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NATIONWIDE LIFE INSURANCE COMPANY
Flexible Premium Variable Universal Life Insurance Policies
Issued by Nationwide Life Insurance Company through its
Nationwide VLI Separate Account-5
The date of this prospectus is December 4, 2000
--------------------------------------------------------------------------------
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:
W&R TARGET FUNDS, INC.
- Asset Strategy Portfolio
- Balanced Portfolio
- Bond Portfolio
- Core Equity Portfolio
- Growth Portfolio
- High Income Portfolio
- International Portfolio
- Limited-Term Bond Portfolio
- Money Market Portfolio
- Science and Technology Portfolio
- Small Cap Portfolio
For general information or to obtain FREE copies of the:
- prospectus, annual report or semi-annual report for any underlying
mutual fund; and
- any required Nationwide forms,
call: 1-866-221-1100
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182449
COLUMBUS, OHIO 43218-2449
Material incorporated by reference in this prospectus can be found on the SEC
website at:
www.sec.gov
This policy is NOT:
- a bank deposit;
- endorsed by a bank or government agency;
- federally insured; or
- available in every state.
The life insurance policies offered by this prospectus are flexible premium
variable universal life insurance policies (flexible premium variable adjustable
life insurance policies in Puerto Rico). They provide 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 VLI Separate Account-5 (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.
Nationwide guarantees to keep the policy in force so long as minimum premium
requirements have been met.
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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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GLOSSARY OF SPECIAL TERMS
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.
MATURITY DATE- The policy anniversary on or next following the insured's 100th
birthday.
MINIMUM REQUIRED DEATH BENEFIT- The lowest death benefit which will qualify the
policy as life insurance under Section 7702 of the Internal Revenue Code.
NATIONWIDE- Nationwide Life 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.
SEC GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the
policy under reasonable mortality and expense charges with an annual effective
interest rate of 5%. It is calculated pursuant to Rule 6e-3(T) of the Investment
Company Act of 1940.
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 VLI Separate Account-5, a separate account of
Nationwide Life 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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TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS..........................
SUMMARY OF POLICY EXPENSES.........................
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES.....................................
SYNOPSIS OF THE POLICIES...........................
NATIONWIDE LIFE INSURANCE COMPANY..................
WADDELL & REED, 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
Tax Expense Charges
Surrender Charges
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..............................
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 or Sex
Suicide
Maturity Proceeds
EXCHANGE RIGHTS....................................
GRACE PERIOD AND GUARANTEED POLICY
CONTINUATION PERIOD...........................
Grace Period
Guaranteed Policy Continuation Period
Reinstatement
TAX MATTERS........................................
Policy Proceeds
Withholding
Federal Estate and Generation-Skipping
Transfers Taxes
Non-Resident Aliens
Taxation of Nationwide
Tax Changes
LEGAL CONSIDERATIONS...............................
STATE REGULATION...................................
REPORTS TO POLICY OWNERS...........................
ADVERTISING........................................
LEGAL PROCEEDINGS..................................
EXPERTS............................................
REGISTRATION STATEMENT.............................
DISTRIBUTION OF THE POLICIES.......................
ADDITIONAL INFORMATION ABOUT
NATIONWIDE....................................
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APPENDIX A: OBJECTIVES FOR UNDERLYING
MUTUAL FUNDS..................................
APPENDIX B: ILLUSTRATIONS OF SURRENDER
CHARGES.......................................
APPENDIX C: ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES, AND DEATH
BENEFITS......................................
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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 premium expense charge from premium
payments. The current sales load is 0.5% of each premium payment and is
guaranteed never to exceed 2.5% of each premium payment. 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:
- monthly cost of insurance;
- monthly cost of any additional benefits provided by riders to the
policy;
- administrative expense charge(1): and
- mortality and expense risk charge(2).
(1) Currently, the administrative expense charge is $10 per month in the first
year and $5 per month in renewal years. It is guaranteed not to exceed $10
per month in the first year and $7.50 in renewal years.
(2) The mortality and expense risk charge is a daily charge equal to an annual
rate of 0.60% of the first $25,000 of cash value attributable to the
variable account, 0.30% of the next $225,000 of cash value attributable to
the variable account, and 0.10% of cash value attributable to the variable
account in excess of $250,000.
For policies which are surrendered during the first nine policy years (first
fifteen years in Pennsylvania), Nationwide deducts a surrender charge (see
"Surrender Charges").
For more information about any policy charge, see "Policy Charges" in this
prospectus.
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(as a percentage of underlying mutual fund net assets)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total
Fees Expenses Fees Underlying
Mutual Fund
Expenses
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Strategy Portfolio 0.74% 0.14% 0.24% 1.12%
Balanced Portfolio 0.65% 0.06% 0.24% 0.95%
Bond Portfolio 0.52% 0.06% 0.24% 0.82%
Core Equity Portfolio 0.69% 0.02% 0.24% 0.95%
Growth Portfolio 0.69% 0.02% 0.24% 0.95%
High Income Portfolio 0.63% 0.05% 0.24% 0.92%
International Portfolio 0.82% 0.15% 0.24% 1.21%
Limited-Term Bond Portfolio 0.52% 0.15% 0.24% 0.91%
Money Market Portfolio 0.44% 0.08% 0.24% 0.76%
Science and Technology Portfolio 0.80% 0.06% 0.24% 1.10%
Small Cap Portfolio 0.84% 0.04% 0.24% 1.12%
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value in calculating the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
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. Nationwide will keep the policy in force during the guaranteed policy
continuation period provided premium requirements are met (see "Grace Period and
Guaranteed Policy Continuation Period" and "Minimum Requirements for Policy
Issuance").
PREMIUMS
The minimum initial premium for which a policy may be issued is equal to three
times the initial minimum monthly premium. 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, subject to certain restrictions (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).
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Riders currently include:
- Maturity Extension Endorsement (not available in New York);
- Spouse Rider;
- Child Rider;
- Waiver of Monthly Deductions Rider;
- Accidental Death Benefit Rider;
- Additional Protection Rider (not available in New York); and
- 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. In
New York, Nationwide will refund any premiums paid (see "Right to Revoke").
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in March 1929. 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 all states, the District of Columbia and Puerto Rico.
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.
WADDELL & REED, INC.
The policies are distributed by Waddell & Reed, ("Waddell & Reed") Inc., located
at 6300 Lamar Ave., Overland Park, KS 66202.
INVESTING IN THE POLICY
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide VLI Separate Account-5 is a separate account that invests in the
underlying mutual fund options listed in Appendix A. Nationwide established the
separate account on May 21, 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"), 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 in general 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. They are only available as investment options in variable life insurance
policies or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or retirement
plans.
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The investment advisers of the underlying mutual funds may manage publicly
traded mutual funds with similar names and objectives. 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 may be converted to a
substantially comparable general account life insurance policy offered by
Nationwide. 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 conversion.
Nationwide will not require evidence of insurability for this conversion.
The new policy will not be affected by the investment experience of any separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the policy converted on the date of the conversion.
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.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
Substitution of Securities
Nationwide may substitute, eliminate and/or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occur:
(1) shares of a current underlying mutual fund option are no longer
available for investment; or
(2) further investment in an underlying mutual fund option is
inappropriate.
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No substitution, elimination, and/or combination of shares may take place
without the prior approval of the SEC
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks.
Under exemptive and exclusionary provisions, Nationwide's general account has
not been registered under the Securities Act of 1933 and has not been registered
as an investment company under the Investment Company Act of 1940. Accordingly,
neither the general account nor any interest therein is subject to the
provisions of these Acts. 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.
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:
- the insured must be 80 or younger;
- Nationwide may require satisfactory evidence of insurability
(including a medical exam); and
- a minimum specified amount of $50,000 for non-preferred policies
($100,000 for non-preferred policies in Pennsylvania, New Jersey,
Texas Alabama and New York) and $100,000 for preferred policies.
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:
- Nationwide may require satisfactory evidence of insurability before
accepting any additional premium payment which results in an increase
in the net amount at risk.
- During the guaranteed policy continuation period, the total premium
payments, less any policy indebtedness and less any partial
surrenders, must be greater than or equal to the sum of the minimum
monthly premiums in order to guarantee that the policy remain
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in force. (The minimum monthly premiums are shown in the policy data
page.)
- 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.
- Nationwide may require policy indebtedness be repaid prior to
accepting any additional premium payments.
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:
- New Year's Day - Independence Day
- Martin Luther King, Jr. Day - Labor Day
- Presidents' Day - Thanksgiving
- Good Friday - Christmas
- Memorial Day
Nationwide also will not price premiums 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 2.5% of each premium payment. Currently, for all
policy years the sales load is 0.5% of each premium payment.
The total sales load actually deducted from any policy will be equal to the sum
of this front-end sales load plus any sales surrender charge.
TAX EXPENSE CHARGES
A charge equal to 3.5% is deducted from all premium payments when the premium
payments are received in order to compensate Nationwide for certain
administrative expenses which are incurred by Nationwide for taxes, which
include premium or other taxes imposed by various state and local jurisdictions,
as well as federal taxes imposed under Section 848 of the Internal Revenue Code.
These tax expenses consist of two components:
(1) a tax rate of 2.25% for state and local premium or other taxes; and
(2) a tax rate of 1.25% for federal taxes.
The amount charged may be more or less than the amount actually assessed by the
state in which a particular policy owner lives.
Nationwide does not expect to make a profit from these charges.
SURRENDER CHARGES
Nationwide deducts a surrender charge from the cash value of any policy
surrendered during the first nine years (first fifteen years in Pennsylvania).
The charge is deducted proportionally from the cash value in each sub-account
and the fixed account.
The maximum initial surrender charge varies by issue age, sex, specified amount
and underwriting classification. The surrender charge is calculated based on the
initial specified amount. The following tables illustrate the maximum initial
surrender charge per $1,000 of initial specified amount for policies which are
issued on a standard basis (see Appendix B for specific examples).
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INITIAL SPECIFIED AMOUNT $50,000-$99,999*
---------------------------------------------------------
MALE FEMALE
ISSUE NON-TOBACCO NON-TOBACCO MALE FEMALE
AGE STANDARD STANDARD
---------------------------------------------------------
25 $7.773 $7.518 $8.369 $7.818
35 $8.817 $8.396 $9.811 $8.889
45 $12.185 $11.390 $13.884 $12.164
55 $15.628 $13.995 $18.410 $15.106
65 $22.274 $19.043 $26.559 $20.607
*Specified amounts of less than $100,000 are not available in New York or New
Jersey.
INITIAL SPECIFIED AMOUNT $100,000+
--------------------------------------------------------
MALE FEMALE
ISSUE NON-TOBACCO NON-TOBACCO MALE FEMALE
AGE STANDARD STANDARD
--------------------------------------------------------
25 $5.773 $5.518 $6.369 $5.818
35 $6.817 $6.396 $7.811 $6.889
45 $9.685 $8.890 $11.384 $9.664
55 $13.128 $11.495 $15.910 $12.606
65 $21.274 $18.043 $25.559 $19.607
The surrender charge is comprised of two components:
- an underwriting component; and
- sales component.
The underwriting component varies by issue age in the following manner:
$1,000 OF INITIAL SPECIFIED AMOUNT
-------------------------------------------------------
ISSUE AGE SPECIFIED AMOUNTS SPECIFIED AMOUNTS
LESS THAN $100,000* $100,000 OR MORE
-------------------------------------------------------
0-35 $6.00 $4.00
36-55 $7.50 $5.00
56-80 $7.50 $6.50
-------------------------------------------------------
*Specified amounts of less than $100,000 are not available in New York or New
Jersey.
The underwriting component is designed to cover the administrative expenses
associated with underwriting and issuing policies, including the costs of:
- processing applications;
- conducting medical exams;
- determining insurability and the insured's underwriting class; and
- establishing policy records.
The remainder of the surrender charge that is not attributable to the
underwriting component represents the sales component. In no event will this
component exceed 26.5% of the lesser of the SEC guideline level premium required
in the first year or the premiums actually paid in the first year. The purpose
of the sales component is to reimburse Nationwide for some of the expenses
incurred in the distribution of the policies. Nationwide also deducts 0.5% of
each premium payment for sales load.
The surrender charge may be insufficient to recover certain expenses related to
the sale of the policies. Unrecovered expenses are borne by Nationwide's general
assets which may include profits, if any, from mortality and expense risk
charges. Additional premiums and/or income earned on assets in the variable
account have no effect on these charges.
Increases in Specified Amount
Policies surrendered during the first nine policy years (first fifteen policy
years in Pennsylvania) following an increase in the specified amount will incur
a surrender charge associated with the increase. This surrender charge is
comprised of an underwriting component and sales component. The maximum initial
surrender charge associated with the increase is based on the attained age at
the time of the increase, the underwriting classification of the increase, sex,
and the amount of the increase in specified amount. The actual initial surrender
charge associated with the increase is based upon the maximum initial surrender
charge and the premium received within one year of the increase in specified
amount.
Increases that are caused by a change in death benefit option that do not change
the net amount at risk are not subject to a surrender charge. The surrender
charge associated with the increase for policy years following the increase is a
percentage of the initial surrender charge.
The following table illustrates the maximum initial surrender charge per $1,000
of specified amount increase for policies increasing coverage on a standard
basis. This charge reflects both the underwriting and sales component.
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------------------------------------------------------------
MALE FEMALE
ISSUE NON-TOBACCO NON-TOBACCO MALE FEMALE
AGE STANDARD STANDARD
------------------------------------------------------------
25 $3.464 $3.311 $3.821 $3.491
35 4.090 3.837 4.686 4.133
45 5.811 5.334 6.830 5.798
55 7.877 6.897 9.546 7.563
65 12.764 10.826 15.335 11.764
75 20.787 17.389 24.236 18.682
80 27.309 23.309 30.707 24.647
Reduction in Specified Amount
Decreases in specified amount requested by a policy owner will incur a
proportional surrender charge. This proportion is equal to the decrease in
specified amount divided by the specified amount prior to the decrease. In the
case of a policy with prior increases, these fractional surrender charges will
be calculated separately for the initial specified amount and each increase in
specified amount. For a policy with prior increases in specified amounts, these
decreases will be made on a last in first out ("LIFO") basis and therefore
decrease each segment in reverse order of its effective date.
Decreases in the specified amount resulting from a partial surrender or a death
benefit option change that do not change the net amount risk will not incur a
proportional surrender charge.
Reductions to Surrender Charges
Surrender charges are reduced in subsequent policy years as follows:
------------------------------------------------------------
COMPLETED SURRENDER CHARGE AS A % OF
POLICY YEARS INITIAL SURRENDER CHARGES
------------------------------------------------------------
0 100%
1 100%
2 90%
3 80%
4 70%
5 60%
6 50%
7 40%
8 30%
9+ 0%
The surrender charge is reduced by any partial surrender charge actually paid on
previous decreases in specified amount.
For the initial specified amount, a completed policy year (in the chart above)
is measured from the issue date. For any increase in specified amount, a
completed policy year (in the chart above) is measured from the effective date
of the increase.
Special guaranteed maximum surrender charges apply in Pennsylvania (see
Appendix B).
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 or Option 3 (Option 3 is not available in New York) 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 in specified amount resulting from the
increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the policy.
Guaranteed cost of insurance rates for policies issued on specified amounts less
than $100,000 are based on the 1980 Commissioners' Extended Term Mortality
Table, Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for
policies issued on specified amounts $100,000 or more are based on the 1980
Commissioners' Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO).
Guaranteed cost of insurance rates for policies issued on a substandard basis
are based on appropriate percentage multiples of the guaranteed cost of
insurance rate on a standard basis. These mortality tables are sex distinct. In
addition, separate mortality tables will be used for tobacco and non-tobacco.
Mortality tables are unisex for:
- policies issued in the State of Montana;
- group or sponsored arrangements (including employees of Nationwide and
their family members); and
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- special exchange programs which Nationwide may make available from
time to time.
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" 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 the
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 $10 per month in the first year, and $5 per month in renewal
years. Nationwide may, at its sole discretion, increase this charge. However,
Nationwide guarantees that this charge will never exceed $10 per month in the
first year and $7.50 per month in renewal 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 monthly basis. Mortality and expense risk deductions will be
charged proportionally to 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 charged on a daily basis and
is equivalent to an annual effective rate of 0.60% of the first $25,000 of cash
value attributable to the variable account, 0.30% of the next $225,000 of cash
value attributable to the variable account, and 0.10% of cash value attributable
to the variable account in excess of $250,000. Policy owners receive quarterly
and annual statements advising policy owners of the cancellation of accumulation
units for mortality and expense risk charges.
These charges are all guaranteed. Nationwide may realize a profit from this
charge.
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,
surrender 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 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:
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- the number of insureds;
- the total premium expected to be paid;
- total assets under management for the policy owner;
- the nature of the relationship among individual insureds;
- the purpose for which the policies are being purchased;
- the expected persistency of individual policies; and
- 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, which may
also include a surrender charge.
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 $200;
(2) partial surrenders may not reduce the specified amount below the
minimum specified amount;
(3) during the first ten policy years, the maximum amount of a partial
surrender cannot exceed 10% of cash surrender value as of the
beginning of the policy year;
(4) after the completion of ten policy years, the maximum amount of a
partial surrender is the cash surrender value less the greater of $500
or three monthly deductions; and
(5) 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.
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
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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.
Nationwide reserves the right to deduct a fee from the partial surrender amount.
The maximum fee is $25 or 5% of the partial surrender amount, whichever is less.
Preferred partial surrenders are not subject to this fee. Certain partial
surrenders may result in currently taxable income and tax penalties.
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 premium applied since the previous
valuation date, minus any partial surrenders, plus or minus any investment
results, minus any surrender charge for decreases in specified amount, 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 received at Nationwide's home office. Once received, the change
will be effective when signed. The change will not affect any payment made or
action taken by Nationwide before it was received. 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 received at
Nationwide's home office. Once received, the change will be effective when
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<PAGE> 17
signed. The change will not affect any payment made or action taken by
Nationwide before it was received.
If any beneficiary predeceases the insured, that beneficiary's interest passes
to any surviving 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
After the first policy year, 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) the age at the time of increase must satisfy the same age requirements
as new issues.
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 the 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 the minimum specified amount;
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 W&R
Target Funds, Inc. - Money Market Portfolio during the period the policy owner
may cancel the policy, unless a specific state requires premiums to be allocated
to the fixed account. (In New York, premiums are allocated to either the W&R
Target Funds, Inc. - Money Market Portfolio or the fixed account based on the
policy owner's election.) At the expiration of this period, the 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
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prospectus. Net premiums allocated to the fixed account at the time of
application may not be transferred from the fixed account prior to the first
policy anniversary (see "Transfers").
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 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) 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); and
(b) is the net asset value per share of the underlying mutual fund determined
as of the end of the immediately preceding valuation period.
The net investment factor may be greater or less than one; therefore, the value
of an accumulation unit may increase or decrease. Currently, Nationwide does not
maintain a tax reserve with respect to the policies since income with respect to
the underlying mutual funds is not taxable to Nationwide or the variable
account. Nationwide reserves the right to adjust the calculation of the net
investment factor to reflect a tax reserve should such income of other items
become taxable to Nationwide. 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, and any charge or credit for tax reserves.
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. Nationwide will determine the value of the assets in a
variable account at the end of each valuation day. The cash value will be
determined at least monthly.
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
Policy owners can transfer allocations without penalty or adjustment subject to
the following conditions:
- Nationwide reserves the right to restrict transfers between the fixed
account and the sub-accounts to one per policy year.
- transfers made to the fixed account may not be made in the first
policy year.
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- Nationwide reserves the right to restrict the amount transferred from
the fixed account to 20% of that portion of the cash value
attributable to the fixed account as of the end of the previous policy
year (subject to state restrictions). Policy owners who have entered
into Dollar Cost Averaging agreements with Nationwide may transfer
under the terms of that agreement.
- Nationwide reserves the right to restrict the amount transferred to
the fixed account to 20% of that portion of cash value attributable to
the sub-accounts as of the close of business of the prior valuation
period.
- Nationwide reserves the right to refuse a transfer to the fixed
account if the fixed account value is greater than or equal to 30% of
the total policy 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:
- submitted by any agent acting under a power of attorney on behalf of
more than one policy owner; or
- 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
A policy owner may cancel the policy by returning it by the latest of:
- 10 days after receiving the policy;
- 45 days after signing the application; or
- 10 days after Nationwide 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. (In New York, Nationwide will refund any premiums
paid.) The refunded policy value will reflect the deduction of any policy
charges, unless otherwise required by law. This right varies by state.
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POLICY LOANS
TAKING A POLICY LOAN
The policy owner may take a policy loan at any time using the policy as
security. In states other than New York, maximum policy indebtedness is limited
to cash value attributable to both fixed and policy loan accounts, and 90% of
the cash value of the variable account, less any surrender charges. In New York,
maximum policy indebtedness is limited to 90% of the cash value attributable to
the fixed account, policy loan account, and variable account, less any surrender
charges. Nationwide will not grant a loan for an amount less than $200. Policy
indebtedness will be deducted from the 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. 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 the
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 annual effective loan interest rate charged on policy loans is 3.9%.
On a current basis, the cash value in the policy loan account is credited with
an annual effective rate of 3% during policy years 1 through 10 and an annual
effective rate of 3.9% during the 11th and subsequent policy years. Nationwide
may change the current interest crediting rate on the policy loans at any time
at its sole discretion. However, the crediting rate is guaranteed never to be
lower than 3% during policy years 1 through 10 and 3.65% during the 11th and
subsequent 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 the 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 less any surrender
charges, and if the guaranteed policy continuation provision is not in effect,
Nationwide will send a notice to the policy owner and the assignee, if any. The
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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 less any surrender charges plus an amount
sufficient to continue the policy in force for 3 months. Alternatively, if the
policy is in the guaranteed policy continuation period, a payment which will
bring the guaranteed policy continuation provision into effect will be
considered sufficient if such an amount is less than the premium required to
bring the cash surrender value to zero and cover 3 months of deductions.
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 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 premium payment,
rather than a loan repayment, 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
received at Nationwide's home office. Prior to being received, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted, nor is Nationwide responsible for
the sufficiency of any assignment. Assignments are subject to any indebtedness
owed to Nationwide before being received.
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. This program is not available in the State of New York. 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 Money Market Portfolio.
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.
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.
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 irrevocably elects either of the following tests
qualifying the policy as life insurance under Section 7702 of the Internal
Revenue Code: (1) the guideline premium/cash value corridor test; or (2) the
cash value accumulation test. The cash value
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accumulation test is not available on policies issued for delivery in the State
of New York.
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.
In states other than New York, the policy owner may choose one of three death
benefit options. In New York, only death benefit Options 1 and 2 are available.
OPTION 1: the death benefit will be the greater of the specified amount or
minimum required death benefit. 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 C.
OPTION 2: the death benefit will be the greater of the specified amount plus the
cash value as of the date of death, or minimum required death benefit and will
vary directly with the investment performance.
OPTION 3: the death benefit is the greater of the minimum required death benefit
or the sum of the specified amount on the date of death and accumulated premium
account which consists of all premium payments accumulated to date of death less
partial surrenders accumulated to date of death. The accumulations will be
calculated based on the OPTION 3 interest rate shown on the policy data page. In
no event will the accumulated premium account be less than zero or greater than
the maximum accumulated premium account shown on the policy data page.
For any death benefit option, the calculation of the minimum required death
benefit is shown on the policy data page. The minimum required death benefit is
the lowest death benefit which will qualify the policy as life insurance under
Section 7702 of the Internal Revenue Code. A change in death benefit option will
not be permitted if it results in the total premiums paid exceeding the then
current maximum premium limitations under Section 7702 of the Internal Revenue
Code where the policy owner has selected guideline premium/cash value corridor
test.
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. 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 total premiums
paid exceeding the then current maximum premium limitations under Section 7702
of the Internal Revenue Code where the policy owner has selected guideline
premium/cash value corridor test.
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 or Sex," 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.
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ERROR IN AGE OR SEX
If the age or sex of the insured has been misstated, the death benefit and cash
value will be adjusted. The cash value will be adjusted to reflect the cost of
insurance charges on the correct age and sex from the policy date.
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. If the policy is still in force, 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.
EXCHANGE RIGHTS
The policy owner may exchange the policy for a flexible premium adjustable life
insurance policy offered by Nationwide on the policy date. The benefits for the
new policy will not vary with the investment experience of a separate account.
The exchange must be elected within 24 months from the policy date. No evidence
of insurability will be required.
The policy owner and beneficiary under the new policy will be the same as those
under the exchanged policy on the effective date of the exchange. The new policy
will have a death benefit on the exchange date not more than the death benefit
of the original policy immediately prior to the exchange date. The new policy
will have the same policy date and issue age as the original policy. The initial
specified amount and any increases in specified amount will have the same rate
class as those of the original policy. Any indebtedness may be transferred to
the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two policies.
After adjustment, if any excess is owed the policy owner, Nationwide will pay
the excess to the policy owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PERIOD
GRACE PERIOD
If the cash surrender value on a monthly anniversary day is not sufficient to
cover the current monthly deduction, and the guaranteed policy continuation
provision is not in effect, a grace period will be allowed for the payment of a
premium of the lesser of at least three times the current monthly deduction and
the premium required to bring the guaranteed policy continuation provision back
into effect. Nationwide will send the policy owner a notice 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.
GUARANTEED POLICY CONTINUATION PERIOD
This policy will not lapse during the guaranteed policy continuation period
provided that on each monthly anniversary day (1) is greater than or equal to
(2) where:
(1) is the sum of all premiums paid to date minus any indebtedness, and
minus any partial surrenders; and
(2) is the sum of minimum monthly premiums required since the policy date
including the minimum monthly premium for the current monthly
anniversary day.
The guaranteed policy continuation period is the lesser of 30 policy years or
the number of policy
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years until the insured reaches attained age 65. For policies issued to ages
greater than 55, the guaranteed policy continuation period is 10 policy years.
This provision is subject to state insurance restrictions. In New York, the
guaranteed policy continuation period is the lesser of 30 policy years or the
number of policy years until the insured reaches attained age 65. For policies
issued to ages greater than 62, the guaranteed policy continuation period is 3
policy years. In Texas, the guaranteed policy continuation period is 9 policy
years for all issue ages. In Massachusetts, the guaranteed policy continuation
period is 5 policy years for all issue ages.
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, or, if the policy is in the guaranteed
policy continuation period, paying the lesser of (a) and (b) where:
(a) is premium sufficient to keep the policy in force for 3 months
from the date of reinstatement; and
(b) is premium sufficient to bring the guaranteed policy continuation
provision into effect; 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 lesser of:
(1) the cash value at the end of the grace period; or
(2) the surrender charge for the policy year in which the policy was
reinstated.
Amounts allocated to underlying mutual funds at the start of the grace period
will be reinstated, unless the policy owner provides otherwise.
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.
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<PAGE> 25
A 10% tax penalty generally applies to the taxable portion of such distributions
unless the policy owner is over age 59 1/2, 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 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
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federal gift tax under a unified tax rate schedule. In general, in 2000, 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 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
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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.
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.
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
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examination to determine Nationwide's contract 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:
- 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;
- 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
- 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.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced a lawsuit in a federal court in Texas against Nationwide
Life Insurance Company and the American Century group of defendants (Robert
Young and David D. Distad v. Nationwide Life Insurance Company et al.). In this
lawsuit, plaintiffs sought to represent a class of variable life insurance
contract owners and variable annuity contract owners whom they claim were
allegedly misled when purchasing these variable contracts into believing that
the performance of their underlying mutual fund option managed by American
Century, whose shares may only be purchased by insurance companies, would track
the performance of a mutual fund, also managed by American Century, whose shares
are publicly traded. The amended complaint seeks unspecified compensatory and
punitive damages. On April 27, 1998, the District Court denied, in part, and
granted, in part, motions to dismiss the complaint filed by Nationwide and
American Century. The remaining claims against Nationwide allege securities
fraud, common law fraud, civil conspiracy, and breach
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of contract. The District Court, on December 2, 1998, issued an order denying
plaintiffs' motion for class certification and the appeals court declined to
review the order denying class certification upon interlocutory appeal. On June
11, 1999, the District Court denied the plaintiffs' motion to amend their
complaint and reconsider class certification. In January 2000, Nationwide and
American Century settled this lawsuit now limited to the claims of the two named
plaintiffs. On February 9, 2000, the court dismissed this lawsuit with
prejudice.
On October 29, 1998, Nationwide was named in a lawsuit filed in Ohio state court
related to the sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide
Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The amended
complaint is brought as a class action on behalf of all persons who purchased
individual deferred annuity contracts or participated in group annuity contracts
sold by Nationwide and the other named Nationwide affiliates which were used to
fund certain tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. No class has been certified. On
June 11, 1999, Nationwide and the other named defendants filed a motion to
dismiss the amended complaint. On March 8, 2000, the court denied the motion to
dismiss the amended complaint filed by Nationwide and other named defendants.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
The general distributor, WADDELL & REED, INC., is not engaged in any litigation
of any material nature.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC 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.
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.
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, Waddell & Reed, Inc.
Waddell & Reed, Inc. was organized as a Delaware corporation in 1981.
Waddell & Reed, Inc. acts as general distributor for the following investment
companies:
WADDELL & REED ADVISORS FUNDS
WADDELL & REED ADVISORS FUNDS, INC.*
- Waddell & Reed Advisors Accumulative Fund
- Waddell & Reed Advisors Bond Fund
- Waddell & Reed Advisors Income Fund
- Waddell & Reed Advisors Science and Technology Fund
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- Waddell & Reed Advisors Asset Strategy Fund, Inc.
- Waddell & Reed Advisors Cash Management, Inc.
- Waddell & Reed Advisors Continental Income Fund, Inc.
- Waddell & Reed Advisors Government Securities Fund, Inc.
- Waddell & Reed Advisors High Income Fund, Inc.
- Waddell & Reed Advisors High Income Fund II, Inc.
- Waddell & Reed Advisors International Growth Fund, Inc.
- Waddell & Reed Advisors Municipal Bond Fund, Inc.
- Waddell & Reed Advisors Municipal High Income Fund, Inc.
- Waddell & Reed Advisors New Concepts Fund, Inc.
- Waddell & Reed Advisors Retirement Shares, Inc.
- Waddell & Reed Advisors Small Cap Fund, Inc.
- Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.
- Waddell & Reed Advisors Vanguard Fund, Inc.
W&R FUNDS, INC.*
- Asset Strategy Fund
- International Growth Fund
- Large Cap Growth Fund
- Mid Cap Growth Fund
- Science and Technology Fund
- Small Cap Growth Fund
- Tax-Managed Equity Fund
- Total Return Fund
W&R TARGET FUNDS, INC.
- Asset Strategy Portfolio
- Balanced Portfolio
- Bond Portfolio
- Core Equity Portfolio
- Growth Portfolio
- High Income Portfolio
- Income Portfolio
- International Growth Portfolio
- Large Cap Growth Portfolio
- Mid Cap Growth Portfolio
- Science and Technology Portfolio
- Small Cap Growth Portfolio
- Tax-Managed Equity Portfolio
- Total Return Portfolio
* Indicates series fund.
Gross first year commissions paid by Nationwide on the sale of these policies
plus fees for marketing services are not more than 6.75% of the premiums paid.
No underwriting commissions have been paid by Nationwide to Waddell & Reed, Inc.
WADDELL &REED, INC. DIRECTORS AND OFFICERS
--------------------------------------------------------------------------------
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
--------------------------------------------------------------------------------
Keith A. Tucker Director, Chairman of the Board
6300 Lamar Ave.
Overland Park, KS 66202
Robert L. Hechler Director, President, Chief Executive Officer,
6300 Lamar Ave. Principal Financial Officer and Treasurer
Overland Park, KS 66202
Henry J. Hermann Director
6300 Lamar Ave.
Overland Park, KS 66202
Robert J. Williams Executive Vice President and
6300 Lamar Ave. National Sales Manager
Overland Park, KS 66202
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--------------------------------------------------------------------------------
POSITIONS AND OFFICES
NAME AND BUSINESS ADDRESS WITH UNDERWRITER
--------------------------------------------------------------------------------
Thomas W. Butch Executive Vice President and
6300 Lamar Ave. Chief Marketing Officer
Overland Park, KS 66202
Daniel C. Schulte Senior Vice President, Secretary and
6300 Lamar Ave. Chief Legal Officer
Overland Park, KS 66202
KEITH A. TUCKER - Chairman of the Board of Directors of the registered
investment companies for which Waddell & Reed, Inc. serves as principal
underwriter; Chairman of the Board of Directors, Chief Executive Officer and
Director of Waddell & Reed Financial, Inc.; President, Chairman of the Board of
Directors and Chief Executive Officer of Waddell & Reed Financial Services,
Inc.; Chairman of the Board of Directors of Waddell & Reed Investment Management
Company, Waddell & Reed, Inc. and Waddell & Reed Services Company; formerly,
President of each of the registered investment companies for which Waddell &
Reed, Inc. serves as principal underwriter; formerly, Chairman of the Board of
Directors of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: February 11, 1945.
ROBERT L HECHLER - President and Principal Financial Officer of the registered
investment companies for which Waddell & Reed, Inc. serves as principal
underwriter; Executive Vice President, Chief Operating Officer and Director of
Waddell & Reed Financial, Inc.; Vice President, Chief Operating Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Services Company; Chairman, Chief Executive Officer, President and Director of
Fiduciary Trust Company of New Hampshire, an affiliate of Waddell & Reed, Inc.;
Director of Legend Group Holdings, LLC, Legend Advisory Corporation, Legend
Equities Corporation, Advisory Services Corporation, The Legend Group, Inc. and
LEC Insurance Agency, Inc., affiliates of Waddell & Reed Financial, Inc.;
formerly, Vice President of each of the funds in the Fund Complex; formerly,
Director and Treasurer of Waddell & Reed Asset Management Company; formerly,
President of Waddell & Reed Services Company. Date of birth: November 12, 1936.
HENRY J. HERRMANN - Vice President of the registered investment companies for
which Waddell & Reed, Inc. serves as principal underwriter; President, Chief
Investment Officer, and Director of Waddell & Reed Financial, Inc.; Vice
President, Chief Investment Officer and Director of Waddell & Reed Financial
Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief Executive
Officer, Chief Investment Officer and Director of Waddell & Reed Investment
Management Company (WRIMCO); Chairman of the Board of Directors of Austin,
Calvert & Flavin, Inc., an affiliate of WRIMCO; formerly, President, Chief
Executive Officer, Chief Investment Officer and Director of Waddell & Reed Asset
Management Company. Date of birth: December 8, 1942.
ROBERT J. WILLIAMS - Senior Vice President of Waddell & Reed Financial, Inc.;
Vice President and National Sales Manager of Waddell & Reed Financial Services,
Inc.; Executive Vice President and National Sales Manager of Waddell & Reed,
Inc.; President and Director of W & R Insurance Agency, Inc. (and eight other
state-specific insurance agencies). Date of birth: March 21, 1944.
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THOMAS W. BUTCH - Senior Vice President and Chief Marketing Officer of Waddell &
Reed Financial, Inc.; Executive Vice President and Chief Marketing Officer of
Waddell & Reed, Inc. Date of birth: December 16, 1956.
DANIEL C. SCHULTE - Vice President, Assistant Secretary and General Counsel of
the registered investment companies for which Waddell & Reed, Inc. serves as
principal underwriter; Vice President, Secretary and General Counsel of Waddell
& Reed Financial, Inc.; Senior Vice President, Secretary and Director of Waddell
& Reed Financial Services, Inc. and Waddell & Reed Services Company; Senior Vice
President, Secretary and General Counsel of Waddell & Reed, Inc. and Waddell &
Reed Investment Management Company; Vice President, Secretary and Director of W
& R Insurance Agency, Inc. (and eight other state-specific insurance agencies);
Assistant Secretary and General Counsel of Austin, Calvert & Flavin, Inc. Date
of birth: December 8, 1965.
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 investment accounts,
each of which is a registered investment company:
- 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 Variable Account-8;
- Nationwide Variable Account-9;
- Nationwide Variable Account-10;
- Nationwide Variable Account-11;
- MFS Variable Account;
- Nationwide Multi-Flex Variable Account;
- Nationwide VLI Separate Account;
- Nationwide VLI Separate Account-2;
- Nationwide VLI Separate Account-3;
- Nationwide VLI Separate Account-4;
- Nationwide VLI Separate Account-5;
- NACo Variable Account;
- Nationwide DC Variable Account; and the
- Nationwide DCVA-II.
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 its home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide and Nationwide Life and Annuity Insurance Company, together with
Nationwide
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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 of companies. 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 group of companies. Messrs. McFerson, Gasper, Woodward and Ms.
Breit are also trustees of one or more of the registered investment companies
distributed by Nationwide Investment Services Corporation, a registered
broker-dealer affiliated with the Nationwide group of companies.
<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
------------------------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR NAME AND
PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES
WITH DEPOSITOR PRINCIPAL OCCUPATION
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator, Bell Farms (1)
519 Bethel Church Road
Mount Olive, NC 28365-6107
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
Nancy C. Breit Director Co-owner, Thomas Farms (2)
1767D Westwood Avenue
Alliance, OH 44601
Yvonne M. Curl Director Senior Vice President and General Manager Public
Xerox Corporation Sector Worldwide/Document Solutions Group
Suite 200 Operations, Xerox Corporation (2)
1401 H Street NW
Washington, DC 2007
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 56258
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)
W. G. Jurgensen Chief Executive Officer Chief Executive Officer and Director
One Nationwide Plaza and Director
Columbus, OH 43215
Dimon R. McFerson Chairman and Director Chairman and Chief Executive Officer (2)
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
------------------------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR NAME AND
PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES
WITH DEPOSITOR PRINCIPAL OCCUPATION
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
David O. Miller Chairman of the Board President, Owen Potato Farm, Inc.; Partner, M&M
115 Sprague Drive and Director Enterprises (1)
Hebron, OH 43025
Ralph M. Paige Director Executive Director Federation of Southern
Federation of Southern Cooperatives/Land Assistance Fund
Cooperative/Land Assistance Fund
2769 Church Street
East Point, GA 30344
James F. Patterson Director
8765 Mulberry Road Vice President, Pattersons, Inc.; President,
Chesterland, OH 44026 Patterson Farms, Inc. (1)
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>
(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 group of companies, 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 NISC, a registered
broker-dealer.
Messrs. McFerson, Miller, Patterson, and Shisler are directors of Nationwide
Financial Services, Inc. Mr. McFerson and Ms. Breit 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.
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<PAGE> 35
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF NATIONWIDE
------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard D. Headley Executive Vice President
One Nationwide Plaza
Columbus, OH 43215
Michael S. Helfer Executive Vice President - Corporate Strategy
One Nationwide Plaza
Columbus, OH 43215
Donna A. James Executive Vice President - Chief Administrative Officer
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
Charles A. Bryan Senior Vice President - Chief Actuary - Property and Casualty
One Nationwide Plaza
Columbus, OH 43215
John R. Cook, Jr. Senior Vice President - Chief Communications Officer
One Nationwide Plaza
Columbus, OH 43215
Thomas L. Crumrine Senior Vice President
One Nationwide Plaza
Columbus, OH 43215
David A Diamond Senior Vice President - Corporate Controller
One Nationwide Plaza
Columbus, OH 43215
Phillip C. Gath Senior Vice President - Chief Actuary - Nationwide Financial
One Nationwide Plaza
Columbus, OH 43215
Patricia R. Hatler Senior Vice President, General Counsel and Secretary
One Nationwide Plaza
Columbus, OH 43215
David K. Hollingsworth Senior Vice President - Multi-channel and Sponsor Relations
One Nationwide Plaza
Columbus, OH 43215
David R. Jahn Senior Vice President - Project Management
One Nationwide Plaza
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales - Financial Services
One Nationwide Plaza
Columbus, OH 43215
Gregory S. Lashutka Senior Vice President - Corporate Relations
One Nationwide Plaza
Columbus, OH 43215
Edwin P. McCausland, Jr. Senior Vice President - Fixed Income Securities
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF NATIONWIDE
------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
------------------------------------------------------------------------------------------------------------------
<S> <C>
Mark D. Phelan Senior Vice President - Chief Technology Officer
One Nationwide Plaza
Columbus, OH 43215
Douglas C. Robinette Senior Vice President - Claims and Financial Services
One Nationwide Plaza
Columbus, OH 43215
Mark R. Thresher Senior Vice President - Finance - Nationwide Financial
One Nationwide Plaza
Columbus, OH 43215
Richard M. Waggoner Senior Vice President - Operations
One Nationwide Plaza
Columbus, OH 43215
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
W.G. JURGENSEN has been a Director and Chief Executive Officer since 2000.
Previously, he was Executive Vice President of Bank One Corporation from 1998 to
May 2000. Prior to Bank One's merger with First Chicago NBD, Mr. Jurgensen
served from 1990 to 1998 as Executive Vice President with First Chicago, leading
various business units. For 17 years Jurgensen was with Norwest Corporation,
beginning as a corporate banking officer and serving in increasingly responsible
roles including president and CEO of Norwest Investment Services and management
of the treasury function. His final post was Executive Vice President-Corporate
Banking.
DIMON R. MCFERSON has been a Director since April 1988 and Chairman and Chief
Executive Officer since April 1996. He was elected Chief Executive Officer in
December 1992, and President and Chief Executive Officer in December 1993. He
was President and General Manager of Nationwide Mutual Insurance Company from
April 1988 to April 1991; President and Chief Operating Officer of Nationwide
Mutual Insurance Company from April 1991 to December 1992; and President and
Chief Executive Officer of Nationwide Mutual Insurance Company from December
1992 to April 1996. Mr. McFerson has been with Nationwide for 20 years.
JOSEPH J. GASPER has been President and Chief Operating Officer and Director of
Nationwide 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 33 years.
LEWIS J. ALPHIN has been a Director of Nationwide since 1993. Mr. Alphin owns
and operates an 800-acre farm in Mt. Olive, NC. He taught agriculture business
at James Sprunt Community College in Kenansville, NC for more than 22 years
before retiring in 1994. He is the former board chairman of the Cape Fear Farm
Credit Association, a member and former vice president, secretary/treasurer, and
director of the Duplin County Agribusiness Council, and a former board member of
the Southern States Cooperative (1986 to 1993). Mr. Alphin is a member of the
Duplin County Farm Bureau, the North Carolina Farm Bureau, ad the Farm Credit
Council. He is a member and former director of the Oak Wolfe Fire Department.
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
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<PAGE> 37
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.
NANCY C. BREIT has been a Director of Nationwide since 1986. Mrs. Thomas is a
board member of Farm Credit Services' 4th District and serves on the advisory
board of Walsh University in North Canton, OH. She is a past president and
former director of the Ohio Agricultural Marketing Association and served on the
boards of the Ohio Farm Bureau Federation and Landmark, Inc., a farm supply
cooperative which is now part of Indianapolis-based Countrymark, and as the
Midwest regional representative on the American Farm Bureau women's committee.
CHARLES A. BRYAN has been a Senior Vice President - Chief Actuary - Property and
Casualty since 1998. Prior to joining Nationwide, Mr. Bryan was president, Chief
Operating Officer of Direct Response Corporation from 1996 to 1998. Prior to
that time, Mr. Bryan was a partner with Ernst & Young.
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. Mr. Cook has been
with Nationwide for 2 years.
YVONNE M. CURL has been a Director of Nationwide since April, 1998. Ms.
Montgomery is senior vice president/general manager - Public Sector
Worldwide/Document Solutions Group for Xerox Corporation. A resident of
Washington, DC, Ms. Montgomery is in charge of providing an integrated,
industry-focused portfolio of document solutions and services to the public
sector worldwide. 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.
KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis
is the immediate past president of the Ohio Farm Bureau Federation. He served as
a member of the Ohio Farm Bureau Federation's board of trustees from 1989 until
1999. He served as first vice president of the board from 1994 until 1998. Mr.
Davis serves on the board of directors of his local rural electric cooperatives
and is a member of many agriculture organizations including the Ohio Corn
Growers, Ohio Cattlemen's and Ohio Soybean associations.
DAVID A. DIAMOND has been Senior Vice President - Corporate Controller since
August 1999. He was Vice President-Controller from August 1996 to August 1999.
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 11 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. Mr. Eckel is a member of the Pennsylvania Agricultural Land Preservation
Board. He is a former president of the Pennsylvania Farm Bureau, a position he
held for 15 years, and the Lackawanna County Cooperative Extension Association.
He has served as a board member and executive committee member of the American
Farm Bureau Federation. He is a former vice president of the Pennsylvania
Council of Cooperative Extension Associations and former board member of the
Pennsylvania Vegetable Growers Association.
WILLARD J. ENGEL has been a Director of Nationwide since 1994. Mr. Engel served
as general manager of Lyon County Co-Operative Oil Co. in Marshall, MN from 1975
to 1997, and occasionally serves on a consulting basis. He previously was a
division manager of the Truman Farmers Elevator. He is a former director of the
Western Co-op Transport in
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<PAGE> 38
Montevideo, MN, a former director and legislative committee chairman of the
Northwest Petroleum Association in St. Paul, and a former director of Farmland
Industries in Kansas City.
FRED C. FINNEY has been a Director of Nationwide since 1992. Mr. Finney is the
owner and operator of the Moreland Fruit Farm and operator of Melrose Orchard in
Wooster, OH. He is past president of the Ohio Farm Bureau Federation, the Ohio
Fruit Growers Society, Wayne County Farm Bureau, and the Westwood Ruritan Club.
He is a member of the American Berry Cooperative.
PHILIP C. GATH has been Senior Vice President - Chief Actuary - Nationwide
Financial 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 31 years.
PATRICIA R. HATLER has been Senior Vice President, General Counsel and Secretary
since April 2000. Previously, she was Senior Vice President and General Counsel
from July 1999 to April 2000. Prior to that time, she was General Counsel and
Corporate Secretary of Independence Blue Cross from 1983 to July 1999.
MICHAEL S. HELFER has been Executive Vice President - Corporate Strategy since
August 2000. He is a former partner and head of the financial institutions group
at Wilmer, Cutler and Pickering, a 350-lawyer international law firm
headquartered in Washington, D.C. He served as that firm's chairman and chief
executive officer from 1995 to 1998.
DAVID K. HOLLINGSWORTH has been Senior Vice President - Multi Channel and
Sponsor Relations since August 1999. Previously, he was Senior Vice President -
Marketing from June 1999 to August 1999. Prior to that time, has held numerous
positions within the Nationwide group of companies. Mr. Hollingsworth has been
with Nationwide for 25 years.
DAVID R. JAHN has been Senior Vice President - Project Management since July
2000. Previously he was Senior Vice President - Commercial Insurance from March
1998 to July 2000. Previously, he was Vice President - Property/Casualty
Operations and Vice President - Resource Management from March 1996 to January
1998. Prior to that time, Mr. Jahn has held numerous positions within the
Nationwide group of companies. Mr. Jahn has been with Nationwide for 28 years.
DONNA A. JAMES has been Executive Vice President - Chief Administrative Officer
since July 2000. Previously, she was Senior Vice President - Chief Human
Resources Officer since May 1999. She was Senior Vice President - Human
Resources from December 1997 to May 1999. Previously she was Vice President -
Human Resources from July 1996 to December 1997. Prior to that time, Ms. James
was Vice President - Assistant to the CEO of Nationwide from March 1996 to July
1996. From May 1994 to March 1996 she was Associate Vice President - Assistant
to the CEO for Nationwide. Previously Ms. James held several positions within
Nationwide. Ms. James has been with Nationwide for 18 years.
RICHARD D. HEADLEY has been Executive Vice President for Nationwide since July
2000. Previously, he was Executive Vice President - Chief Information Technology
Officer from May 1999 to July 2000. He was Senior Vice President - Chief
Information Technology Officer from October 1997 to May 1999. 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. Mr. Headly has been with
Nationwide for 2 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 35 years.
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<PAGE> 39
GREGORY S. LASHUTKA has been Senior Vice President - Corporate Relations since
January 2000. Previously, he was the Mayor of the City of Columbus (Ohio) from
January 1992 to December 1999. From January 1986 to December 1991, Mr. Lashutka
was a Partner with Squire, Sanders & Dempsey. From January 1978 to December
1985, he was City Attorney for the City of Columbus (Ohio).
EDWIN P. MCCAUSLAND, JR. has been Senior Vice President - Fixed Income
Securities since 1999. Mr. McCausland has 29 years of experience in insurance
investments beginning his career in 1970 with Connecticut Mutual Life Insurance
Company. He joined Phoenix Mutual Life Insurance Company in 1981 as second Vice
President of Bond Investments and rising to Vice President of Pension
Operations. He was Vice President and Managing Director of Mass Mutual Life
Insurance Company prior to joining Nationwide.
DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr.
Miller has been Chairman of the Board since 1998. Mr. Miller is president of
Owen Potato Farm, Inc. and a partner of M&M Enterprises in Licking County, OH.
He is a director and board chairman of the National Cooperative Business
Association, director of Cooperative Business International and the
International Cooperative Alliance, and serves on the educational executive
committee of the National Council of Farmer Cooperatives. He was president of
the Ohio Farm Bureau Federation from 1981 to 1985 and was vice president for six
years. Mr. Miller served a two year term on the board of the American Farm
Bureau Association. He is past president of the Ohio Vegetable and Potato
Growers Association, and was a director of Landmark, Inc., a farm supply
cooperative which is now part of Indianapolis-based Countrymark.
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 24
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.
JAMES F. PATTERSON has been a Director of Nationwide since April 1989. Mr.
Patterson is president of Patterson Farms, Inc. and has operated Patterson Fruit
Farm in Chesterland, OH since 1964. Mr. Patterson is on the boards of The Ohio
State University Hospitals Health System in Cleveland, Geauga Hospital, Inc. and
the National Cooperative Business Association. He is past president of the Ohio
Farm Bureau Federation and former member of Cleveland Foundation's Lake and
Geauga Advisory Committees.
MARK D. PHELAN has been Senior Vice President - Chief Technology Officer since
July 2000. Previously he was Senior Vice President - Technology Services from
1998 to 2000. His previous management experience includes five years (1977-1982)
with the data processing division's sales group at IBM Corporation. From 1982
through 1990, Mr. Phelan served as director of AT&T's Consumer Communications
Services Group and he was subsequently promoted to sales vice president for the
Eastern Region of the Business Communications Services Division. In 1992, he
became executive vice president-sales and marketing for the Electronic Commerce
Division of Checkfree Corporation, a position he held for five years. From 1997
until 1998, he was in private consulting.
DOUGLAS C. ROBINETTE has been Senior Vice President - Claims and Financial
Services since 1999. Previously, he was Senior Vice President - Marketing and
Product Management from May 1998 to 1999. 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.
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<PAGE> 40
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 13 years.
ARDEN L. SHISLER has been a Director of Nationwide since 1984. Mr. Shisler is
president and chief executive officer of K&B Transport, Inc., a trucking firm in
Dalton, OH. He is a director of the National Cooperative Business Association in
Washington, DC. He is a former board member and vice president of the Ohio Farm
Bureau Federation and past president of the Ohio Agricultural Marketing
Association, an Ohio Farm Bureau Federation subsidiary. He is a member of the
Ohio Trucking Association, the Ohio Trucking Safety Council, the Wayne County
Farm Bureau, Cornerstone Community Church, the Advisory Committee of The Ohio
State University Agriculture Technical Institute and a board member of the
Wilderness Center.
ROBERT L. STEWART has been a Director of Nationwide since 1989. Mr. Stewart is
the owner and operator of Sunnydale Farms and Mining in Jewett, OH. He served on
the board of the Ohio Farm Bureau Federation and as president of the Ohio
Holstein Association board. Mr. Stewart was a director of the Ohio Agricultural
Stabilization and Conservation Service board and Landmark, Inc. a farm supply
cooperative which is now part of Indianapolis-based Countrymark.
MARK R. THRESHER has been Senior Vice President - Finance - Nationwide Financial
since May 1999. He was Vice President - Controller from August 1996 to May 1999.
Prior to joining Nationwide, Mr. Thresher served as a partner with KPMG LLP from
July 1988 to June 1996.
RICHARD M. WAGGONER has been Senior Vice President - Operations since May 1999.
Previously, he was President of Nationwide Services from May 1997 to May 1999.
Prior to that time, Mr. Waggoner has held numerous positions within the
Nationwide group of companies. Mr. Waggoner has been with Nationwide for 23
years.
SUSAN A. WOLKEN has been Senior Vice President - Product Management and
Nationwide Financial Marketing since May 1999. Previously, Ms. Wolken was Senior
Vice President - Life Company Operations from June 1997 to May 1999. 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 25 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 35 years.
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<PAGE> 41
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.
W&R TARGET FUNDS, INC.
The Fund is an open-end, diversified management company organized as a Maryland
corporation on December 2, 1986. The Fund sells its shares only to the separate
accounts of participating insurance companies to fund certain variable life
insurance policies and variable annuity contracts. Waddell & Reed Investment
Management Company is the Fund's investment advisor.
ASSET STRATEGY PORTFOLIO
Investment Objective: The Asset Strategy Portfolio seeks high total return
over the long-term. It seeks to achieve its goal by allocating its assets
among stocks, bonds and short-term instruments, both in the United States
and abroad.
BALANCED PORTFOLIO
Investment Objective: The Balanced Portfolio seeks as a primary goal,
current income, with a secondary goal of long-term appreciation of capital.
It invests primarily in a mix of stocks, fixed-income securities and cash,
depending on market conditions.
BOND PORTFOLIO
Investment Objective: The Bond Portfolio seeks a reasonable return with
emphasis on preservation of capital. It seeks to achieve its goal by
investing primarily in domestic debt securities, usually of investment
grade.
CORE EQUITY PORTFOLIO
Investment Objective: The Core Equity Portfolio seeks capital growth and
income. It seeks to achieve its goals by investing primarily in common
stocks of large U.S. and foreign companies that have a record of paying
regular dividends on common stock or have the potential for capital
appreciation, or are expected to resist market decline.
GROWTH PORTFOLIO
Investment Objective: The Growth Portfolio seeks capital growth, with a
secondary goal of current income. It seeks to achieve its goal by investing
primarily in common stocks, of U.S. and foreign companies.
HIGH INCOME PORTFOLIO
Investment Objective: The High Income Portfolio seeks as a primary goal,
high current income with a secondary goal of capital growth. It seeks to
achieve its goals by investing primarily in high-yield, high-risk,
fixed-income securities of U.S. and foreign issuers, the risks of which are
consistent with the Portfolio's goals.
INTERNATIONAL PORTFOLIO
Investment Objective: The International Portfolio seeks as a primary goal,
long-term appreciation of capital, with a secondary goal of current income.
It seeks to achieve its goals by investing primarily in common stocks of
foreign companies that may have the potential for long-term growth.
LIMITED-TERM BOND PORTFOLIO
Investment Objective: The Limited-Term Bond Portfolio seeks a high level of
current income consistent with preservation of capital. It seeks to achieve
its goal by investing primarily in investment-grade debt securities of U.S.
issuers, including U.S. Government securities.
MONEY MARKET PORTFOLIO
Investment Objective: The Money Market Portfolio seeks current income
consistent with stability of principal. It seeks to achieve it goal by
investing in U.S. dollar-denominated high quality money market obligations
and instruments.
SCIENCE AND TECHNOLOGY PORTFOLIO
Investment Objective: The Science and Technology Portfolio seeks long-term
capital growth. It seeks to achieve its goals by concentrating its
investments primarily
41
<PAGE> 42
science and technology equity securities of U.S. and foreign companies.
SMALL CAP PORTFOLIO
Investment Objective: The Small Cap Portfolio seeks capital growth. It
seeks to achieve its goal by investing primarily in common stocks of
companies that are relatively new or unseasoned, companies in their early
stages of development, or smaller companies positioned in new or in
emerging industries where the opportunity for rapid growth is above
average.
42
<PAGE> 43
APPENDIX B: ILLUSTRATION OF SURRENDER CHARGES
EXAMPLE 1: A female non-tobacco, age 45, purchases a policy with a specified
amount of $50,000 and a scheduled premium of $750. She now wishes to surrender
the policy during the first policy year. By using the initial surrender charge
table reproduced below, (also see "Surrender Charges") the total surrender
charge per thousand multiplied by the specified amount expressed in thousands
equals the total surrender charge of $569.50 ($11.390 x 50=569.50).
EXAMPLE 2: A male non-tobacco, age 35, purchases a policy with a specified
amount of $100,000 and a scheduled premium of $1100. He now wants to surrender
the policy in the sixth policy year. The total initial surrender charge is
calculated using the method illustrated above (surrender charge per 1000 is
6.817 x 100=681.70 maximum initial surrender charge). Because the fifth policy
year has been completed, the maximum initial surrender charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below. (Also see "Reductions to Surrender Charges.") In
this case, $681.70 x 60%=$409.02 which is the amount Nationwide deducts as a
total surrender charge.
Maximum surrender charge per $1,000 of initial specified amount for policies
issued on a standard basis:
<TABLE>
<CAPTION>
INITIAL SPECIFIED AMOUNT $50,000-$99,999*
-----------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
25 $7.773 $7.518 $8.369 $7.818
35 8.817 8.396 9.811 8.889
45 12.185 11.390 13.884 12.164
55 15.628 13.995 18.410 15.106
65 22.274 19.043 26.559 20.607
</TABLE>
*Specified amounts of less than $100,000 are not available in New York or New
Jersey.
<TABLE>
<CAPTION>
INITIAL SPECIFIED AMOUNT $100,000+
-----------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
25 $5.773 $5.518 $6.369 $5.818
35 6.817 6.396 7.811 6.889
45 9.685 8.890 11.384 9.664
55 13.128 11.495 15.910 12.606
65 21.274 18.043 25.559 19.607
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
REDUCTIONS TO SURRENDER CHARGES
------------------------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0 100% 5 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 9+ 0%
</TABLE>
The current surrender charges are the same for all states. However, in
Pennsylvania the guaranteed maximum surrender charges are spread out over 14
years. The guaranteed maximum surrender charge in subsequent years in
Pennsylvania is reduced in the following manner:
<TABLE>
<CAPTION>
COMPLETED SURRENDER CHARGE AS A COMPLETED SURRENDER CHARGE AS A COMPLETED SURRENDER CHARGE AS A
POLICY YEARS % OF INITIAL POLICY YEARS % OF INITIAL POLICY YEARS % OF INITIAL
SURRENDER CHARGES SURRENDER CHARGES SURRENDER CHARGES
<S> <C> <C> <C> <C> <C> <C>
0 100% 5 60% 10 20%
1 100% 6 50% 11 15%
2 90% 7 40% 12 10%
3 80% 8 30% 13 5%
4 70% 9 25% 14+ 0%
</TABLE>
The illustrations of current values in this prospectus are the same for
Pennsylvania. However, the illustrations of guaranteed values in this prospectus
do not reflect guaranteed maximum surrender charges which are spread out over 14
years. If this policy is issued in Pennsylvania, please contact Nationwide's
home office for an illustration.
Nationwide has no plans to change the current surrender charges.
44
<PAGE> 45
APPENDIX C: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH
BENEFITS
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 deduction of underlying mutual fund investment advisory fees and other
expenses, which are equivalent to an annual effective rate of 0.98%. This
effective rate is based on the average of the fund expenses, after expense
reimbursement, for the preceding year for all underlying mutual fund options
available under the policy as of December 31, 1999.
Taking into account the underlying mutual fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -0.98%, 5.02% and 11.02%.
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection, recovering taxes, providing for
administrative expenses, and assuming mortality and expense risks. 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 cash surrender values shown in the illustrations reflect the fact that
Nationwide will deduct a surrender charge from the policy's cash value for any
policy surrendered in full during the first nine policy years.
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, sex, smoking classification, rating classification and
premium payment requested.
45
<PAGE> 46
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 1,575 960 63 100,000 1,031 133 100,000 1,101 204 100,000
2 3,229 1,952 1,055 100,000 2,155 1,257 100,000 2,366 1,469 100,000
3 4,965 2,915 2,107 100,000 3,314 2,507 100,000 3,748 2,940 100,000
4 6,788 3,849 3,131 100,000 4,511 3,793 100,000 5,258 4,540 100,000
5 8,703 4,754 4,126 100,000 5,746 5,118 100,000 6,912 6,283 100,000
6 10,713 5,630 5,092 100,000 7,021 6,483 100,000 8,722 8,184 100,000
7 12,824 6,476 6,028 100,000 8,338 7,889 100,000 10,708 10,259 100,000
8 15,040 7,293 6,934 100,000 9,697 9,338 100,000 12,886 12,527 100,000
9 17,367 8,080 7,810 100,000 11,101 10,832 100,000 15,278 15,009 100,000
10 19,810 8,836 8,836 100,000 12,552 12,552 100,000 17,907 17,907 100,000
11 22,376 9,561 9,561 100,000 14,051 14,051 100,000 20,800 20,800 100,000
12 25,069 10,255 10,255 100,000 15,601 15,601 100,000 23,985 23,985 100,000
13 27,898 10,918 10,918 100,000 17,203 17,203 100,000 27,499 27,499 100,000
14 30,868 11,549 11,549 100,000 18,861 18,861 100,000 31,387 31,387 100,000
15 33,986 12,106 12,106 100,000 20,539 20,539 100,000 35,661 35,661 100,000
16 37,261 12,613 12,613 100,000 22,260 22,260 100,000 40,385 40,385 100,000
17 40,699 13,066 13,066 100,000 24,024 24,024 100,000 45,615 45,615 100,000
18 44,309 13,460 13,460 100,000 25,832 25,832 100,000 51,411 51,411 100,000
19 48,099 13,798 13,798 100,000 27,695 27,695 100,000 57,848 57,848 100,000
20 52,079 14,092 14,092 100,000 29,627 29,627 100,000 65,014 65,014 100,000
21 56,258 14,298 14,298 100,000 31,598 31,598 100,000 72,986 72,986 100,000
22 60,646 14,409 14,409 100,000 33,607 33,607 100,000 81,872 81,872 100,000
23 65,253 14,415 14,415 100,000 35,653 35,653 100,000 91,760 91,760 108,277
24 70,091 14,307 14,307 100,000 37,735 37,735 100,000 102,662 102,662 120,115
25 75,170 14,073 14,073 100,000 39,854 39,854 100,000 114,677 114,677 133,026
26 80,504 13,700 13,700 100,000 42,011 42,011 100,000 127,919 127,919 147,107
27 86,104 13,179 13,179 100,000 44,208 44,208 100,000 142,541 142,541 161,072
28 91,984 12,494 12,494 100,000 46,448 46,448 100,000 158,700 158,700 176,156
29 98,158 11,628 11,628 100,000 48,735 48,735 100,000 176,569 176,569 192,460
30 104,641 10,557 10,557 100,000 51,069 51,069 100,000 196,349 196,349 210,093
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
46
<PAGE> 47
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 1,575 930 33 100,000 999 101 100,000 1,068 170 100,000
2 3,229 1,851 954 100,000 2,047 1,150 100,000 2,252 1,354 100,000
3 4,965 2,733 1,925 100,000 3,116 2,308 100,000 3,532 2,724 100,000
4 6,788 3,572 2,854 100,000 4,202 3,484 100,000 4,915 4,197 100,000
5 8,703 4,368 3,740 100,000 5,306 4,678 100,000 6,411 5,783 100,000
6 10,713 5,116 4,578 100,000 6,424 5,885 100,000 8,028 7,489 100,000
7 12,824 5,812 5,364 100,000 7,551 7,103 100,000 9,775 9,326 100,000
8 15,040 6,451 6,092 100,000 8,684 8,325 100,000 11,660 11,301 100,000
9 17,367 7,027 6,757 100,000 9,815 9,546 100,000 13,695 13,426 100,000
10 19,810 7,534 7,534 100,000 10,940 10,940 100,000 15,892 15,892 100,000
11 22,376 7,965 7,965 100,000 12,053 12,053 100,000 18,264 18,264 100,000
12 25,069 8,317 8,317 100,000 13,148 13,148 100,000 20,829 20,829 100,000
13 27,898 8,586 8,586 100,000 14,222 14,222 100,000 23,610 23,610 100,000
14 30,868 8,762 8,762 100,000 15,267 15,267 100,000 26,630 26,630 100,000
15 33,986 8,837 8,837 100,000 16,274 16,274 100,000 29,922 29,922 100,000
16 37,261 8,798 8,798 100,000 17,230 17,230 100,000 33,517 33,517 100,000
17 40,699 8,633 8,633 100,000 18,123 18,123 100,000 37,450 37,450 100,000
18 44,309 8,322 8,322 100,000 18,935 18,935 100,000 41,761 41,761 100,000
19 48,099 7,844 7,844 100,000 19,646 19,646 100,000 46,499 46,499 100,000
20 52,079 7,178 7,178 100,000 20,234 20,234 100,000 51,726 51,726 100,000
21 56,258 6,302 6,302 100,000 20,678 20,678 100,000 57,516 57,516 100,000
22 60,646 5,194 5,194 100,000 20,956 20,956 100,000 63,964 63,964 100,000
23 65,253 3,828 3,828 100,000 21,042 21,042 100,000 71,184 71,184 100,000
24 70,091 2,173 2,173 100,000 20,904 20,904 100,000 79,317 79,317 100,000
25 75,170 182 182 100,000 20,499 20,499 100,000 88,524 88,524 102,688
26 80,504 (*) (*) (*) 19,769 19,769 100,000 98,726 98,726 113,534
27 86,104 (*) (*) (*) 18,636 18,636 100,000 109,967 109,967 124,263
28 91,984 (*) (*) (*) 17,002 17,002 100,000 122,368 122,368 135,829
29 98,158 (*) (*) (*) 14,748 14,748 100,000 136,072 136,072 148,318
30 104,641 (*) (*) (*) 11,736 11,736 100,000 151,248 151,248 161,835
</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 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(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 LAPSE WITHOUT VALUE.
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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
47
<PAGE> 48
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 2,625 1,452 290 100,000 1,565 403 100,000 1,679 516 100,000
2 5,381 2,935 1,772 100,000 3,254 2,092 100,000 3,589 2,426 100,000
3 8,275 4,387 3,341 100,000 5,012 3,966 100,000 5,692 4,646 100,000
4 11,314 5,811 4,881 100,000 6,843 5,913 100,000 8,012 7,082 100,000
5 14,505 7,205 6,392 100,000 8,751 7,937 100,000 10,571 9,758 100,000
6 17,855 8,571 7,874 100,000 10,740 10,043 100,000 13,400 12,702 100,000
7 21,373 9,909 9,327 100,000 12,815 12,234 100,000 16,527 15,946 100,000
8 25,066 11,218 10,753 100,000 14,981 14,516 100,000 19,988 19,523 100,000
9 28,945 12,500 12,151 100,000 17,244 16,896 100,000 23,823 23,474 100,000
10 33,017 13,754 13,754 100,000 19,609 19,609 100,000 28,080 28,080 100,000
11 37,293 14,981 14,981 100,000 22,083 22,083 100,000 32,819 32,819 100,000
12 41,782 16,028 16,028 100,000 24,529 24,529 100,000 37,972 37,972 100,000
13 46,497 16,917 16,917 100,000 26,977 26,977 100,000 43,624 43,624 100,000
14 51,446 17,667 17,667 100,000 29,452 29,452 100,000 49,870 49,870 100,000
15 56,644 18,266 18,266 100,000 31,952 31,952 100,000 56,797 56,797 100,000
16 62,101 18,746 18,746 100,000 34,515 34,515 100,000 64,533 64,533 100,000
17 67,831 19,109 19,109 100,000 37,152 37,152 100,000 73,206 73,206 100,000
18 73,848 19,341 19,341 100,000 39,866 39,866 100,000 82,961 82,961 100,000
19 80,165 19,443 19,443 100,000 42,672 42,672 100,000 93,969 93,969 102,426
20 86,798 19,420 19,420 100,000 45,590 45,590 100,000 106,232 106,232 113,668
21 93,763 19,179 19,179 100,000 48,577 48,577 100,000 119,814 119,814 125,805
22 101,076 18,692 18,692 100,000 51,640 51,640 100,000 134,792 134,792 141,531
23 108,755 17,925 17,925 100,000 54,788 54,788 100,000 151,302 151,302 158,867
24 116,818 16,838 16,838 100,000 58,034 58,034 100,000 169,497 169,497 177,971
25 125,284 15,388 15,388 100,000 61,399 61,399 100,000 189,539 189,539 199,016
26 134,173 13,520 13,520 100,000 64,908 64,908 100,000 211,608 211,608 222,188
27 143,506 11,174 11,174 100,000 68,595 68,595 100,000 235,898 235,898 247,693
28 153,307 8,279 8,279 100,000 72,506 72,506 100,000 262,627 262,627 275,758
29 163,597 4,736 4,736 100,000 76,695 76,695 100,000 292,070 292,070 306,673
30 174,402 412 412 100,000 81,230 81,230 100,000 324,489 324,489 340,714
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
48
<PAGE> 49
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 2,625 1,391 229 100,000 1,501 338 100,000 1,611 449 100,000
2 5,381 2,720 1,558 100,000 3,027 1,864 100,000 3,348 2,185 100,000
3 8,275 3,955 2,909 100,000 4,546 3,500 100,000 5,189 4,143 100,000
4 11,314 5,090 4,160 100,000 6,051 5,121 100,000 7,142 6,212 100,000
5 14,505 6,114 5,300 100,000 7,532 6,719 100,000 9,212 8,398 100,000
6 17,855 7,019 6,322 100,000 8,980 8,283 100,000 11,403 10,705 100,000
7 21,373 7,795 7,214 100,000 10,383 9,801 100,000 13,723 13,142 100,000
8 25,066 8,424 7,959 100,000 11,722 11,257 100,000 16,175 15,710 100,000
9 28,945 8,889 8,540 100,000 12,980 12,631 100,000 18,766 18,417 100,000
10 33,017 9,172 9,172 100,000 14,137 14,137 100,000 21,503 21,503 100,000
11 37,293 9,256 9,256 100,000 15,175 15,175 100,000 24,402 24,402 100,000
12 41,782 9,123 9,123 100,000 16,074 16,074 100,000 27,490 27,490 100,000
13 46,497 8,755 8,755 100,000 16,814 16,814 100,000 30,796 30,796 100,000
14 51,446 8,126 8,126 100,000 17,368 17,368 100,000 34,352 34,352 100,000
15 56,644 7,198 7,198 100,000 17,698 17,698 100,000 38,194 38,194 100,000
16 62,101 5,923 5,923 100,000 17,754 17,754 100,000 42,362 42,362 100,000
17 67,831 4,233 4,233 100,000 17,468 17,468 100,000 46,905 46,905 100,000
18 73,848 2,042 2,042 100,000 16,753 16,753 100,000 51,886 51,886 100,000
19 80,165 (*) (*) (*) 15,506 15,506 100,000 57,393 57,393 100,000
20 86,798 (*) (*) (*) 13,612 13,612 100,000 63,554 63,554 100,000
21 93,763 (*) (*) (*) 10,938 10,938 100,000 70,545 70,545 100,000
22 101,076 (*) (*) (*) 7,324 7,324 100,000 78,598 78,598 100,000
23 108,755 (*) (*) (*) 2,570 2,570 100,000 88,027 88,027 100,000
24 116,818 (*) (*) (*) (*) (*) (*) 99,182 99,182 104,141
25 125,284 (*) (*) (*) (*) (*) (*) 111,579 111,579 117,158
26 134,173 (*) (*) (*) (*) (*) (*) 125,166 125,166 131,425
27 143,506 (*) (*) (*) (*) (*) (*) 140,042 140,042 147,044
28 153,307 (*) (*) (*) (*) (*) (*) 156,307 156,307 164,122
29 163,597 (*) (*) (*) (*) (*) (*) 174,066 174,066 182,769
30 174,402 (*) (*) (*) (*) (*) (*) 193,429 193,429 203,100
</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 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(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 LAPSE WITHOUT VALUE.
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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
49
<PAGE> 50
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 1,575 956 59 100,956 1,026 129 101,026 1,097 199 101,097
2 3,229 1,940 1,043 101,940 2,141 1,244 102,141 2,352 1,454 102,352
3 4,965 2,891 2,084 102,891 3,287 2,479 103,287 3,717 2,909 103,717
4 6,788 3,810 3,092 103,810 4,464 3,746 104,464 5,202 4,484 105,202
5 8,703 4,695 4,066 104,695 5,672 5,044 105,672 6,820 6,192 106,820
6 10,713 5,546 5,007 105,546 6,912 6,374 106,912 8,582 8,043 108,582
7 12,824 6,362 5,914 106,362 8,184 7,736 108,184 10,502 10,054 110,502
8 15,040 7,144 6,785 107,144 9,489 9,130 109,489 12,596 12,237 112,596
9 17,367 7,891 7,622 107,891 10,827 10,558 110,827 14,881 14,611 114,881
10 19,810 8,602 8,602 108,602 12,198 12,198 112,198 17,373 17,373 117,373
11 22,376 9,277 9,277 109,277 13,602 13,602 113,602 20,094 20,094 120,094
12 25,069 9,914 9,914 109,914 15,040 15,040 115,040 23,066 23,066 123,066
13 27,898 10,514 10,514 110,514 16,512 16,512 116,512 26,315 26,315 126,315
14 30,868 11,075 11,075 111,075 18,017 18,017 118,017 29,875 29,875 129,875
15 33,986 11,551 11,551 111,551 19,509 19,509 119,509 33,731 33,731 133,731
16 37,261 11,966 11,966 111,966 21,012 21,012 121,012 37,939 37,939 137,939
17 40,699 12,318 12,318 112,318 22,519 22,519 122,519 42,530 42,530 142,530
18 44,309 12,600 12,600 112,600 24,027 24,027 124,027 47,539 47,539 147,539
19 48,099 12,816 12,816 112,816 25,538 25,538 125,538 53,012 53,012 153,012
20 52,079 12,978 12,978 112,978 27,068 27,068 127,068 59,012 59,012 159,012
21 56,258 13,038 13,038 113,038 28,565 28,565 128,565 65,539 65,539 165,539
22 60,646 12,986 12,986 112,986 30,018 30,018 130,018 72,639 72,639 172,639
23 65,253 12,813 12,813 112,813 31,412 31,412 131,412 80,361 80,361 180,361
24 70,091 12,509 12,509 112,509 32,732 32,732 132,732 88,757 88,757 188,757
25 75,170 12,061 12,061 112,061 33,962 33,962 133,962 97,883 97,883 197,883
26 80,504 11,461 11,461 111,461 35,083 35,083 135,083 107,805 107,805 207,805
27 86,104 10,698 10,698 110,698 36,079 36,079 136,079 118,594 118,594 218,594
28 91,984 9,762 9,762 109,762 36,929 36,929 136,929 130,328 130,328 230,328
29 98,158 8,639 8,639 108,639 37,611 37,611 137,611 143,088 143,088 243,088
30 104,641 7,311 7,311 107,311 38,095 38,095 138,095 156,962 156,962 256,962
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
50
<PAGE> 51
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 1,575 926 29 100,926 995 97 100,995 1,063 166 101,063
2 3,229 1,840 942 101,840 2,034 1,137 102,034 2,238 1,340 102,238
3 4,965 2,709 1,901 102,709 3,088 2,281 103,088 3,500 2,693 103,500
4 6,788 3,532 2,814 103,532 4,154 3,436 104,154 4,858 4,140 104,858
5 8,703 4,306 3,678 104,306 5,230 4,601 105,230 6,316 5,688 106,316
6 10,713 5,028 4,489 105,028 6,309 5,771 106,309 7,881 7,342 107,881
7 12,824 5,691 5,242 105,691 7,388 6,939 107,388 9,556 9,107 109,556
8 15,040 6,290 5,931 106,290 8,457 8,098 108,457 11,345 10,986 111,345
9 17,367 6,818 6,548 106,818 9,510 9,240 109,510 13,252 12,983 113,252
10 19,810 7,268 7,268 107,268 10,537 10,537 110,537 15,281 15,281 115,281
11 22,376 7,635 7,635 107,635 11,529 11,529 111,529 17,437 17,437 117,437
12 25,069 7,912 7,912 107,912 12,477 12,477 112,477 19,724 19,724 119,724
13 27,898 8,095 8,095 108,095 13,375 13,375 113,375 22,150 22,150 122,150
14 30,868 8,177 8,177 108,177 14,209 14,209 114,209 24,721 24,721 124,721
15 33,986 8,146 8,146 108,146 14,965 14,965 114,965 27,441 27,441 127,441
16 37,261 7,991 7,991 107,991 15,625 15,625 115,625 30,317 30,317 130,317
17 40,699 7,700 7,700 107,700 16,171 16,171 116,171 33,349 33,349 133,349
18 44,309 7,253 7,253 107,253 16,575 16,575 116,575 36,532 36,532 136,532
19 48,099 6,632 6,632 106,632 16,810 16,810 116,810 39,859 39,859 139,859
20 52,079 5,818 5,818 105,818 16,846 16,846 116,846 43,322 43,322 143,322
21 56,258 4,796 4,796 104,796 16,656 16,656 116,656 46,916 46,916 146,916
22 60,646 3,550 3,550 103,550 16,209 16,209 116,209 50,634 50,634 150,634
23 65,253 2,064 2,064 102,064 15,476 15,476 115,476 54,470 54,470 154,470
24 70,091 321 321 100,321 14,421 14,421 114,421 58,414 58,414 158,414
25 75,170 (*) (*) (*) 12,998 12,998 112,998 62,441 62,441 162,441
26 80,504 (*) (*) (*) 11,147 11,147 111,147 66,517 66,517 166,517
27 86,104 (*) (*) (*) 8,797 8,797 108,797 70,591 70,591 170,591
28 91,984 (*) (*) (*) 5,858 5,858 105,858 74,596 74,596 174,596
29 98,158 (*) (*) (*) 2,239 2,239 102,239 78,453 78,453 178,453
30 104,641 (*) (*) (*) (*) (*) (*) 82,089 82,089 182,089
</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 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(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 LAPSE WITHOUT VALUE.
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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
51
<PAGE> 52
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 2,625 1,436 274 101,436 1,548 386 101,548 1,661 498 101,661
2 5,381 2,891 1,728 102,891 3,206 2,043 103,206 3,535 2,373 103,535
3 8,275 4,303 3,257 104,303 4,915 3,869 104,915 5,581 4,534 105,581
4 11,314 5,673 4,743 105,673 6,678 5,748 106,678 7,814 6,884 107,814
5 14,505 7,001 6,187 107,001 8,496 7,682 108,496 10,255 9,442 110,255
6 17,855 8,287 7,590 108,287 10,371 9,674 110,371 12,924 12,227 112,924
7 21,373 9,532 8,951 109,532 12,306 11,725 112,306 15,844 15,262 115,844
8 25,066 10,735 10,270 110,735 14,302 13,837 114,302 19,039 18,574 119,039
9 28,945 11,897 11,548 111,897 16,361 16,012 116,361 22,538 22,189 122,538
10 33,017 13,017 13,017 113,017 18,486 18,486 118,486 26,372 26,372 126,372
11 37,293 14,096 14,096 114,096 20,679 20,679 120,679 30,588 30,588 130,588
12 41,782 14,952 14,952 114,952 22,754 22,754 122,754 35,029 35,029 135,029
13 46,497 15,607 15,607 115,607 24,725 24,725 124,725 39,740 39,740 139,740
14 51,446 16,084 16,084 116,084 26,615 26,615 126,615 44,771 44,771 144,771
15 56,644 16,368 16,368 116,368 28,401 28,401 128,401 50,137 50,137 150,137
16 62,101 16,499 16,499 116,499 30,116 30,116 130,116 55,912 55,912 155,912
17 67,831 16,480 16,480 116,480 31,759 31,759 131,759 62,141 62,141 162,141
18 73,848 16,296 16,296 116,296 33,308 33,308 133,308 68,854 68,854 168,854
19 80,165 15,950 15,950 115,950 34,758 34,758 134,758 76,101 76,101 176,101
20 86,798 15,453 15,453 115,453 36,114 36,114 136,114 83,948 83,948 183,948
21 93,763 14,693 14,693 114,693 37,253 37,253 137,253 92,337 92,337 192,337
22 101,076 13,644 13,644 113,644 38,135 38,135 138,135 101,293 101,293 201,293
23 108,755 12,278 12,278 112,278 38,712 38,712 138,712 110,841 110,841 210,841
24 116,818 10,563 10,563 110,563 38,934 38,934 138,934 121,006 121,006 221,006
25 125,284 8,472 8,472 108,472 38,750 38,750 138,750 131,817 131,817 231,817
26 134,173 5,973 5,973 105,973 38,102 38,102 138,102 143,303 143,303 243,303
27 143,506 3,039 3,039 103,039 36,934 36,934 136,934 155,498 155,498 255,498
28 153,307 (*) (*) (*) 35,184 35,184 135,184 168,441 168,441 268,441
29 163,597 (*) (*) (*) 32,776 32,776 132,776 182,160 182,160 282,160
30 174,402 (*) (*) (*) 29,616 29,616 129,616 196,671 196,671 296,671
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
52
<PAGE> 53
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 1,260 613 - 50,000 665 - 50,000 716 23 50,000
2 2,583 1,240 547 50,000 1,383 690 50,000 1,533 840 50,000
3 3,972 1,841 1,218 50,000 2,117 1,494 50,000 2,418 1,794 50,000
4 5,431 2,430 1,876 50,000 2,882 2,328 50,000 3,395 2,840 50,000
5 6,962 3,008 2,523 50,000 3,680 3,195 50,000 4,474 3,989 50,000
6 8,570 3,574 3,158 50,000 4,512 4,097 50,000 5,667 5,251 50,000
7 10,259 4,129 3,782 50,000 5,382 5,035 50,000 6,988 6,641 50,000
8 12,032 4,672 4,395 50,000 6,290 6,012 50,000 8,451 8,174 50,000
9 13,893 5,204 4,996 50,000 7,239 7,031 50,000 10,073 9,865 50,000
10 15,848 5,726 5,726 50,000 8,232 8,232 50,000 11,872 11,872 50,000
11 17,901 6,236 6,236 50,000 9,271 9,271 50,000 13,870 13,870 50,000
12 20,056 6,650 6,650 50,000 10,278 10,278 50,000 16,017 16,017 50,000
13 22,318 6,979 6,979 50,000 11,265 11,265 50,000 18,348 18,348 50,000
14 24,694 7,235 7,235 50,000 12,242 12,242 50,000 20,902 20,902 50,000
15 27,189 7,409 7,409 50,000 13,205 13,205 50,000 23,709 23,709 50,000
16 29,808 7,453 7,453 50,000 14,115 14,115 50,000 26,785 26,785 50,000
17 32,559 7,367 7,367 50,000 14,973 14,973 50,000 30,192 30,192 50,000
18 35,447 7,135 7,135 50,000 15,771 15,771 50,000 33,991 33,991 50,000
19 38,479 6,754 6,754 50,000 16,508 16,508 50,000 38,263 38,263 50,000
20 41,663 6,228 6,228 50,000 17,194 17,194 50,000 43,110 43,110 50,000
21 45,006 5,525 5,525 50,000 17,809 17,809 50,000 48,642 48,642 51,074
22 48,517 4,617 4,617 50,000 18,339 18,339 50,000 54,802 54,802 57,542
23 52,202 3,468 3,468 50,000 18,764 18,764 50,000 61,585 61,585 64,664
24 56,073 2,036 2,036 50,000 19,063 19,063 50,000 69,050 69,050 72,502
25 60,136 270 270 50,000 19,211 19,211 50,000 77,260 77,260 81,123
26 64,403 (*) (*) (*) 19,185 19,185 50,000 86,287 86,287 90,601
27 68,883 (*) (*) (*) 18,952 18,952 50,000 96,206 96,206 101,016
28 73,587 (*) (*) (*) 18,469 18,469 50,000 107,098 107,098 112,453
29 78,527 (*) (*) (*) 17,675 17,675 50,000 119,052 119,052 125,005
30 83,713 (*) (*) (*) 16,488 16,488 50,000 132,159 132,159 138,767
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(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 LAPSE WITHOUT VALUE.
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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
53
<PAGE> 54
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 1,260 467 - 50,000 513 - 50,000 560 - 50,000
2 2,583 908 215 50,000 1,031 338 50,000 1,159 466 50,000
3 3,972 1,291 668 50,000 1,519 895 50,000 1,768 1,144 50,000
4 5,431 1,611 1,057 50,000 1,971 1,417 50,000 2,383 1,829 50,000
5 6,962 1,861 1,376 50,000 2,378 1,893 50,000 2,998 2,513 50,000
6 8,570 2,033 1,617 50,000 2,731 2,315 50,000 3,606 3,190 50,000
7 10,259 2,119 1,772 50,000 3,018 2,671 50,000 4,200 3,854 50,000
8 12,032 2,105 1,828 50,000 3,222 2,945 50,000 4,768 4,490 50,000
9 13,893 1,979 1,771 50,000 3,326 3,118 50,000 5,293 5,086 50,000
10 15,848 1,724 1,724 50,000 3,310 3,310 50,000 5,763 5,763 50,000
11 17,901 1,326 1,326 50,000 3,154 3,154 50,000 6,158 6,158 50,000
12 20,056 769 769 50,000 2,833 2,833 50,000 6,461 6,461 50,000
13 22,318 35 35 50,000 2,321 2,321 50,000 6,649 6,649 50,000
14 24,694 (*) (*) (*) 1,585 1,585 50,000 6,694 6,694 50,000
15 27,189 (*) (*) (*) 578 578 50,000 6,556 6,556 50,000
16 29,808 (*) (*) (*) (*) (*) (*) 6,180 6,180 50,000
17 32,559 (*) (*) (*) (*) (*) (*) 5,492 5,492 50,000
18 35,447 (*) (*) (*) (*) (*) (*) 4,392 4,392 50,000
19 38,479 (*) (*) (*) (*) (*) (*) 2,752 2,752 50,000
20 41,663 (*) (*) (*) (*) (*) (*) 410 410 50,000
21 45,006 (*) (*) (*) (*) (*) (*) (*) (*) (*)
22 48,517 (*) (*) (*) (*) (*) (*) (*) (*) (*)
23 52,202 (*) (*) (*) (*) (*) (*) (*) (*) (*)
24 56,073 (*) (*) (*) (*) (*) (*) (*) (*) (*)
25 60,136 (*) (*) (*) (*) (*) (*) (*) (*) (*)
26 64,403 (*) (*) (*) (*) (*) (*) (*) (*) (*)
27 68,883 (*) (*) (*) (*) (*) (*) (*) (*) (*)
28 73,587 (*) (*) (*) (*) (*) (*) (*) (*) (*)
29 78,527 (*) (*) (*) (*) (*) (*) (*) (*) (*)
30 83,713 (*) (*) (*) (*) (*) (*) (*) (*) (*)
</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 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
54
<PAGE> 55
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 788 418 - 50,418 452 - 50,452 485 - 50,485
2 1,614 876 302 50,876 970 396 50,970 1,068 494 51,068
3 2,483 1,311 795 51,311 1,495 979 51,495 1,695 1,179 51,695
4 3,394 1,726 1,267 51,726 2,029 1,570 52,029 2,371 1,912 52,371
5 4,351 2,122 1,720 52,122 2,574 2,172 52,574 3,105 2,703 53,105
6 5,357 2,500 2,156 52,500 3,130 2,785 53,130 3,900 3,556 53,900
7 6,412 2,859 2,573 52,859 3,697 3,410 53,697 4,764 4,477 54,764
8 7,520 3,200 2,970 53,200 4,274 4,045 54,274 5,701 5,472 55,701
9 8,683 3,520 3,348 53,520 4,862 4,690 54,862 6,720 6,548 56,720
10 9,905 3,821 3,821 53,821 5,460 5,460 55,460 7,827 7,827 57,827
11 11,188 4,100 4,100 54,100 6,067 6,067 56,067 9,030 9,030 59,030
12 12,535 4,359 4,359 54,359 6,684 6,684 56,684 10,339 10,339 60,339
13 13,949 4,596 4,596 54,596 7,309 7,309 57,309 11,763 11,763 61,763
14 15,434 4,811 4,811 54,811 7,942 7,942 57,942 13,314 13,314 63,314
15 16,993 5,003 5,003 55,003 8,582 8,582 58,582 15,003 15,003 65,003
16 18,630 5,171 5,171 55,171 9,229 9,229 59,229 16,843 16,843 66,843
17 20,349 5,284 5,284 55,284 9,850 9,850 59,850 18,815 18,815 68,815
18 22,154 5,336 5,336 55,336 10,437 10,437 60,437 20,927 20,927 70,927
19 24,049 5,331 5,331 55,331 10,991 10,991 60,991 23,196 23,196 73,196
20 26,039 5,275 5,275 55,275 11,516 11,516 61,516 25,642 25,642 75,642
21 28,129 5,150 5,150 55,150 11,992 11,992 61,992 28,273 28,273 78,273
22 30,323 4,951 4,951 54,951 12,410 12,410 62,410 31,100 31,100 81,100
23 32,626 4,669 4,669 54,669 12,758 12,758 62,758 34,136 34,136 84,136
24 35,045 4,297 4,297 54,297 13,024 13,024 63,024 37,392 37,392 87,392
25 37,585 3,826 3,826 53,826 13,193 13,193 63,193 40,880 40,880 90,880
26 40,252 3,248 3,248 53,248 13,250 13,250 63,250 44,616 44,616 94,616
27 43,052 2,553 2,553 52,553 13,181 13,181 63,181 48,613 48,613 98,613
28 45,992 1,734 1,734 51,734 12,969 12,969 62,969 52,890 52,890 102,890
29 49,079 778 778 50,778 12,594 12,594 62,594 57,459 57,459 107,459
30 52,321 (*) (*) (*) 12,031 12,031 62,031 62,336 62,336 112,336
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(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 LAPSE WITHOUT VALUE.
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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
55
<PAGE> 56
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 788 352 - 50,352 382 - 50,382 413 - 50,413
2 1,614 710 136 50,710 794 220 50,794 881 308 50,881
3 2,483 1,043 527 51,043 1,203 686 51,203 1,377 861 51,377
4 3,394 1,349 890 51,349 1,607 1,148 51,607 1,900 1,441 51,900
5 4,351 1,628 1,226 51,628 2,005 1,604 52,005 2,453 2,051 52,453
6 5,357 1,875 1,531 51,875 2,394 2,049 52,394 3,033 2,689 53,033
7 6,412 2,088 1,801 52,088 2,767 2,480 52,767 3,641 3,354 53,641
8 7,520 2,263 2,034 52,263 3,121 2,891 53,121 4,274 4,045 54,274
9 8,683 2,395 2,222 52,395 3,448 3,276 53,448 4,929 4,757 54,929
10 9,905 2,479 2,479 52,479 3,743 3,743 53,743 5,603 5,603 55,603
11 11,188 2,512 2,512 52,512 3,999 3,999 53,999 6,293 6,293 56,293
12 12,535 2,490 2,490 52,490 4,210 4,210 54,210 6,996 6,996 56,996
13 13,949 2,410 2,410 52,410 4,370 4,370 54,370 7,708 7,708 57,708
14 15,434 2,268 2,268 52,268 4,471 4,471 54,471 8,426 8,426 58,426
15 16,993 2,054 2,054 52,054 4,500 4,500 54,500 9,139 9,139 59,139
16 18,630 1,763 1,763 51,763 4,448 4,448 54,448 9,839 9,839 59,839
17 20,349 1,385 1,385 51,385 4,299 4,299 54,299 10,515 10,515 60,515
18 22,154 910 910 50,910 4,037 4,037 54,037 11,149 11,149 61,149
19 24,049 323 323 50,323 3,640 3,640 53,640 11,722 11,722 61,722
20 26,039 (*) (*) (*) 3,091 3,091 53,091 12,213 12,213 62,213
21 28,129 (*) (*) (*) 2,367 2,367 52,367 12,600 12,600 62,600
22 30,323 (*) (*) (*) 1,450 1,450 51,450 12,860 12,860 62,860
23 32,626 (*) (*) (*) 319 319 50,319 12,967 12,967 62,967
24 35,045 (*) (*) (*) (*) (*) (*) 12,888 12,888 62,888
25 37,585 (*) (*) (*) (*) (*) (*) 12,584 12,584 62,584
26 40,252 (*) (*) (*) (*) (*) (*) 12,002 12,002 62,002
27 43,052 (*) (*) (*) (*) (*) (*) 11,075 11,075 61,075
28 45,992 (*) (*) (*) (*) (*) (*) 9,723 9,723 59,723
29 49,079 (*) (*) (*) (*) (*) (*) 7,858 7,858 57,858
30 52,321 (*) (*) (*) (*) (*) (*) 5,387 5,387 55,387
</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 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
56
<PAGE> 57
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 1,260 606 - 50,606 657 - 50,657 708 15 50,708
2 2,583 1,219 526 51,219 1,360 667 51,360 1,507 814 51,507
3 3,972 1,800 1,177 51,800 2,070 1,446 52,070 2,364 1,740 52,364
4 5,431 2,364 1,809 52,364 2,802 2,248 52,802 3,299 2,745 53,299
5 6,962 2,910 2,425 52,910 3,557 3,072 53,557 4,322 3,837 54,322
6 8,570 3,439 3,023 53,439 4,336 3,920 54,336 5,439 5,023 55,439
7 10,259 3,950 3,604 53,950 5,139 4,793 55,139 6,662 6,315 56,662
8 12,032 4,445 4,167 54,445 5,968 5,691 55,968 8,000 7,723 58,000
9 13,893 4,922 4,714 54,922 6,824 6,616 56,824 9,466 9,258 59,466
10 15,848 5,383 5,383 55,383 7,707 7,707 57,707 11,072 11,072 61,072
11 17,901 5,827 5,827 55,827 8,618 8,618 58,618 12,832 12,832 62,832
12 20,056 6,155 6,155 56,155 9,457 9,457 59,457 14,658 14,658 64,658
13 22,318 6,380 6,380 56,380 10,231 10,231 60,231 16,566 16,566 66,566
14 24,694 6,515 6,515 56,515 10,949 10,949 60,949 18,578 18,578 68,578
15 27,189 6,552 6,552 56,552 11,600 11,600 61,600 20,694 20,694 70,694
16 29,808 6,434 6,434 56,434 12,119 12,119 62,119 22,862 22,862 72,862
17 32,559 6,165 6,165 56,165 12,503 12,503 62,503 25,090 25,090 75,090
18 35,447 5,728 5,728 55,728 12,727 12,727 62,727 27,370 27,370 77,370
19 38,479 5,130 5,130 55,130 12,786 12,786 62,786 29,710 29,710 79,710
20 41,663 4,380 4,380 54,380 12,682 12,682 62,682 32,128 32,128 82,128
21 45,006 3,454 3,454 53,454 12,380 12,380 62,380 34,601 34,601 84,601
22 48,517 2,333 2,333 52,333 11,848 11,848 61,848 37,113 37,113 87,113
23 52,202 996 996 50,996 11,052 11,052 61,052 39,642 39,642 89,642
24 56,073 (*) (*) (*) 9,955 9,955 59,955 42,163 42,163 92,163
25 60,136 (*) (*) (*) 8,518 8,518 58,518 44,650 44,650 94,650
26 64,403 (*) (*) (*) 6,714 6,714 56,714 47,084 47,084 97,084
27 68,883 (*) (*) (*) 4,503 4,503 54,503 49,439 49,439 99,439
28 73,587 (*) (*) (*) 1,845 1,845 51,845 51,679 51,679 101,679
29 78,527 (*) (*) (*) (*) (*) (*) 53,761 53,761 103,761
30 83,713 (*) (*) (*) (*) (*) (*) 55,624 55,624 105,624
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(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 LAPSE WITHOUT VALUE.
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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
57
<PAGE> 58
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR 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 1,260 458 - 50,458 504 - 50,504 550 - 50,550
2 2,583 885 192 50,885 1,005 312 51,005 1,130 437 51,130
3 3,972 1,247 623 51,247 1,467 843 51,467 1,708 1,084 51,708
4 5,431 1,538 984 51,538 1,882 1,328 51,882 2,277 1,722 52,277
5 6,962 1,752 1,267 51,752 2,241 1,756 52,241 2,826 2,341 52,826
6 8,570 1,882 1,466 51,882 2,531 2,116 52,531 3,345 2,929 53,345
7 10,259 1,920 1,573 51,920 2,741 2,395 52,741 3,822 3,475 53,822
8 12,032 1,852 1,575 51,852 2,852 2,575 52,852 4,236 3,959 54,236
9 13,893 1,667 1,459 51,667 2,846 2,638 52,846 4,566 4,358 54,566
10 15,848 1,352 1,352 51,352 2,703 2,703 52,703 4,790 4,790 54,790
11 17,901 898 898 50,898 2,404 2,404 52,404 4,883 4,883 54,883
12 20,056 294 294 50,294 1,931 1,931 51,931 4,818 4,818 54,818
13 22,318 (*) (*) (*) 1,262 1,262 51,262 4,567 4,567 54,567
14 24,694 (*) (*) (*) 373 373 50,373 4,094 4,094 54,094
15 27,189 (*) (*) (*) (*) (*) (*) 3,355 3,355 53,355
16 29,808 (*) (*) (*) (*) (*) (*) 2,292 2,292 52,292
17 32,559 (*) (*) (*) (*) (*) (*) 836 836 50,836
18 35,447 (*) (*) (*) (*) (*) (*) (*) (*) (*)
19 38,479 (*) (*) (*) (*) (*) (*) (*) (*) (*)
20 41,663 (*) (*) (*) (*) (*) (*) (*) (*) (*)
21 45,006 (*) (*) (*) (*) (*) (*) (*) (*) (*)
22 48,517 (*) (*) (*) (*) (*) (*) (*) (*) (*)
23 52,202 (*) (*) (*) (*) (*) (*) (*) (*) (*)
24 56,073 (*) (*) (*) (*) (*) (*) (*) (*) (*)
25 60,136 (*) (*) (*) (*) (*) (*) (*) (*) (*)
26 64,403 (*) (*) (*) (*) (*) (*) (*) (*) (*)
27 68,883 (*) (*) (*) (*) (*) (*) (*) (*) (*)
28 73,587 (*) (*) (*) (*) (*) (*) (*) (*) (*)
29 78,527 (*) (*) (*) (*) (*) (*) (*) (*) (*)
30 83,713 (*) (*) (*) (*) (*) (*) (*) (*) (*)
</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 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(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 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 LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
58
<PAGE> 59
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Policy charges $ 284.8 $ 231.7 $ 823.5 $ 656.0
Life insurance premiums 51.7 51.5 180.7 153.9
Net investment income 412.6 379.2 1,229.6 1,114.6
Net realized (losses) gains on investments (2.1) 6.2 (15.9) (7.5)
Other 3.6 26.6 12.8 66.5
----------- ---------- ----------- -----------
750.6 695.2 2,230.7 1,983.5
----------- ---------- ----------- -----------
BENEFITS AND EXPENSES
Interest credited to policyholder account balances 292.4 272.4 876.9 803.6
Other benefits and claims 56.2 51.7 185.2 146.5
Policyholder dividends on participating policies 8.3 8.7 31.8 30.5
Amortization of deferred policy acquisition costs 91.6 68.6 263.7 196.1
Other operating expenses 125.2 120.2 365.7 333.5
----------- ---------- ----------- -----------
573.7 521.6 1,723.3 1,510.2
----------- ---------- ----------- -----------
Income before federal income tax expense 176.9 173.6 507.4 473.3
Federal income tax expense 50.9 58.4 157.2 158.8
----------- ---------- ----------- -----------
Net income $ 126.0 $ 115.2 $ 350.2 $ 314.5
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
59
<PAGE> 60
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions, except per share amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- --------------
<S> <C> <C>
ASSETS
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $14,805.1 in 2000; $15,377.3 in 1999) $ 14,809.8 $ 15,294.0
Equity securities (cost $113.3 in 2000; $84.9 in 1999) 129.1 92.9
Mortgage loans on real estate, net 6,113.0 5,786.3
Real estate, net 285.6 254.8
Policy loans 578.7 519.6
Other long-term investments 84.5 73.8
Short-term investments 613.3 416.0
--------------- --------------
22,614.0 22,437.4
--------------- --------------
Cash 2.0 4.8
Accrued investment income 247.8 238.6
Deferred policy acquisition costs 2,811.6 2,554.1
Other assets 358.1 305.9
Assets held in separate accounts 71,653.7 67,135.1
--------------- --------------
$ 97,687.2 $ 92,675.9
=============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims $ 21,804.4 $ 21,861.6
Other liabilities 1,158.4 914.2
Liabilities related to separate accounts 71,653.7 67,135.1
--------------- --------------
94,616.5 89,910.9
--------------- --------------
Shareholder's equity:
Capital shares, $1 par value. Authorized 5.0 million shares, issued and
outstanding 3.8 million shares 3.8 3.8
Additional paid-in capital 766.1 766.1
Retained earnings 2,271.2 2,011.0
Accumulated other comprehensive income (loss) 29.6 (15.9)
--------------- --------------
3,070.7 2,765.0
--------------- --------------
$ 97,687.2 $ 92,675.9
=============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
60
<PAGE> 61
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
----------- ------------- --------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $ 3.8 $ 914.7 $ 1,579.0 $ 275.6 $ 2,773.1
Comprehensive income:
Net income - - 314.5 - 314.5
Net unrealized losses on securities
available-for-sale arising during the - - - (238.2) (238.2)
period -------------
Total comprehensive income 76.3
-------------
Capital contribution - 26.4 87.9 23.5 137.8
Dividends to shareholder - (175.0) (11.0) - (186.0)
--------- ----------- ----------- ----------- -------------
BALANCE, SEPTEMBER 30, 1999 $ 3.8 $ 766.1 $ 1,970.4 $ 60.9 $ 2,801.2
========= =========== =========== =========== =============
BALANCE, JANUARY 1, 2000 $ 3.8 $ 766.1 $ 2,011.0 $ (15.9) $ 2,765.0
Comprehensive income:
Net income - - 350.2 - 350.2
Net unrealized gains on securities
available-for-sale arising during the - - - 45.5 45.5
period
-------------
Total comprehensive income 395.7
-------------
Dividends to shareholder - - (90.0) - (90.0)
--------- ---------- ----------- ----------- -------------
BALANCE, SEPTEMBER 30, 2000 $ 3.8 $ 766.1 $ 2,271.2 $ 29.6 $ 3,070.7
========= ========== =========== =========== =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
61
<PAGE> 62
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 350.2 $ 314.5
Adjustments to reconcile net income to net cash provided by operating activities:
Interest credited to policyholder account balances 876.9 803.6
Capitalization of deferred policy acquisition costs (586.8) (481.6)
Amortization of deferred policy acquisition costs 263.7 196.1
Amortization and depreciation (7.4) 3.3
Realized losses on investments, net 15.9 7.5
Increase in accrued investment income (9.2) (17.6)
(Increase) decrease in other assets (53.3) 38.6
Increase (decrease) in policy liabilities 0.5 (17.1)
Increase in other liabilities 269.7 39.1
Other, net 27.4 (0.6)
------------- -------------
Net cash provided by operating activities 1,147.6 885.8
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available-for-sale 2,479.2 1,681.9
Proceeds from sale of securities available-for-sale 432.3 336.1
Proceeds from repayments of mortgage loans on real estate 609.4 350.0
Proceeds from sale of real estate 2.2 5.7
Proceeds from repayments of policy loans and sale of other invested assets 17.2 23.7
Cost of securities available-for-sale acquired (2,345.8) (2,479.9)
Cost of mortgage loans on real estate acquired (950.1) (452.2)
Cost of real estate acquired (6.1) (11.1)
Short-term investments, net (197.3) (20.5)
Other, net (116.8) (84.3)
------------- -------------
Net cash used in investing activities (75.8) (650.6)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (140.0) (188.5)
Increase in investment product and universal life insurance product account balances 3,609.4 2,690.9
Decrease in investment product and universal life insurance product account balances (4,544.0) (2,719.7)
------------- -------------
Net cash used in financing activities (1,074.6) (217.3)
------------- -------------
Net (decrease) increase in cash (2.8) 17.9
Cash, beginning of period 4.8 3.4
------------- -------------
Cash, end of period $ 2.0 $ 21.3
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
62
<PAGE> 63
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2000
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Nationwide
Life Insurance Company and subsidiaries (NLIC or collectively the Company)
have been prepared in accordance with generally accepted accounting
principles, which differ from statutory accounting practices prescribed or
permitted by regulatory authorities, for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
The financial information included herein reflects all adjustments (all of
which are normal and recurring in nature) which are, in the opinion of
management, necessary for a fair presentation of financial position and
results of operations. Operating results for all periods presented are not
necessarily indicative of the results that may be expected for the full
year. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and related notes for the year ended December 31, 1999 included
in the Company's annual report on Form 10-K.
(2) COMPREHENSIVE INCOME
Comprehensive Income (Loss) includes net income as well as certain items
that are reported directly within a separate component of shareholder's
equity that bypass net income. Currently, the Company's only component of
Other Comprehensive Income (Loss) is unrealized gains (losses) on
securities available-for-sale. The related before and after federal income
tax amounts are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(in millions) SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------------------------------------------------- -------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Unrealized gains (losses) on securities
Available-for-sale arising during
the period:
Gross $ 116.0 $ (91.6) $ 86.6 $ (487.9)
Adjustment to deferred policy acquisition costs (34.9) 15.3 (25.8) 108.7
Related federal income tax (expense) benefit (28.4) 29.9 (21.3) 132.5
------------ ------------- ------------ ------------
Net 52.7 (46.4) 39.5 (246.7)
------------ ------------- ------------ ------------
Reclassification adjustment for net (gains) losses
on securities available-for-sale realized
during the period:
Gross (2.9) (2.0) 9.2 13.0
Related federal income tax expense (benefit) 1.0 0.8 (3.2) (4.5)
------------ ------------- ------------ ------------
Net (1.9) (1.2) 6.0 8.5
------------ ------------- ------------ ------------
Total Other Comprehensive Income (Loss) $ 50.8 $ (47.6) $ 45.5 $ (238.2)
============ ============= ============ ============
</TABLE>
(3) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133). FAS 133, as amended by Statement Nos. 137 and 138, is effective for fiscal
years beginning after June 15, 2000 and establishes accounting and reporting
standards for derivative instruments and for hedging activities. The Statement
also addresses contracts that contain embedded derivatives, such as certain
insurance contracts. FAS 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 Company plans to adopt this
Statement in first quarter 2001 and is currently evaluating the impact on
results of operations and financial condition.
See accompanying notes to unaudited consolidated financial statements.
63
<PAGE> 64
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
(4) SEGMENT DISCLOSURES
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 access to a wide range of investment options,
tax-deferred accumulation of savings, asset protection in the event of an
untimely death and flexible payout options including lump-sum, systematic
withdrawal or a stream of payments for life. 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, tax-deferred accumulation of savings and flexible payout options
including lump-sum, systematic withdrawal or a stream of payments for life.
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, which 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 revenues
and expenses, investments and related investment income supporting capital
not specifically allocated to its product segments, certain revenues and
expenses of its investment advisor and broker/dealer subsidiary, revenues
and expenses related to group annuity contracts sold to Nationwide employee
and agent benefit plans and all realized gains and losses on investments in
a Corporate and Other segment.
The following table summarizes the financial results of the Company's
business segments for the three months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND OTHER TOTAL
------------------------------------ --------------- --------------- --------------- ------------------------------
<S> <C> <C> <C> <C> <C>
2000
Operating revenue (1) $ 193.5 $ 325.7 $ 187.5 $ 46.0 $ 752.7
Benefits and expenses 105.5 276.4 148.4 43.4 573.7
------------- ------------- ------------- ------------ ----------
Operating income before federal
income tax expense 88.0 49.3 39.1 2.6 179.0
Net realized losses on investments - - - (2.1) (2.1)
------------- ------------- ------------- ------------ ----------
Consolidated income before
federal income tax expense $ 88.0 $ 49.3 $ 39.1 $ 0.5 $ 176.9
============= ============= ============= ============ ===========
1999
Operating revenue (1) $ 159.4 $ 292.1 $ 162.5 $ 75.0 $ 689.0
Benefits and expenses 86.3 248.1 130.7 56.5 521.6
------------- ------------- ------------- ------------ ----------
Operating income before federal
income tax expense 73.1 44.0 31.8 18.5 167.4
Net realized gains on investments - - - 6.2 6.2
------------- ------------- ------------- ------------ ----------
Consolidated income before
federal income tax expense $ 73.1 $ 44.0 $ 31.8 $ 24.7 $ 173.6
============= ============= ============= ============ ===========
</TABLE>
---------------
(1) Excludes net realized gains and losses on investments.
See accompanying notes to unaudited consolidated financial statements.
64
<PAGE> 65
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements, Continued
The following table summarizes the allocation of assets to and the financial
results of the Company's business segments for the nine months ended September
30, 2000 and 1999.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND OTHER TOTAL
------------------------------------ --------------- --------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
2000
Operating revenue (1) $ 569.0 $ 975.5 $ 549.7 $ 152.4 $ 2,246.6
Benefits and expenses 311.5 833.8 440.8 137.2 1,723.3
------------ ----------- ---------- ------------ -----------
Operating income before federal
income taxes 257.5 141.7 108.9 15.2 523.3
------------ ----------- ---------- ------------ -----------
Income (loss) before federal
income taxes $ 257.5 $ 141.7 $ 108.9 $ (0.7) $ 507.4
============ =========== ========== ============= ===========
Assets as of period end $ 66,214.3 $ 17,226.3 $ 7,936.0 $ 6,310.6 $ 97,687.2
============ =========== ========== ============= ===========
1999
Operating revenue (1) $ 457.7 $ 866.0 $ 466.9 $ 200.4 $ 1,991.0
Benefits and expenses 247.4 733.2 376.8 152.8 1,510.2
------------ ----------- ---------- ------------ -----------
Operating income before federal
income taxes 210.3 132.8 90.1 47.6 480.8
Net realized losses on investments - - - (7.5) (7.5)
------------ ----------- ---------- ------------ -----------
Income before federal
income taxes $ 210.3 $ 132.8 $ 90.1 $ 40.1 $ 473.3
============ =========== ========== ============= ===========
Assets as of period end $ 53,475.8 $ 16,682.4 $ 6,018.2 $ 6,126.3 $ 82,302.7
============ =========== ========== ============= ===========
</TABLE>
-----------------
(1) Excludes net realized gains and losses on investments.
(5) CONTINGENCIES
On October 29, 1998, the Company 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 the Company and the
other named Company affiliates which were used to fund certain tax-deferred
retirement plans. The amended complaint seeks unspecified compensatory and
punitive damages. No class has been certified. On June 11, 1999, the
Company and the other named defendants filed a motion to dismiss the
amended complaint. On March 8, 2000, the court denied the motion to dismiss
the amended complaint filed by the Company and other named defendants. The
Company intends to defend this lawsuit vigorously.
See accompanying notes to unaudited consolidated financial statements.
65
<PAGE> 66
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1999 and
1998, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Columbus, Ohio
January 28, 2000
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions, except per share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------------
Assets 1999 1998
------ --------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $15,294.0 $14,245.1
Equity securities 92.9 127.2
Mortgage loans on real estate, net 5,786.3 5,328.4
Real estate, net 254.8 243.6
Policy loans 519.6 464.3
Other long-term investments 73.8 44.0
Short-term investments 416.0 289.1
--------- ---------
22,437.4 20,741.7
--------- ---------
Cash 4.8 3.4
Accrued investment income 238.6 218.7
Deferred policy acquisition costs 2,554.1 2,022.2
Other assets 305.9 420.3
Assets held in separate accounts 67,135.1 50,935.8
--------- ---------
$92,675.9 $74,342.1
========= =========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $21,861.6 $19,767.1
Other liabilities 914.2 866.1
Liabilities related to separate accounts 67,135.1 50,935.8
--------- ---------
89,910.9 71,569.0
--------- ---------
Commitments and contingencies (notes 8 and 13)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 766.1 914.7
Retained earnings 2,011.0 1,579.0
Accumulated other comprehensive income (15.9) 275.6
--------- ---------
2,765.0 2,773.1
--------- ---------
$92,675.9 $74,342.1
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Policy charges $ 895.5 $ 698.9 $ 545.2
Life insurance premiums 220.8 200.0 205.4
Net investment income 1,520.8 1,481.6 1,409.2
Realized (losses) gains on investments (11.6) 28.4 11.1
Other 66.1 66.8 46.5
-------- -------- --------
2,691.6 2,475.7 2,217.4
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 1,096.3 1,069.0 1,016.6
Other benefits and claims 210.4 175.8 178.2
Policyholder dividends on participating policies 42.4 39.6 40.6
Amortization of deferred policy acquisition costs 272.6 214.5 167.2
Other operating expenses 463.4 419.7 384.9
-------- -------- --------
2,085.1 1,918.6 1,787.5
-------- -------- --------
Income before federal income tax expense 606.5 557.1 429.9
Federal income tax expense 201.4 190.4 150.2
-------- -------- --------
Net income $ 405.1 $ 366.7 $ 279.7
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1999, 1998 and 1997
(in millions)
<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, 1996 $ 3.8 $ 527.9 $1,432.6 $173.6 $2,137.9
Comprehensive income:
Net income -- -- 279.7 -- 279.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 73.5 73.5
--------
Total comprehensive income 353.2
--------
Capital contribution -- 836.8 -- -- 836.8
--------
Dividend to shareholder -- (450.0) (400.0) -- (850.0)
------ -------- -------- ------ --------
December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9
Comprehensive income:
Net income -- -- 366.7 -- 366.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 28.5 28.5
--------
Total comprehensive income 395.2
--------
Dividend to shareholder -- -- (100.0) -- (100.0)
------ -------- -------- ------ --------
December 31, 1998 3.8 914.7 1,579.0 275.6 2,773.1
Comprehensive income:
Net income -- -- 405.1 -- 405.1
Net unrealized losses on securities
available-for-sale arising during
the year -- -- -- (315.0) (315.0)
--------
Total comprehensive income 90.1
--------
Capital contribution -- 26.4 87.9 23.5 137.8
--------
Dividends to shareholder -- (175.0) (61.0) -- (236.0)
------ -------- -------- ------ --------
December 31, 1999 $ 3.8 $ 766.1 $2,011.0 $(15.9) $2,765.0
====== ======== ======== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 405.1 $ 366.7 $ 279.7
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,096.3 1,069.0 1,016.6
Capitalization of deferred policy acquisition costs (637.0) (584.2) (487.9)
Amortization of deferred policy acquisition costs 272.6 214.5 167.2
Amortization and depreciation 2.4 (8.5) (2.0)
Realized (gains) losses on invested assets, net 11.6 (28.4) (11.1)
Increase in accrued investment income (7.9) (8.2) (0.3)
Decrease (increase) in other assets 122.9 16.4 (12.7)
Decrease in policy liabilities (20.9) (8.3) (23.1)
Increase (decrease) in other liabilities 149.7 (34.8) 230.6
Other, net (8.6) (11.3) (10.9)
--------- --------- ---------
Net cash provided by operating activities 1,386.2 982.9 1,146.1
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 2,307.9 1,557.0 993.4
Proceeds from sale of securities available-for-sale 513.1 610.5 574.5
Proceeds from repayments of mortgage loans on real estate 696.7 678.2 437.3
Proceeds from sale of real estate 5.7 103.8 34.8
Proceeds from repayments of policy loans and sale of other invested assets 40.9 23.6 22.7
Cost of securities available-for-sale acquired (3,724.9) (3,182.8) (2,828.1)
Cost of mortgage loans on real estate acquired (971.4) (829.1) (752.2)
Cost of real estate acquired (14.2) (0.8) (24.9)
Short-term investments, net (27.5) 69.3 (354.8)
Other, net (110.9) (88.4) (62.5)
--------- --------- ---------
Net cash used in investing activities (1,284.6) (1,058.7) (1,959.8)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions -- -- 836.8
Cash dividends paid (188.5) (100.0) --
Increase in investment product and universal life insurance
product account balances 3,799.4 2,682.1 2,488.5
Decrease in investment product and universal life insurance
product account balances (3,711.1) (2,678.5) (2,379.8)
--------- --------- ---------
Net cash used in financing activities (100.2) (96.4) 945.5
--------- --------- ---------
Net increase (decrease) in cash 1.4 (172.2) 131.8
Cash, beginning of year 3.4 175.6 43.8
--------- --------- ---------
Cash, end of year $ 4.8 $ 3.4 $ 175.6
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Organization and Description of Business
Nationwide Life Insurance Company (NLIC) is a leading provider of
long-term savings and retirement products in the United States and is a
wholly owned subsidiary of Nationwide Financial Services, Inc. (NFS).
The Company develops and sells a diverse range of products including
variable annuities, fixed annuities and life insurance as well as
investment management and administrative services. NLIC markets its
products through a broad network of distribution channels, including
independent broker/dealers, national and regional brokerage firms,
financial institutions, pension plan administrators, life insurance
specialists, Nationwide Retirement Solutions sales representatives, and
Nationwide agents.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc., and
Nationwide Investment Services Corporation. NLIC and its subsidiaries
are collectively referred to as "the Company."
(2) Summary of Significant Accounting Policies
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Consolidation Policy
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(b) Valuation of Investments and Related Gains and Losses
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of accumulated other comprehensive income in
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, 1999 or 1998.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
(c) Revenues and Benefits
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual and group
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 whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(d) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses
on fixed maturity securities available-for-sale as described in
note 2(b). For traditional life insurance products, these deferred
policy acquisition costs are predominantly being amortized with
interest over the premium paying period of the related policies in
proportion to the ratio of actual annual premium revenue to the
anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for
computing liabilities for future policy benefits.
(e) Separate Accounts
Separate account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $915.4 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the separate accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges. The average interest rate credited on investment product
policy reserves was 5.6%, 6.0% and 6.1% for the years ended
December 31, 1999, 1998 and 1997, respectively.
Future policy benefits for traditional life insurance policies
have been calculated by the net level premium method using
interest rates varying from 6.0% to 10.5% and estimates of
mortality, morbidity, investment yields and withdrawals which were
used or which were being experienced at the time the policies were
issued, rather than the assumptions prescribed by state regulatory
authorities.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
Participating business represents approximately 29% in 1999 (40%
in 1998 and 50% in 1997) of the Company's life insurance in force,
69% in 1999 (74% in 1998 and 77% in 1997) of the number of life
insurance policies in force, and 13% in 1999 (14% in 1998 and 27%
in 1997) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) Federal Income Tax
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) Reinsurance Ceded
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis.
(j) Recently Issued Accounting Pronouncements
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The
SOP, which has been adopted prospectively as of January 1, 1999,
requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software.
Prior to the adoption of SOP 98-1, the Company expensed internal
use software related costs as incurred. The effect of adopting the
SOP was to increase net income for 1999 by $8.3 million.
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging
activities. Contracts that contain embedded derivatives, such as
certain investment and insurance contracts, are also addressed by
the Statement. FAS 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. In
July 1999 the FASB issued Statement No. 137 which delayed the
effective date of FAS 133 to fiscal years beginning after June 15,
2000. The Company plans to adopt this Statement in first quarter
2001 and is currently evaluating the impact on results of
operations and financial condition.
(k) Reclassification
Certain items in the 1998 and 1997 consolidated financial
statements have been reclassified to conform to the 1999
presentation.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) Investments
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1999 and
1998 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions) cost gains losses fair value
--------- ------ ------- ---------
<S> <C> <C> <C> <C>
December 31, 1999:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 428.4 $ 23.4 $ (2.4) $ 449.4
Obligations of states and political subdivisions 0.8 -- -- 0.8
Debt securities issued by foreign governments 110.6 0.6 (0.8) 110.4
Corporate securities 11,414.7 118.9 (218.6) 11,315.0
Mortgage-backed securities 3,422.8 25.8 (30.2) 3,418.4
--------- ------ ------- ---------
Total fixed maturity securities 15,377.3 168.7 (252.0) 15,294.0
Equity securities 84.9 12.4 (4.4) 92.9
--------- ------ ------- ---------
$15,462.2 $181.1 $(256.4) $15,386.9
========= ====== ======= =========
December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 106.5 4.5 -- 111.0
Corporate securities 9,899.6 423.2 (18.7) 10,304.1
Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5
--------- ------ ------- ---------
Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1
Equity securities 110.4 18.3 (1.5) 127.2
--------- ------ ------- ---------
$13,831.7 $563.2 $ (22.6) $14,372.3
========= ====== ======= =========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1999, 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
(in millions) cost fair value
--------- ---------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 847.0 $ 847.0
Due after one year through five years 5,240.5 5,205.7
Due after five years through ten years 5,046.9 5,005.2
Due after ten years 4,242.9 4,236.1
--------- ---------
$15,377.3 $15,294.0
========= =========
</TABLE>
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The components of unrealized (losses) gains on securities
available-for-sale, net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998
------ -------
<S> <C> <C>
Gross unrealized (losses) gains $(75.3) $ 540.6
Adjustment to deferred policy acquisition costs 50.9 (116.6)
Deferred federal income tax 8.5 (148.4)
------ -------
$(15.9) $ 275.6
====== =======
</TABLE>
An analysis of the change in gross unrealized (losses) gains on
securities available-for-sale for the years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ----- ------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(607.1) $52.6 $137.5
Equity securities (8.8) 4.2 (2.7)
------- ----- ------
$(615.9) $56.8 $134.8
======= ===== ======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1999,
1998 and 1997 were $513.1 million, $610.5 million and $574.5 million,
respectively. During 1999, gross gains of $10.4 million ($9.0 million
and $9.9 million in 1998 and 1997, respectively) and gross losses of
$28.0 million ($7.6 million and $18.0 million in 1998 and 1997,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
The Company had $15.6 million of real estate investments at December
31, 1999 that were non-income producing the preceding twelve months.
During 1998 the Company had investments of $42.4 million that were
non-income producing, which consisted of $32.7 million of securities
available-for-sale and $9.7 million of real estate.
Real estate is presented at cost less accumulated depreciation of $24.8
million as of December 31, 1999 ($21.5 million as of December 31, 1998)
and valuation allowances of $5.5 million as of December 31, 1999 ($5.4
million as of December 31, 1998).
The recorded investment of mortgage loans on real estate considered to
be impaired was $3.7 million as of both December 31, 1999 and 1998. No
valuation allowance has been recorded for these loans as of December
31, 1999 or 1998. During 1999, the average recorded investment in
impaired mortgage loans on real estate was approximately $3.7 million
($9.1 million in 1998) and there was no interest income recognized on
those loans. Interest income recognized on impaired loans was $0.3
million in 1998 which is equal to interest income recognized using a
cash-basis method of income recognition.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Allowance, beginning of year $42.4 $42.5 $51.0
Additions (reductions) charged to operations 0.7 (0.1) (1.2)
Direct write-downs charged against the allowance -- -- (7.3)
Allowance on acquired mortgage loans 1.3 -- --
----- ----- -----
Allowance, end of year $44.4 $42.4 $42.5
===== ===== =====
</TABLE>
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $1,031.3 $ 982.5 $ 911.6
Equity securities 2.5 0.8 0.8
Mortgage loans on real estate 460.4 458.9 457.7
Real estate 28.8 40.4 42.9
Short-term investments 18.6 17.8 22.7
Other 26.5 30.7 21.0
-------- -------- --------
Total investment income 1,568.1 1,531.1 1,456.7
Less investment expenses 47.3 49.5 47.5
-------- -------- --------
Net investment income $1,520.8 $1,481.6 $1,409.2
======== ======== ========
</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>
(in millions) 1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(25.0) $(0.7) $ 3.6
Equity securities 7.4 2.1 2.7
Mortgage loans on real estate (0.6) 3.9 1.6
Real estate and other 6.6 23.1 3.2
------ ----- -----
$(11.6) $28.4 $11.1
====== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $9.1 million as of
December 31, 1999 and $6.5 million as of December 31, 1998 were on
deposit with various regulatory agencies as required by law.
(4) Derivative Financial Instruments
The Company uses derivative financial instruments, principally interest
rate swaps, interest rate futures contracts and foreign currency swaps,
to manage market risk exposures associated with changes in interest
rates and foreign currency exchange rates. Provided they meet specific
criteria, interest rate swaps and futures are considered hedges and are
accounted for under the accrual method and deferral method,
respectively. The Company has no significant derivative positions that
are not considered hedges.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Interest rate swaps are primarily used to convert specific investment
securities and interest bearing policy liabilities from a fixed-rate to
a floating-rate basis. Amounts receivable or payable under these
agreements are recognized as an adjustment to net investment income or
interest credited to policyholder account balances consistent with the
nature of the hedged item. The changes in fair value of the interest
rate swap agreements are not recognized on the balance sheet, except
for interest rate swaps designated as hedges of fixed maturity
securities available-for-sale, for which changes in fair values are
reported in accumulated other comprehensive income.
Interest rate futures contracts are primarily used to hedge the risk of
adverse interest rate changes related to the Company's mortgage loan
commitments and anticipated purchases of fixed rate investments. Gains
and losses are deferred and, at the time of closing, reflected as an
adjustment to the carrying value of the related mortgage loans or
investments. The carrying value adjustments are amortized into net
investment income over the life of the related mortgage loans or
investments.
Foreign currency swaps are used to convert cash flows from specific
policy liabilities and investments denominated in foreign currencies
into U.S. dollars at specified exchange rates. Gains and losses on
foreign currency swaps are recorded in earnings based on the related
spot foreign exchange rate at the end of the reporting period. Gains
and losses on these contracts offset those recorded as a result of
translating the hedged foreign currency denominated liabilities and
investments to U.S. dollars.
The following table summarizes the notional amount of derivative
financial instruments classified as hedges outstanding as of December
31, 1999. Prior to 1999 the Company's activities in derivatives were
not significant.
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
Interest rate swaps
Pay fixed/receive variable rate swaps hedging investments $362.7
Pay variable/receive fixed rate swaps hedging investments $ 28.5
Other contracts hedging investments $ 19.1
Pay variable/receive fixed rate swaps hedging liabilities $577.2
Foreign currency swaps
Hedging foreign currency denominated investments $ 14.8
Hedging foreign currency denominated liabilities $577.2
Interest rate futures contracts $781.6
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(5) Federal Income Tax
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Fixed maturity securities $ 5.3 $ --
Future policy benefits 149.5 207.7
Liabilities in separate accounts 373.6 319.9
Mortgage loans on real estate and real estate 18.5 17.5
Other assets and other liabilities 51.1 58.9
----- ------
Total gross deferred tax assets 598.0 604.0
Less valuation allowance (7.0) (7.0)
----- ------
Net deferred tax assets 591.0 597.0
----- ------
Deferred tax liabilities:
Deferred policy acquisition costs 724.4 568.7
Fixed maturity securities -- 212.2
Deferred tax on realized investment gains 34.7 34.8
Equity securities and other long-term investments 10.8 9.6
Other 26.5 21.6
------ ------
Total gross deferred tax liabilities 796.4 846.9
------ ------
Net deferred tax liability $205.4 $249.9
====== ======
</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. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1999, 1998 and 1997.
The Company's current federal income tax liability was $104.7 million
and $72.8 million as of December 31, 1999 and 1998, respectively.
Federal income tax expense for the years ended December 31 was as
follows:
(in millions) 1999 1998 1997
------ ------ ------
Currently payable $ 53.6 $186.1 $121.7
Deferred tax expense 147.8 4.3 28.5
------ ------ ------
$201.4 $190.4 $150.2
====== ====== ======
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1999,
1998 and 1997 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
(in millions) Amount % Amount % Amount %
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $212.3 35.0 $195.0 35.0 $150.5 35.0
Tax exempt interest and dividends
received deduction (7.3) (1.2) (4.9) (0.9) -- --
Income tax credits (4.3) (0.7) -- -- -- --
Other, net 0.7 0.1 0.3 0.1 (0.3) (0.1)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $201.4 33.2 $190.4 34.2 $150.2 34.9
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $29.8 million, $173.4 million and
$91.8 million during the years ended December 31, 1999, 1998 and 1997,
respectively.
(6) Comprehensive Income
Comprehensive Income includes net income as well as certain items that
are reported directly within separate components of shareholder's
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>
(in millions) 1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Unrealized gains (losses) on securities available-for-sale
arising during the period:
Gross $(665.3) $ 58.2 $141.1
Adjustment to deferred policy acquisition costs 167.5 (12.9) (21.8)
Related federal income tax (expense) benefit 171.4 (15.9) (41.7)
------- ------ ------
Net (326.4) 29.4 77.6
------- ------ ------
Reclassification adjustment for net (gains) losses on
securities available-for-sale realized during the
period:
Gross 17.6 (1.4) (6.3)
Related federal income tax expense (benefit) (6.2) 0.5 2.2
------- ------ ------
Net 11.4 (0.9) (4.1)
------- ------ ------
Total Other Comprehensive Income $(315.0) $ 28.5 $ 73.5
======= ====== ======
</TABLE>
(7) 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.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices. The carrying amount and fair value for fixed
maturity and equity securities exclude the fair value of
derivatives contracts designated as hedges of fixed maturity and
equity securities.
Mortgage loans on real estate, net: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which 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.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Policy reserves on life insurance contracts: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
Commitments to extend credit: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 8.
Futures contracts: The fair value for futures contracts is based
on quoted market prices.
Interest rate and foreign currency swaps: The fair value for
interest rate and foreign currency swaps are calculated with
pricing models using current rate assumptions.
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>
1999 1998
------------------------ -------------------------
Carrying Estimated Carrying Estimated
(in millions) amount fair value amount fair value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $15,294.0 $15,294.0 $14,245.1 $14,245.1
Equity securities 92.9 92.9 128.5 128.5
Mortgage loans on real estate, net 5,786.3 5,745.5 5,328.4 5,527.6
Policy loans 519.6 519.6 464.3 464.3
Short-term investments 416.0 416.0 289.1 289.1
Cash 4.8 4.8 3.4 3.4
Assets held in separate accounts 67,135.1 67,135.1 50,935.8 50,935.8
Liabilities:
Investment contracts (16,977.7) (16,428.6) (15,468.7) (15,158.6)
Policy reserves on life insurance contracts (4,883.9) (4,607.9) (3,914.0) (3,768.9)
Liabilities related to separate accounts (67,135.1) (66,318.7) (50,935.8) (49,926.5)
Derivative financial instruments:
Interest rate swaps hedging assets 4.3 4.3 - -
Interest rate swaps hedging liabilities - (24.2) - -
Foreign currency swaps (11.8) (11.8) - -
Futures contracts 1.3 1.3 (1.3) (1.3)
</TABLE>
(8) 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, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Interest Rate Risk: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
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 offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
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 and derivative financial instruments. These
instruments involve, to varying degrees, elements of credit risk in
excess of amounts recognized on the consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $216.2 million
extending into 2000 were outstanding as of December 31, 1999. The
Company also had $28.0 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1999.
Notional amounts of derivative financial instruments, primarily
interest rate swaps, interest rate futures contracts and foreign
currency swaps, significantly exceed the credit risk associated with
these instruments and represent contractual balances on which
calculations of amounts to be exchanged are based. Credit exposure is
limited to the sum of the aggregate fair value of positions that have
become favorable to NLIC, including accrued interest receivable due
from counterparties. Potential credit losses are minimized through
careful evaluation of counterparty credit standing, selection of
counterparties from a limited group of high quality institutions,
collateral agreements and other contract provisions. At December 31,
1999, NLIC's credit risk from these derivative financial instruments
was $6.1 million.
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 23% (22% in 1998) in any geographic area and no more than 2% (2%
in 1998) with any one borrower as of December 31, 1999. As of December
31, 1999, 39% (42% in 1998) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Reinsurance: The Company has entered into a reinsurance contract to
cede a portion of its general account individual annuity business to
The Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $143.6 million and $187.9 million as of December 31,
1999 and 1998, respectively. The contract is immaterial to the
Company's results of operations. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder.
Under the terms of the contract, Franklin has established a trust as
collateral for the recoveries. The trust assets are invested in
investment grade securities, the market value of which must at all
times be greater than or equal to 102% of the reinsured reserves.
(9) 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.
Pension cost (benefit) charged to operations by the Company during the
years ended December 31, 1999, 1998 and 1997 were $(8.3) million, $2.0
million and $7.5 million, respectively. The Company has recorded a
prepaid pension asset of $13.3 million and $5.0 million as of December
31, 1999 and 1998, 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,
1999 and 1998 was $49.6 million and $40.1 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1999, 1998 and
1997 was $4.9 million, $4.1 million and $3.0 million, respectively.
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated 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, 1999 and 1998 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------ -----------------------
(in millions) 1999 1998 1999 1998
--------------------------------------------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,185.0 $2,033.8 $ 270.1 $ 237.9
Service cost 80.0 87.6 14.2 9.8
Interest cost 109.9 123.4 17.6 15.4
Actuarial (gain) loss (95.0) 123.2 (64.4) 15.6
Plan settlement in 1999/curtailment in 1998 (396.1) (107.2) -- --
Benefits paid (72.4) (75.8) (11.0) (8.6)
Acquired companies -- -- 13.3 --
-------- -------- ------- -------
Benefit obligation at end of year 1,811.4 2,185.0 239.8 270.1
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 2,541.9 2,212.9 77.9 69.2
Actual return on plan assets 161.8 300.7 3.5 5.0
Employer contribution 12.4 104.1 20.9 12.1
Plan settlement (396.1) -- -- --
Benefits paid (72.4) (75.8) (11.0) (8.4)
-------- -------- ------- -------
Fair value of plan assets at end of year 2,247.6 2,541.9 91.3 77.9
-------- -------- ------- -------
Funded status 436.2 356.9 (148.5) (192.2)
Unrecognized prior service cost 28.2 31.5 -- --
Unrecognized net (gains) losses (402.0) (345.7) (46.7) 16.0
Unrecognized net (asset) obligation at transition (7.7) (11.0) 1.1 1.3
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ 54.7 $ 31.7 $(194.1) $(174.9)
======== ======== ======= =======
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- -----------------------
1999 1998 1999 1998
---- ---- ------- ------
<S> <C> <C>
Weighted average discount rate 7.00% 5.50% 7.80% 6.65%
Rate of increase in future compensation levels 5.25% 3.75% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 15.00%
Ultimate rate -- -- 5.50% 8.00%
Uniform declining period -- -- 5 Years 15 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
-------------------------------------------------------------------------------- ----------- ------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 80.0 $ 87.6 $ 77.3
Interest cost on projected benefit obligation 109.9 123.4 118.6
Expected return on plan assets (160.3) (159.0) (139.0)
Recognized gains (9.1) (3.8) --
Amortization of prior service cost 3.2 3.2 3.2
Amortization of unrecognized transition obligation (asset) (1.4) 4.2 4.2
------- ------- --------
$ 22.3 $ 55.6 $ 64.3
======= ======= ========
</TABLE>
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with Nationwide Insurance and employees of WSC ended
participation in the plan. A curtailment gain of $67.1 million resulted
(consisting of a $107.2 million reduction in the projected benefit
obligation, net of the write-off of the $40.1 million remaining
unamortized transition obligation related to WSC). During 1999, the
plan transferred assets to settle its obligation related to WSC
employees . A settlement gain of $32.9 million was recognized.
Basis for measurements, net periodic pension cost for the pension plan:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Weighted average discount rate 6.08% 6.00% 6.50%
Rate of increase in future compensation levels 4.33% 4.25% 4.75%
Expected long-term rate of return on plan assets 7.33% 7.25% 7.25%
</TABLE>
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $14.2 $ 9.8 $ 7.0
Interest cost on accumulated postretirement benefit obligation 17.6 15.4 14.0
Actual return on plan assets (3.5) (5.0) (3.6)
Amortization of unrecognized transition obligation of affiliates 0.6 0.2 0.2
Net amortization and deferral (1.8) 1.2 (0.5)
----- ----- -----
$27.1 $21.6 $17.1
===== ===== =====
</TABLE>
Actuarial assumptions used for the measurement of the NPPBC for the
postretirement benefit plan for 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Discount rate 6.65% 6.70% 7.25%
Long term rate of return on plan
assets, net of tax 7.15% 5.83% 5.89%
Assumed health care cost trend rate:
Initial rate 15.00% 12.00% 11.00%
Ultimate rate 5.50% 6.00% 6.00%
Uniform declining period 5 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, 1999 and have no impact
on the NPPBC for the year ended December 31, 1999.
(10) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
and Dividend Restrictions
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
The statutory capital and surplus of NLIC as of December 31, 1999, 1998
and 1997 was $1.35 billion, $1.32 billion and $1.13 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1999, 1998 and 1997 was $276.2 million, $171.0 million and
$111.7 million, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1999
$40.2 million of dividends could be paid by NLIC without prior
approval.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(11) Transactions With Affiliates
During second quarter 1999 the Company entered into a modified
coinsurance arrangement to reinsure the 1999 operating results of an
affiliated company, Employers Life Insurance Company of Wausau (ELOW)
retroactive to January 1, 1999. In September 1999, NFS acquired ELOW
for $120.8 million and immediately merged ELOW into NLIC terminating
the modified coinsurance arrangement. Because ELOW was an affiliate,
the Company accounted for the merger similar to poolings-of-interests;
however, prior period financial statements were not restated due to
immateriality. The reinsurance and merger combined contributed $1.46
million to year to date net income.
The Company has a reinsurance agreement with NMIC whereby all of the
Company's accident and health business is ceded to NMIC on a modified
coinsurance basis. The agreement covers individual accident and health
business for all periods presented and group and franchise accident and
health business since July 1, 1999. Either party may terminate the
agreement on January 1 of any year with prior notice. Prior to July 1,
1999 group and franchise accident and health business and a block of
group life insurance policies were ceded to ELOW under a modified
coinsurance agreement. Under a modified coinsurance agreement, invested
assets are retained by the ceding company and investment earnings are
paid to the reinsurer. Under the terms of the Company's agreements, the
investment risk associated with changes in interest rates is borne by
the reinsurer. Risk of asset default is retained by the Company,
although a fee is paid to the Company for the retention of such risk.
The ceding of risk does not discharge the original insurer from its
primary obligation to the policyholder. The Company believes that the
terms of the modified coinsurance agreements are consistent in all
material respects with what the Company could have obtained with
unaffiliated parties. Revenues ceded to NMIC and ELOW for the years
ended December 31, 1999, 1998 and 1997 were $193.0 million, $216.9
million, and $315.3 million, respectively, while benefits, claims and
expenses ceded were $216.9 million, $259.3 million, and $326.6 million,
respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by such agreement are subject to
allocation among NMIC and such subsidiaries. Measures used to allocate
expenses among companies include individual employee estimates of time
spent, special cost studies, salary expense, commission expense and
other methods agreed to by the participating companies that are within
industry guidelines and practices. In addition, beginning in 1999
Nationwide Services Company, a subsidiary of NMIC, provides computer,
telephone, mail, employee benefits administration, and other services
to NMIC and certain of its direct and indirect subsidiaries, including
the Company, based on specified rates for units of service consumed.
For the years ended December 31, 1999, 1998 and 1997, the Company made
payments to NMIC and Nationwide Services Company totaling $124.1
million, $95.0 million, and $85.8 million, respectively. In addition,
the Company does not believe that expenses recognized under these
agreements are materially different than expenses that would have been
recognized had the Company operated on a stand-alone basis.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1999, 1998 and 1997, the
Company made lease payments to NMIC and its subsidiaries of $9.9
million, $8.0 million and $8.4 million, respectively.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1999 and
1998 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $411.7 million and $248.4 million as
of December 31, 1999 and 1998, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
As part of certain restructuring activities that occurred prior to the
March 1997 IPO, the Company paid a dividend valued at $485.7 million to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of ELOW, National Casualty Company (NCC) and
West Coast Life Insurance Company (WCLIC). Also, on February 24, 1997,
the Company paid a dividend to NFS, and NFS paid an equivalent dividend
to Nationwide Corp., consisting of securities having an aggregate fair
value of $850.0 million. The Company recognized a gain of $14.4 million
on the transfer of securities.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1999 were $56.0
million, $60.0 million and $66.1 million, respectively.
(12) Bank Lines of Credit
NFS, NLIC and NMIC are parties to a $600.0 million revolving credit
facility which provides for a $600.0 million loan over a five year term
on a fully revolving basis with a group of national financial
institutions. The credit facility provides for several and not joint
liability with respect to any amount drawn by any party. NFS, NLIC and
NMIC pay facility and usage fees to the financial institutions to
maintain the revolving credit facility. As of December 31, 1999 the
Company had no amounts outstanding under the agreement.
(13) Contingencies
On October 29, 1998, the Company 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 the Company and the other named Company affiliates which were
used to fund certain tax-deferred retirement plans. The amended
complaint seeks unspecified compensatory and punitive damages. No class
has been certified. On June 11, 1999, the Company and the other named
defendants filed a motion to dismiss the amended complaint. On March 8,
2000, the court denied the motion to dismiss the amended complaint
filed by the Company and other named defendants. The Company intends to
defend this lawsuit vigorously.
(14) 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.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The Variable Annuities segment consists of annuity contracts that
provide the customer with access to a wide range of investment options,
tax-deferred accumulation of savings, asset protection in the event of
an untimely death, and flexible payout options including a lump sum,
systematic withdrawal or a stream of payments for life. 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, tax-deferred accumulation of savings, and flexible
payout options including a lump sum, systematic withdrawal or a stream
of payments for life. 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,
revenues and expenses of its investment advisor subsidiary, revenues
and expenses related to group annuity contracts sold to Nationwide
Insurance employee and agent benefit plans and all realized gains and
losses on investments in a Corporate and Other segment.
During 1999 the Company revised the allocation of net investment income
among its Life Insurance and Corporate and Other segments. Also,
certain amounts previously reported as other income were reclassified
to operating expense. Amounts reported for prior periods have been
restated to reflect these changes.
The following table summarizes the financial results of the Company's
business segments for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions) Annuities Annuities Insurance and Other Total
------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1999:
Net investment income (1) $ (41.5) $ 1,134.5 $ 253.1 $ 174.7 $ 1,520.8
Other operating revenue 668.2 43.4 393.0 77.8 1,182.4
--------- --------- -------- -------- ---------
Total operating revenue (2) 626.7 1,177.9 646.1 252.5 2,703.2
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 837.5 130.5 128.3 1,096.3
Amortization of deferred policy
acquisition costs 162.8 49.7 60.1 -- 272.6
Other benefits and expenses 173.6 113.5 334.7 94.4 716.2
--------- --------- -------- -------- ---------
Total expenses 336.4 1,000.7 525.3 222.7 2,085.1
--------- --------- -------- -------- ---------
Operating income before
federal income tax 290.3 177.2 120.8 29.8 618.1
Realized losses on investments -- -- -- (11.6) (11.6)
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 290.3 $ 177.2 $ 120.8 $ 18.2 $ 606.5
========= ========= ======== ======== =========
Assets as of year end $62,599.7 $17,134.8 $6,616.7 $6,324.7 $92,675.9
========= ========= ======== ======== =========
</TABLE>
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions) Annuities Annuities Insurance and Other Total
------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (31.3) $ 1,116.6 $ 225.6 $ 170.7 $ 1,481.6
Other operating revenue 532.9 35.7 318.5 78.6 965.7
--------- --------- -------- -------- ---------
Total operating revenue (2) 501.6 1,152.3 544.1 249.3 2,447.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 828.6 115.4 125.0 1,069.0
Amortization of deferred policy
acquisition costs 123.9 44.2 46.4 -- 214.5
Other benefits and expenses 159.3 104.2 293.5 78.1 635.1
--------- --------- -------- -------- ---------
Total expenses 283.2 977.0 455.3 203.1 1,918.6
--------- --------- -------- -------- ---------
Operating income before federal
income tax 218.4 175.3 88.8 46.2 528.7
Realized gains on investments -- -- -- 28.4 28.4
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 218.4 $ 175.3 $ 88.8 $ 74.6 $ 557.1
========= ========= ======== ======== =========
Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1
========= ========= ======== ======== =========
1997:
Net investment income (1) $ (26.8) $ 1,098.2 $ 184.9 $ 152.9 $ 1,409.2
Other operating revenue 413.9 43.2 283.4 56.6 797.1
--------- --------- -------- -------- ---------
Total operating revenue (2) 387.1 1,141.4 468.3 209.5 2,206.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 823.4 78.5 114.7 1,016.6
Amortization of deferred policy
acquisition costs 87.8 39.8 39.6 -- 167.2
Benefits and expenses 148.4 108.7 283.5 63.1 603.7
--------- --------- -------- -------- ---------
Total expenses 236.2 971.9 401.6 177.8 1,787.5
--------- --------- -------- -------- ---------
Operating income before federal
income tax 150.9 169.5 66.7 31.7 418.8
Realized gains on investments -- -- -- 11.1 11.1
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 150.9 $ 169.5 $ 66.7 $ 42.8 $ 429.9
========= ========= ======== ======== =========
Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7
========= ========= ======== ======== =========
</TABLE>
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(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.
