 33% (29% in 1997) in any geographic area and no more than 6% (3%
in 1997) with any one borrower as of December 31, 1998. As of December
31, 1998 36% (37% in 1997) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed apartment
building properties.
<PAGE> 16
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
(8) Pension Plan and Postretirement Benefits Other Than Pensions
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. 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. Assets of the
Retirement Plan are invested in group annuity contracts of NLIC and
Employers Life Insurance Company of Wausau (ELICW).
Pension costs charged to operations by the Company during the years
ended December 31, 1998, 1997 and 1996 were $235, $257 and $189,
respectively.
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1998 and 1997 was $1,008 and $891, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1998, 1997 and 1996 was $130,
$94 and $78, respectively.
<PAGE> 17
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Information regarding the funded status of the pension plan as a whole
and the postretirement life and health care benefit plan as a whole as
of December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 2,033,800 $ 1,847,800 $ 237,900 $ 200,700
Service cost 87,600 77,300 9,800 7,000
Interest cost 123,400 118,600 15,400 14,000
Actuarial loss 123,200 60,000 15,600 24,400
Plan curtailment in 1998/merger in 1997 (107,200) 1,500 -- --
Benefits paid (75,800) (71,400) (8,600) (8,200)
----------- ----------- ----------- -----------
Benefit obligation at end of year 2,185,000 2,033,800 270,100 237,900
----------- ----------- ----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year 2,212,900 1,947,900 69,200 63,000
Actual return on plan assets 300,700 328,100 5,000 3,600
Employer contribution 104,100 7,200 12,100 10,600
Plan merger -- 1,100 -- --
Benefits paid (75,800) (71,400) (8,400) (8,000)
----------- ----------- ----------- -----------
Fair value of plan assets at end of year 2,541,900 2,212,900 77,900 69,200
----------- ----------- ----------- -----------
Funded status 356,900 179,100 (192,200) (168,700)
Unrecognized prior service cost 31,500 34,700 -- --
Unrecognized net (gains) losses (345,700) (330,700) 16,000 1,600
Unrecognized net (asset) obligation at transition (11,000) 33,300 1,300 1,500
----------- ----------- ----------- -----------
Prepaid (accrued) benefit cost $ 31,700 $ (83,600) $ (174,900) $ (165,600)
=========== =========== =========== ===========
</TABLE>
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average discount rate 5.50% 6.00% 6.65% 6.70%
Rate of increase in future compensation levels 3.75% 4.25% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 12.13%
Ultimate rate -- -- 8.00% 6.12%
Uniform declining period -- -- 15 Years 12 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 87,600 $ 77,300 $ 75,500
Interest cost on projected benefit obligation 123,400 118,600 105,500
Expected return on plan assets (159,000) (139,000) (116,100)
Recognized gains (3,800) -- --
Amortization of prior service cost 3,200 3,200 3,200
Amortization of unrecognized transition obligation 4,200 4,200 4,100
--------- --------- ---------
$ 55,600 $ 64,300 $ 72,200
========= ========= =========
</TABLE>
<PAGE> 18
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with the Nationwide Insurance Enterprise and employees of
WSC ended participation in the plan. A curtailment gain of $67,100
resulted (consisting of a $107,200 reduction in the projected benefit
obligation, net of the write-off of the $40,100 remaining unamortized
transition obligation related to WSC). The Company anticipates that the
plan will settle the obligation related to WSC employees with a
transfer of assets during 1999.
Basis for measurements, net periodic pension cost for the
pension plan:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 6.00% 6.50% 6.00%
Rate of increase in future compensation levels 4.25% 4.75% 4.25%
Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
</TABLE>
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits attributed to employee service
during the year) $ 9,800 $ 7,000 $ 6,500
Interest cost on accumulated postretirement benefit obligation 15,400 14,000 13,700
Actual return on plan assets (5,000) (3,600) (4,300)
Amortization of unrecognized transition obligation of affiliates 200 200 200
Net amortization and deferral 1,200 (500) 1,800
-------- -------- --------
$21,600 $ 17,100 $ 17,900
======== ======== ========
</TABLE>
Actuarial assumptions used for the measurement of the accumulated
postretirement benefit obligation (APBO) and the NPPBC for the
postretirement benefit plan for 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NPPBC:
Discount rate 6.70% 7.25% 6.65%
Long term rate of return on plan
assets, net of tax 5.83% 5.89% 4.80%
Assumed health care cost trend rate:
Initial rate 12.00% 11.00% 11.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the postretirement benefit plan as a whole, a one percentage point
increase or decrease in the assumed health care cost trend rate would
have no impact on the APBO as of December 31, 1998 and have no impact
on the NPPBC for the year ended December 31, 1998.
(9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
and Dividend Restrictions
Ohio, the 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
<PAGE> 19
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
certain levels, each of which requires specified corrective action. The
Company exceeds the minimum risk-based capital requirements.
The statutory capital and surplus of the Company as reported to
regulatory authorities as of December 31, 1998, 1997 and 1996 was
$70,135, $74,820 and $71,390, respectively. The statutory net (loss)
income of the Company as reported to regulatory authorities for the
years ended December 31, 1998, 1997 and 1996 was $(3,371), $7,446 and
$670, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1998,
the maximum amount available for dividend payment from the Company to
its shareholder without prior approval of the Department was $7,013.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends
in the future.
(10) Transactions With Affiliates
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the
Company made lease payments to NMIC and its subsidiaries of $430, $703
and $410, 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 $2,933, $2,564 and $2,682 in 1998, 1997
and 1996, respectively. The allocations are based on techniques and
procedures in accordance with insurance regulatory guidelines. Measures
used to allocate expenses among companies include individual employee
estimates of time spent, special cost studies, salary expense,
commissions expense and other methods agreed to by the participating
companies that are within industry guidelines and practices. The
Company believes these allocation methods are reasonable. In addition,
the Company does not believe that expenses recognized under the
inter-company agreements are materially different than expenses that
would have been recognized had the Company operated on a stand alone
basis. Amounts payable to NMIC from the Company under the cost sharing
agreement were $2,750 and $4,981 as of December 31, 1998 and 1997,
respectively.
Effective December 31, 1996, the Company entered into an intercompany
reinsurance agreement with NLIC whereby certain inforce and
subsequently issued fixed individual deferred annuity contracts are
ceded on a 100% coinsurance with funds withheld basis. On December 31,
1997, the agreement was amended to a modified coinsurance basis. Under
modified coinsurance agreements, invested assets and liabilities for
future policy benefits are retained by the ceding company and net
investment earnings on the invested assets are paid to the assuming
company. Under terms of the Company's agreement, the investment risk
associated with changes in interest rates is borne by NLIC. Risk of
asset default is retained by the Company, although a fee is paid by
NLIC to the Company for the Company's retention of such risk. The
agreement will remain inforce until all contract obligations are
settled. The ceding of risk does not discharge the original insurer
from its primary obligation to the contractholder. The Company believes
that the terms of the modified coinsurance agreement are consistent in
all material respects with what the Company could have obtained with
unaffiliated parties. Amounts ceded to NLIC in 1998 are included in
NLIC's results of operations for 1998 and include premiums of $241,503,
net investment income of $66,353 and benefits, claims and other
expenses of $296,659. In consideration for the initial inforce business
reinsured, NLIC paid the Company $26,473 in commission and expense
allowances which were applied to the Company's deferred policy
acquisition costs as of December 31, 1996. No significant gain or loss
was recognized as a result of the agreement.
<PAGE> 20
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
During 1997, the Company sold fixed maturity securities
available-for-sale at fair value of $27,253 to NLIC. The Company
recognized a $693 gain on the transactions.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $2,277 and $18,968 as of December 31,
1998 and 1997, respectively, and are included in short-term investments
on the accompanying balance sheets.
(11) Contingencies
On October 29, 1998, the Company and certain of its affiliates were
named in a lawsuit filed in the Common Pleas Court of Franklin County,
Ohio related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
The plaintiff in such lawsuit seeks to represent a national class of
the Company's customers and seeks unspecified compensatory and punitive
damages. The Company is currently evaluating this lawsuit, which is in
an early stage and has not been certified as a class. The Company
intends to defend this lawsuit vigorously.
(12) Segment Information
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
The Variable Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company, with
investment returns accumulating on a tax-deferred basis. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
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.
Such contracts consist of single premium deferred annuities, flexible
premium deferred annuities and single premium immediate annuities. The
Fixed Annuities segment includes the fixed option under variable
annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
and all realized gains and losses on investments in a Corporate and
Other segment.
<PAGE> 21
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
The following table summarizes the financial results of the Company's
business segments for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
Annuities Annuities Insurance and Other Total
--------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (1,417) $ 6,792 $ 4098 $ 5,531 $ 11,314
Other operating revenue 18,209 3,182 8,386 -- 29,777
----------- ----------- ----------- ----------- -----------
Total operating revenue (2) 16,792 9,974 8,794 5,531 41,091
----------- ----------- ----------- ----------- -----------
Interest credited to policyholder
account balances -- 4,660 221 -- 4,881
Amortization of deferred policy
acquisition costs 3,466 508 374 -- 4,348
Other benefits and expenses 4,442 2,087 4,009 -- 10,538
----------- ----------- ----------- ----------- -----------
Total expenses 7,908 7,255 4,604 -- 19,767
----------- ----------- ----------- ----------- -----------
Operating income (loss) before
federal income tax 8,884 2,719 4,190 5,531 21,324
Realized gains on investments -- -- -- 696 696
----------- ----------- ----------- ----------- -----------
Consolidated income before
federal tax expense $ 8,884 $ 2,719 $ 4,190 $ 6,227 $ 22,020
=========== =========== =========== =========== ===========
Assets as of year end $ 1,502,829 $ 1,162,040 $ 92,482 $ 82,087 $ 2,839,438
=========== =========== =========== =========== ===========
1997:
Net investment income (1) $ (873) $ 5,927 $ 166 $ 6,357 $ 11,577
Other operating revenue 10,823 1,825 16 -- 12,664
----------- ----------- ----------- ----------- -----------
Total operating revenue (2) 9,950 7,752 182 6,357 24,241
----------- ----------- ----------- ----------- -----------
Interest credited to policyholder
account balances -- 3,856 92 -- 3,948
Amortization of deferred policy
acquisition costs 1,035 347 20 -- 1,402
Other benefits and expenses 1,648 347 298 -- 2,293
----------- ----------- ----------- ----------- -----------
Total expenses 2,683 4,550 410 -- 7,643
----------- ----------- ----------- ----------- -----------
Operating income before federal
income tax 7,267 3,202 (228) 6,357 16,598
Realized losses on investments -- -- -- (246) (246)
----------- ----------- ----------- ----------- -----------
Consolidated income before
federal tax expense $ 7,267 $ 3,202 $ (228) $ 6,111 $ 16,352
=========== =========== =========== =========== ===========
Assets as of year end $ 925,021 $ 989,116 $ 2,228 $ 88,933 $ 2,005,298
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 22
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Life Insurance Company)
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
Annuities Annuities Insurance and Other Total
--------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1996:
Net investment income (1) $ (849) $ 50,197 $ 149 $ 1,548 $ 51,045
Other operating revenue 5,440 1,445 16 1 6,902
----------- ----------- ----------- ----------- -----------
Total operating revenue (2) 4,591 51,642 165 1,549 57,947
----------- ----------- ----------- ----------- -----------
Interest credited to policyholder
account balances -- 34,711 -- -- 34,711
Amortization of deferred policy
acquisition costs 1,473 5,888 19 -- 7,380
Benefits and expenses 2,024 5,889 147 -- 8,060
----------- ----------- ----------- ----------- -----------
Total expenses 3,497 46,488 166 -- 50,151
----------- ----------- ----------- ----------- -----------
Operating income before federal
income tax 1,094 5,154 (1) 1,549 7,796
Realized losses on investments -- -- -- (3) (3)
----------- ----------- ----------- ----------- -----------
Consolidated income before
federal tax expense $ 1,094 $ 5,154 $ (1) $ 1,546 $ 7,793
=========== =========== =========== =========== ===========
Assets as of year end $ 503,111 $ 787,682 $ 2,597 $ 73,031 $ 1,366,421
=========== =========== =========== =========== ===========
</TABLE>
(1) The Company's method of allocating net investment income
results in a charge (negative net investment income) to the
Variable Annuities segment which is recognized in the
Corporate and Other segment. The charge relates to
non-invested assets which support this segment on a statutory
basis.
(2) Excludes realized gains and losses on investments.
The Company has no significant revenue from customers located outside
of the United States nor does the Company have any significant
long-lived assets located outside the United States.
<PAGE> 93
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post Effective Amendment comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 110 pages.
Representations and Undertakings.
Independent Auditors' Consent
Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C>
1. Power of Attorney dated April 1, 1999. Filed previously with this Registration Statement and
incorporated by reference (333-59517).
2. Resolution of the Depositor's Board of Directors Filed previously with this Registration Statement and
authorizing the establishment of the Registrant, incorporated by reference (333-59517).
adopted May 22, 1998.
3. Distribution Contracts Underwriting or Distribution of contracts between the
Registrant and Principal Underwriter - Filed previously in connection
with Registration Statement (SEC file No. 33-86408) on November
14, 1994 and hereby incorporated by reference.
4. Form of Security Filed previously with Pre-Effective Amendment No. 1 and
incorporated by reference (333-59517).
5. Articles of Incorporation of Depositor Filed previously with this Registration Statement and incorporated by
reference (333-59517).
6. Application form of Security Filed previously with this Registration Statement
and incorporated by reference (333-59517).
7. Opinion of Counsel Filed previously with this Registration Statement and
incorporated by reference (333-59517).
</TABLE>
<PAGE> 94
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and Nationwide hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 (the "Act"). The Registrant and Nationwide
elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act with
respect to the policies described in the prospectus. The policies have
been designed to qualify for the exemptive relief from various provisions
of the Act afforded by Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges")
assumed by Nationwide under the policies. Nationwide represents that the
risk charges are within the range of industry practice for comparable
policies and reasonable in relation to all of the risks assumed by the
issuer under the policies. Actuarial memoranda demonstrating the
reasonableness of these charges are maintained by Nationwide, and will be
made available to the Securities and Exchange Commission (the
"Commission") on request.
(c) Nationwide has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit
the separate account and the contract holders and will keep and make
available to the Commission on request a memorandum setting forth the
basis for this representation.
(d) Nationwide represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of Nationwide,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in
that section.
(f) The fees and charges deducted under the policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by Nationwide.
<PAGE> 95
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life and Annuity Insurance Company:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
KPMG LLP
Columbus, Ohio
April 29, 1999
<PAGE> 96
SIGNATURES
As required by the Securities Act of 1933, the Registrant, Nationwide VL
Separate Account-D, certifies that it meets the requirements of the Securities
Act Rule 485(b) and has caused this Post-Effective Amendment to be signed on its
behalf in the City of Columbus, and the State of Ohio, on this 23rd day of
December, 1999.
NATIONWIDE VL SEPARATE ACCOUNT-D
--------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE AND ANNUITY
Attest: INSURANCE COMPANY
--------------------------------
(Depositor)
__________________________ By: ______________________________________________
Glenn W. Soden Joseph P. Rath
Assistant Secretary Vice President - Product and Market Compliance
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 23rd day of December, 1999.
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- --------------------------
Lewis J. Alphin
A. I. BELL Director
- --------------------------
A. I. Bell
KENNETH D. DAVIS Director
- --------------------------
Kenneth D. Davis
KEITH W. ECKEL Director
- --------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- --------------------------
Willard J. Engel
FRED C. FINNEY Director
- --------------------------
Fred C. Finney
JOSEPH J. GASPER President and Chief Operating
- -------------------------- Officer and Director
Joseph J. Gasper
DIMON R. MCFERSON Chairman and Chief Executive
- -------------------------- Officer and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and
- -------------------------- Director
David O. Miller
YVONNE L. MONTGOMERY Director
- --------------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President and Chief
- -------------------------- Financial Officer
Robert A. Oakley
RALPH M. PAIGE Director
- --------------------------
Ralph M. Paige
JAMES F. PATTERSON Director
- --------------------------
James F. Patterson
ARDEN L. SHISLER Director By /s/ JOSEPH P. RATH
- -------------------------- ---------------------
Arden L. Shisler Joseph P. Rath
Attorney-in-Fact
ROBERT L. STEWART Director
- --------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- --------------------------
Nancy C. Thomas
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as directors
and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE LIFE AND
ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or will file
with the U.S. Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with MFS Variable Account, Nationwide
Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide Variable
Account-9, Nationwide Variable Account-10, Nationwide VA Separate Account-A,
Nationwide VA Separate Account-B, Nationwide VA Separate Account-C and
Nationwide VA Separate Account-Q; and the registration of fixed interest rate
options subject to a market value adjustment offered under some or all of the
aforementioned individual Variable Annuity Contracts in connection with
Nationwide Multiple Maturity Separate Account and Nationwide Multiple Maturity
Account-A, and the registration of Group Flexible Fund Retirement Contracts in
connection with Nationwide DC Variable Account, Nationwide DCVA-II, and NACo
Variable Account; and the registration of Group Common Stock Variable Annuity
Contracts in connection with Separate Account No. 1; and the registration of
variable life insurance policies in connection with Nationwide VLI Separate
Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3,
Nationwide VLI Separate Account-4, Nationwide VLI Separate Account-5, Nationwide
VL Separate Account-A and Nationwide VL Separate Account-B, Nationwide VL
Separate Account-C, Nationwide VL Separate Account-D, hereby constitutes and
appoints Dimon Richard McFerson, Joseph J. Gasper, Robert J. Woodward, Jr.,
Philip C. Gath Richard A. Karas, Edwin P. McCausland, Jr., Douglas C. Robinette,
Susan A. Wolken, Mark B. Koogler, Joseph P. Rath, and Mark R. Thresher, and each
of them with power to act without the others, his/her attorney, with full power
of substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby gaining unto said attorneys, and each
of them, full power and authority to do and perform all and every act and thing
requisite to all intents and purposes as he/she might or could do in person,
hereby ratifying and confirming that which said attorneys, or any of them, may
lawfully do or cause to be done by virtue hereof. This instrument may be
executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and seals
as of this 1st day of April, 1999.
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------- -------------------------------------
Lewis J. Alphin, Director David O. Miller, Chairman of the
Board, Director
/s/ A. I. Bell /s/ Yvonne L. Montgomery
- ------------------------------------- -------------------------------------
A. I. Bell, Director Yvonne L. Montgomery, Director
/s/ Kenneth D. Davis /s/ Robert A. Oakley
- ------------------------------------- -------------------------------------
Kenneth D. Davis, Director Robert A. Oakley, Executive Vice
President and Chief Financial Officer
/s/ Keith W. Eckel /s/ Ralph M. Paige
- ------------------------------------- -------------------------------------
Keith W. Eckel, Director Ralph M. Paige, Director
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------- -------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------- -------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------- -------------------------------------
Joseph J. Gasper, President and Robert L. Stewart, Director
Chief Operating Officer and Director
/s/ Dimon Richard McFerson /s/ Nancy C. Thomas
- ------------------------------------- -------------------------------------
Dimon Richard McFerson, Chairman and Nancy C. Thomas, Director
Chief Executive Officer and Director
