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Registration No. 33-00145
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
POST-EFFECTIVE AMENDMENT NO. 17
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------
NATIONWIDE VLI SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
This Post-Effective Amendment amends the Registration Statement in respect of
the prospectus and the Financial Statements
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of rule (485)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities being registered: Modified Single Premium Variable Life
Insurance Policies.
Approximate date of proposed offering: Continuously on and after May 1, 1998.
[ ] Check box if it is proposed that this filing will become effective on (date)
at (time) pursuant to Rule 487.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
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N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1............................................................................Nationwide Life Insurance Company
The Variable Account
2............................................................................Nationwide Life Insurance Company
3............................................................................Custodian of Assets
4............................................................................Distribution of The Policies
5............................................................................The Variable Account
6............................................................................Not Applicable
7............................................................................Not Applicable
8............................................................................Not Applicable
9............................................................................Legal Proceedings
10...........................................................................Information About The Policies; How
The Cash Value Varies; Right to
Exchange for a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11...........................................................................Investments of The Variable Account
12...........................................................................The Variable Account
13...........................................................................Policy Charges
Reinstatement
14...........................................................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for Issuance
of a Policy
15...........................................................................Investments of the Variable Account;
Premium Payments
16...........................................................................Underwriting and Issuance -
Allocation of Cash Value
17...........................................................................Surrendering The Policy for Cash
18...........................................................................Reinvestment
19...........................................................................Not Applicable
20...........................................................................Not Applicable
21...........................................................................Policy Loans
22...........................................................................Not Applicable
23...........................................................................Not Applicable
24...........................................................................Not Applicable
25...........................................................................Nationwide Life Insurance Company
26...........................................................................Not Applicable
27...........................................................................Nationwide Life Insurance Company
28...........................................................................Company Management
29...........................................................................Company Management
30...........................................................................Not Applicable
31...........................................................................Not Applicable
32...........................................................................Not Applicable
33...........................................................................Not Applicable
34...........................................................................Not Applicable
35...........................................................................Nationwide Life Insurance Company
36...........................................................................Not Applicable
37...........................................................................Not Applicable
38...........................................................................Distribution of The Policies
39...........................................................................Distribution of The Policies
40...........................................................................Not Applicable
41(a)........................................................................Distribution of The Policies
42...........................................................................Not Applicable
43...........................................................................Not Applicable
</TABLE>
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<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
44...........................................................................How The Cash Value Varies
45...........................................................................Not Applicable
46...........................................................................How The Cash Value Varies
47...........................................................................Not Applicable
48...........................................................................Custodian of Assets
49...........................................................................Not Applicable
50...........................................................................Not Applicable
51...........................................................................Summary of The Policies;
Information About The Policies
52...........................................................................Substitution of Securities
53...........................................................................Taxation of The Company
54...........................................................................Not Applicable
55...........................................................................Not Applicable
56...........................................................................Not Applicable
57...........................................................................Not Applicable
58...........................................................................Not Applicable
59...........................................................................Financial Statements
</TABLE>
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NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
One Nationwide Plaza
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES*
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT
The life insurance policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage on the Insured named in the
Policy. The Policies may also provide a Cash Surrender Value if the Policy is
terminated during the lifetime of the Insured. The Death Benefit and Cash Value
of the Policies may vary to reflect the experience of the Nationwide VLI
Separate Account (the "Variable Account") or the Fixed Account to which Cash
Values are allocated.
The Policies described in this prospectus may meet the definition of "modified
endowment contracts" under Section 7702A of the Internal Revenue Code (the
"Code"). The Code provides for taxation of surrenders, partial surrenders,
loans, collateral assignments and other pre-death distributions from modified
endowment contracts in the same way annuities are taxed. Any distribution is
taxable to the extent the Cash Value of the Policy exceeds, at the time of the
distribution, the premiums paid into the Policy. The Code also provides for a
10% tax penalty on the taxable portion of such distributions. That penalty is
applicable unless the distribution is: (1) paid after the Policy Owner is 59 1/2
or disabled; or (2) the distribution is part of an annuity to the Policy Owner
as defined in the Code (see "Tax Matters").
It may not be advantageous to replace existing insurance with Policies described
in this prospectus. It may also be disadvantageous to purchase a policy to
obtain additional insurance protection if the purchaser already owns another
variable life insurance policy. The policies may not be advantageous for persons
who may wish to make policy loans or withdrawals prior to attaining age 59 1/2
(see "Tax Matters"). The Policy Owner may allocate premiums and Cash Value to
one or more of the Sub-Accounts and the Fixed Account. The assets of each
Sub-Account will be used to purchase, at Net Asset Value, shares of one of the
following Underlying Mutual Fund options:
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST:
- Asset Allocation Portfolio (formerly "Multiple Strategy Fund")
- Domestic Income Portfolio (formerly Domestic Strategic Income Fund)
- Emerging Growth Portfolio
- Enterprise Portfolio (formerly "Common Stock Fund")
- Global Equity Portfolio
- Government Portfolio
- Money Market Portfolio
-Morgan Stanley Real Estate Securities Portfolio
(formerly "Real Estate Securities Fund")
Nationwide Life Insurance Company (the "Company") guarantees that the Death
Benefit for a Policy will never be less than the Specified Amount stated on the
Policy Data Pages as long as the Policy is in force. There is no guaranteed Cash
Surrender Value. If the Cash Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse.
This prospectus generally describes only that portion of the Cash Value
allocated to the Variable Account. For a brief summary of the Fixed Account
Option, see "The Fixed Account Option."
*The contract is titled a "Flexible Premium Life Insurance Policy" in Texas.
THE BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN EVERY
JURISDICTION. PLEASE REFER TO YOUR POLICY FOR SPECIFIC BENEFIT INFORMATION.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
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GLOSSARY OF 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 Variable
Account Cash Value.
BENEFICIARY- The person to whom the proceeds due on the Insured's death are
paid.
CASH VALUE- The sum of the value of Policy assets in the Variable Account, Fixed
Account and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE- The Policy's Cash Value, less any indebtedness under the
Policy, less any Surrender Charge.
CODE- The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life Insurance Company.
DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Code as amended. It represents the single premium
required to mature the Policy under guaranteed mortality and expense charges,
and an interest rate of 6%.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
INSURED- The person whose life is covered by the Policy, and who is named on the
Policy Data Page.
MATURITY DATE- The Policy Anniversary on or following the Insured's 95th
birthday.
MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding
month.
NET ASSET VALUE- The value of one Underlying Mutual Fund share at the end of a
market day or at the close of the New York Stock Exchange. Net Asset Value is
computed by adding the value of all portfolio holdings, plus other assets,
deducting liabilities and then dividing the results by the number of shares
outstanding.
POLICY ANNIVERSARY- An anniversary of the Policy Date.
POLICY CHARGES- All deductions made from the value of the Variable Account or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy Data Page.
POLICY LOAN ACCOUNT- The portion of the Cash Value which results from Policy
Loans.
POLICY OWNER- The person designated in the Policy application as the Owner. In
the State of New York, the variable life insurance Policies offered by the
Company are offered as "Certificates" for "Certificate Owners" under a group
contract rather than individual Policies. The provisions of both these
Certificates and the Policies are essentially the same and references to the
provisions of Policies and rights of Policy Owners in this prospectus include
Certificates and Certificate Owners.
POLICY YEAR- Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
SPECIFIED AMOUNT- A dollar amount used to determine the Death Benefit under a
Policy as shown on the Policy Data Page.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
UNDERLYING MUTUAL FUND- A registered open-end management investment company in
which the assets of the Sub-Accounts will be invested.
VALUATION DATE- Each day the New York Stock Exchange and the Home Office are
open for business, or any other day during which there is a sufficient degree of
trading Underlying Mutual Fund shares that the current Cash Value might be
materially affected.
VALUATION PERIOD- A period commencing with the close of a Valuation Date and
ending at the close of business for the next succeeding Valuation Date.
VARIABLE ACCOUNT- A separate investment account of the Nationwide Life Insurance
Company.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
GLOSSARY OF TERMS......................................................................................................3
SUMMARY OF THE POLICIES................................................................................................6
Variable Life Insurance.......................................................................................6
The Variable Account and its Sub-Accounts.....................................................................6
The Fixed Account.............................................................................................6
Deductions and Charges........................................................................................6
Premiums......................................................................................................7
NATIONWIDE LIFE INSURANCE COMPANY......................................................................................7
THE VARIABLE ACCOUNT...................................................................................................7
Investments of the Variable Account...........................................................................7
Van Kampen American Capital Life Investment Trust.............................................................8
Reinvestment..................................................................................................9
Transfers.....................................................................................................9
Dollar Cost Averaging........................................................................................10
Substitution of Securities...................................................................................10
Voting Rights................................................................................................10
INFORMATION ABOUT THE POLICIES........................................................................................10
Underwriting and Issuance....................................................................................10
Minimum Requirements for Issuance of a Policy................................................................10
Premium Payments.............................................................................................11
Allocation of Cash Value.....................................................................................11
Short-Term Right to Cancel Policy............................................................................11
POLICY CHARGES........................................................................................................11
Deductions from Premiums.....................................................................................11
Deductions from Cash Value...................................................................................12
Charges on Surrender.........................................................................................12
Annual Administrative Charge.................................................................................12
Cost of Insurance Charge.....................................................................................12
Deductions from the Sub-Accounts.............................................................................13
Mortality and Expense Risk Charge............................................................................13
Administrative Expense Charge................................................................................13
Premium Tax Recovery Charge..................................................................................14
Income Tax Charge............................................................................................14
Expenses of the Underlying Mutual Funds......................................................................14
HOW THE CASH VALUE VARIES.............................................................................................15
How the Investment Experience is Determined..................................................................15
Net Investment Factor........................................................................................15
Determining The Cash Value...................................................................................15
Valuation Date and Valuation Period..........................................................................16
SURRENDERING THE POLICY FOR CASH......................................................................................16
Right to Surrender...........................................................................................16
Cash Surrender Value.........................................................................................16
Partial Surrenders...........................................................................................16
Maturity Proceeds............................................................................................16
Income Tax Withholding.......................................................................................16
POLICY LOANS..........................................................................................................17
Taking a Policy Loan.........................................................................................17
Effect on Investment Performance.............................................................................17
Interest.....................................................................................................17
Effect on Death Benefit and Cash Value.......................................................................17
Repayment....................................................................................................18
HOW THE DEATH BENEFIT VARIES..........................................................................................18
Calculation of the Death Benefit.............................................................................18
Proceeds Payable on Death....................................................................................19
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY..........................................................................19
CHANGES OF INVESTMENT POLICY..........................................................................................19
GRACE PERIOD..........................................................................................................20
REINSTATEMENT.........................................................................................................20
THE FIXED ACCOUNT OPTION..............................................................................................20
CHANGES IN EXISTING INSURANCE COVERAGE................................................................................20
Changes in the Specified Amount..............................................................................21
Changes in the Death Benefit Option..........................................................................21
OTHER POLICY PROVISIONS...............................................................................................21
</TABLE>
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<TABLE>
<S> <C>
Policy Owner.................................................................................................21
Beneficiary..................................................................................................21
Assignment...................................................................................................21
Incontestability.............................................................................................21
Error in Age or Sex..........................................................................................22
Suicide......................................................................................................22
Nonparticipating Policies....................................................................................22
LEGAL CONSIDERATIONS..................................................................................................22
DISTRIBUTION OF THE POLICIES..........................................................................................22
CUSTODIAN OF ASSETS...................................................................................................22
TAX MATTERS...........................................................................................................22
Policy Proceeds..............................................................................................22
Withholding..................................................................................................23
Federal Estate and Generation Skipping Transfer Taxes........................................................23
Non-Resident Aliens..........................................................................................24
Taxation of the Company......................................................................................24
Tax Changes..................................................................................................24
THE COMPANY...........................................................................................................25
COMPANY MANAGEMENT....................................................................................................25
Directors of the Company.....................................................................................25
Executive Officers of the Company............................................................................27
OTHER CONTRACTS ISSUED BY THE COMPANY.................................................................................27
STATE REGULATION......................................................................................................27
REPORTS TO POLICY OWNERS..............................................................................................28
ADVERTISING...........................................................................................................28
YEAR 2000 COMPLIANCE ISSUES...........................................................................................28
1LEGAL PROCEEDINGS....................................................................................................28
EXPERTS...............................................................................................................29
REGISTRATION STATEMENT................................................................................................29
LEGAL OPINIONS........................................................................................................29
APPENDIX 1............................................................................................................30
APPENDIX 2............................................................................................................31
FINANCIAL STATEMENTS..................................................................................................42
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
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.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
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SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by the Company are similar in many
ways to fixed-benefit whole Life insurance. As with fixed-benefit whole life
insurance, the Policy Owner pays a premium for life insurance coverage on the
person insured. Also like fixed-benefit whole life insurance, the Policies may
provide for a Cash Surrender Value which is payable if the Policy is terminated
during the Insured's lifetime. (As with fixed-benefit whole life insurance, the
Cash Surrender Value during the early Policy years may be substantially lower
than the premiums paid).
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the Death Benefit and Cash
Value of the Policies may increase or decrease to reflect the investment
performance of the Sub-Accounts or the Fixed Account to which Cash Values are
allocated (see "How the Death Benefit Varies"). There is no guaranteed Cash
Surrender Value (see "How the Cash Value Varies"). If the Cash Surrender Value
is insufficient to pay Policy Charges, the Policy will lapse.
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Cash Value in the Variable Account at the time
the Policy is issued. The Policy Owner chooses the Sub-Accounts or the Fixed
Account into which the Cash Value will be allocated (see "Allocation of Cash
Value"). During the free look period, however, the Cash Value is allocated to
the Van Kampen American Capital Life Investment Trust- Money Market Portfolio
("Money Market Portfolio") or the Fixed Account. For more information on the
short term right to cancel this policy, please see "Short Term Right to Cancel
Policy." Assets of each Sub-Account are invested at Net Asset Value in shares of
a corresponding Underlying Mutual Fund option. For a description of the
Underlying Mutual Fund options and their investment objectives, see "Investments
of the Variable Account."
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks.
The Company deducts a charge for the cost of insurance from the Policy's Cash
Value on the Policy Date and each Monthly Anniversary Date. The Company deducts
an annual policy administrative charge from the Policy's Cash Value at the
beginning of each Policy Year after the first. The current annual charge is $90
($65 in New York) for total premium payments less than $25,000 and $50 for total
premium payments greater than or equal to $25,000. This charge is guaranteed
never to exceed $135 ($120 in New York) for total premium payments less than
$25,000 and $75 for total premium payments greater than or equal to $25,000. The
Company also deducts on a daily basis from the assets of the Variable Account a
charge to provide for mortality and expense risks, administrative charges and
premium tax recovery. These current charges are equal on an annual basis to
1.30% of the Variable Account assets for the first 10 Policy Years and 1.00%
thereafter and are guaranteed never to exceed 1.60% and 1.30% respectively. For
Policies which are surrendered, the Company may deduct a Surrender Charge. The
Surrender Charge associated with each premium payment will not exceed 8.5% of
the premium payment, and will be applied for nine years after the effective date
of the premium payment. The Surrender Charge is designed to recover certain
expenses incurred by the Company related to the sale of Policies.
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund (see
"Expenses of the Underlying Mutual Funds").
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PREMIUMS
The minimum premium for which a Policy may be issued is $10,000. A Policy may be
issued to an insured up to age 80.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid (see "Short Term Right to Cancel
Policy").
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the "Nationwide
Insurance Enterprise" with its Home Office at One Nationwide Plaza, Columbus,
Ohio 43215. The Company is a provider of life insurance, annuities and
retirement products. It is admitted to do business in all states, the District
of Columbia and Puerto Rico. The Contracts are distributed by the General
Distributor, Van Kampen American Capital Distributors, Inc.
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors, on August 8, 1984, pursuant to Ohio law. The Company has caused the
Variable Account to be registered with the SEC as a unit investment trust
pursuant to the provisions of the Investment Company Act of 1940 (the "1940
Act"). Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio
43215 serves as trustee for the trust. Nationwide Advisory Services, Inc., One
Nationwide Plaza, Columbus, Ohio 43215 serves as principal underwriter for the
trust. Registration does not involve supervision of the management of the
Variable Account or the Company by the SEC.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The Death Benefit and Cash Value under the
Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
Premium payments and Cash Value are allocated within the Variable Account among
one or more Sub-Accounts. The assets of each Sub-Account are used to purchase
shares of the Underlying Mutual Funds designated by the Policy Owner. Thus, the
investment performance of a Policy depends upon the investment performance of
the Underlying Mutual Funds designated by the Policy Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Cash Value
allocated among one or more of the Sub-Accounts and the Fixed Account (see
"Allocation of Cash Value"). When the Policy is issued, for any Cash Value not
allocated to the Fixed Account, Cash Value will be placed in the Money Market
Portfolio or the Fixed Account, as designated by the Policy Owner, until
expiration of the period in which the Policy Owner may exercise his or her
short-term right to cancel the Policy. At the expiration of the period in which
the Policy Owner may exercise his or her short-term right to cancel the Policy,
shares of the Underlying Mutual Funds specified by the Policy Owner are
purchased at Net Asset Value for the respective Sub-Account(s). Such election is
subject to any minimum premium limitations which may be imposed by the
Underlying Mutual Fund option(s). In addition, no less than 5% of premium may be
allocated to any one Sub-Account or the Fixed Account. The Policy Owner may
change the allocation of Cash Value or may transfer Cash Value from one
Sub-Account to another, subject to terms and conditions as may be imposed by
each Underlying Mutual Fund and as set forth in this prospectus (see
"Transfers", "Allocation of Cash Value" and "Short-Term Right to Cancel
Policy"). Additional Premium Payments, upon acceptance, will be allocated to the
Money Market Portfolio unless the Policy Owner specifies otherwise (see "Premium
Payments").
Each of the Underlying Mutual Fund options receives investment advice from Van
Kampen American Capital Asset Management, Inc., which is paid fees for its
services by the Underlying Mutual Funds. The Underlying Mutual Fund options are
NOT available to the general public directly. The Underlying Mutual Funds are
available as investment options in variable life insurance policies or variable
annuity contracts issued by life insurance companies or, in some cases, through
participation in certain qualified pension or retirement plans.
Some of the Underlying Mutual Funds have been established by investment advisers
which manage publicly traded mutual funds having similar names and investment
objectives. While some of the Underlying Mutual Funds may be similar to, and may
in fact be modeled after publicly traded mutual funds, Policy purchasers should
understand that the Underlying Mutual Funds are not otherwise directly related
to any publicly traded
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mutual fund. Consequently, the investment performance of publicly traded mutual
funds and any corresponding Underlying Mutual Funds may differ substantially.
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund below. These Underlying Mutual Fund options are available
only to serve as the underlying investment vehicle for variable annuity
contracts and variable life insurance policies issued through separate accounts
of life insurance companies which may or may not be affiliated, also known as
"mixed and shared funding." There are certain risks associated with mixed and
shared funding, which are disclosed in the Underlying Mutual Funds'
prospectuses. A full description of the Underlying Mutual Funds, their
investment policies and restrictions, risks and charges are contained in the
prospectuses of the respective Underlying Mutual Funds. A prospectus for the
Underlying Mutual Fund option(s) being considered must accompany this prospectus
and should be read in conjunction herewith. THERE CAN BE NO ASSURANCE THAT THE
INVESTMENT OBJECTIVES WILL BE ACHIEVED
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust is an open-end diversified
management investment company organized as a Delaware business trust. Shares of
the Trust are offered in separate Portfolios which are sold only to insurance
companies to provide funding for variable life insurance policies and variable
annuity contracts. Van Kampen American Capital Asset Management, Inc. serves as
the Portfolio's investment adviser.
ASSET ALLOCATION PORTFOLIO
The investment objective of this Portfolio is to seek a high total
investment return consistent with prudent risk through a fully managed
investment policy utilizing equity, intermediate and long-term debt and
money market securities. Total investment return consists of current
income, including dividends, interest, and discount accruals, and capital
appreciation. The Advisor may vary the composition of the Portfolio from
time to time based upon an evaluation of economic and market trends and
the anticipated relative total return available from a particular type of
security.
DOMESTIC INCOME PORTFOLIO
The investment objective of this Portfolio is to seek current income as
its primary objective. Capital appreciation is a secondary objective. The
Portfolio attempts to achieve these objectives through investment
primarily in a diversified portfolio of fixed-income securities. The
Portfolio may invest in investment grade securities and lower rated and
nonrated securities. Lower rated securities are regarded by the rating
agencies as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments.
EMERGING GROWTH PORTFOLIO
The investment objective of this Portfolio is to seek capital
appreciation by investing in a portfolio of securities consisting
principally of common stocks of small and medium sized companies
considered by the Advisor to be emerging growth companies. Under normal
market conditions, at least 65% of the Portfolio's total assets will be
invested in common stocks of small and medium sized companies (less than
$2 billion of market capitalization), both domestic and foreign. The
Portfolio may invest up to 20% of its total assets in securities of
foreign issuers. Additionally, the Portfolio may invest up to 15% of the
value of its assets in restricted securities (i.e., securities which may
not be sold without registration under the Securities Act of 1933) and in
other securities not having readily available market quotations.
ENTERPRISE PORTFOLIO
The investment objective of this Portfolio is to seek capital
appreciation by investing securities believed by the Advisor to have
above average appreciation. Any income received on such securities is
incidental to the objective of capital appreciation.
GLOBAL EQUITY PORTFOLIO
The investment objective of this Portfolio is to seek long term capital
growth through investments in an internationally diversified portfolio of
equity securities of companies of any nation including the United States.
The Portfolio intends to be invested in equity securities of companies of
at least three countries including the United States. Under normal market
conditions, at least 65% of the Portfolio's total assets are so invested.
Equity securities include common stocks, preferred stocks and warrants or
options to acquire such securities.
GOVERNMENT PORTFOLIO
The investment objective of this Portfolio is to provide investors with a
high current return consistent with preservation of capital. The
Portfolio invests primarily in debt securities issued or guaranteed by
the U.S.
8
<PAGE> 12
Government, its agencies or instrumentalities. In order to hedge against
changes in interest rates, the Portfolio may also purchase or sell
options and engage in transactions involving interest rate futures
contracts and options on such contracts.
MONEY MARKET PORTFOLIO
The investment objective of this Portfolio is to seek a high level of
current income as is considered consistent with the preservation of
capital and liquidity by investing primarily in money market instruments.
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
The investment objective of this Portfolio is to seek long-term capital
growth by investing in a portfolio of securities of companies operating
in the real estate industry ("Real Estate Securities"). Current income is
a secondary consideration. Real Estate Securities include equity
securities, including common stocks and convertible securities, as well
as non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that
derives at least 50% of its assets (marked to market), gross income or
net profits from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the Portfolio's total assets will be invested
in Real Estate Securities, primarily equity securities of real estate
investment trusts. The Portfolio may invest up to 25% of its total assets
in securities issued by foreign issuers, some or all of which may also be
Real Estate Securities. There can be no assurance that the Portfolio will
achieve its investment objective.
REINVESTMENT
The Underlying Mutual Funds described above have as a policy the distribution of
dividends in the form of additional shares (or fractions thereof) of the
Underlying Mutual Funds. The distribution of additional shares will not affect
the number of Accumulation Units attributable to a particular Policy (see
"Allocation of Cash Value").
TRANSFERS
The Policy Owner may request a transfer of up to 100% of the Cash Value from the
Variable Account to the Fixed Account. The Owner's Cash Value in each
Sub-Account will be determined as of the date the transfer request is received
in good order at the Home Office. The Company reserves the right to restrict
transfers to the Fixed Account to 25% of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account and a portion of the Variable Account to the
Fixed Account, without penalty or adjustment. The Company reserves the right to
limit the amount of Cash Value transferred out of the Fixed Account each Policy
Year. Transfers from the Fixed Account must be made within 45 days after the
termination date of the interest rate guarantee period.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. This telephone exchange privilege is made available to Policy
Owners automatically without the Policy Owner's election. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include the following: requesting
identifying information, such as name, contract number, Social Security Number,
and/or personal identification number; tape recording all telephone
transactions; or providing written confirmation thereof to both the Policy Owner
and any agent of record, at the last address of record; or such other procedures
as the Company may deem reasonable. Although the Company's failure to follow
reasonable procedures may result in the Company's liability for any losses to
unauthorized or fraudulent telephone transfers, the Company will not be liable
for following instructions communicated by telephone which it reasonably
believes to be genuine. Any losses incurred pursuant to actions taken by the
Company in reliance on telephone instructions reasonably believed to be genuine
will be borne by the Policy Owner. The Company may withdraw the telephone
exchange privilege upon 30 days' written notice to the Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
DOLLAR COST AVERAGING
If the Contract Value is $15,000 or more, the Policy Owner may direct the
Company to automatically transfer amounts from the Money Market Portfolio, or
the Fixed Account to any other Sub-Account. Dollar Cost Averaging will occur on
a monthly basis or on another frequency permitted by the Company. Dollar Cost
Averaging is a long-term investment program which provides for regular, level
investments over time. There is no guarantee that Dollar Cost Averaging will
result in a profit or protect against loss. The minimum monthly transfer is
$100. Transfers will be processed until
9
<PAGE> 13
either the value in the originating funds is exhausted or the Policy Owner
instructs the Home Office to cancel the transfers.
The Company reserves the right to discontinue establishing new Dollar Cost
Averaging programs. The Company also reserves a right to assess a processing fee
for this service.
SUBSTITUTION OF SECURITIES
If shares of the Underlying Mutual Fund options described in this prospectus are
no longer available for investment by the Variable Account or, if in the
judgment of the Company's management further investment in the Underlying Mutual
Funds is inappropriate the Company may eliminate Sub-Accounts, combine two or
more Sub-Accounts, or substitute shares of another Underlying Mutual Fund for
other Underlying Mutual Fund shares already purchased or to be purchased in the
future by premium payments under the Policy. No substitution of securities in
the Variable Account may take place without prior approval of the SEC, and under
such requirements as it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply with respect to Cash Value allocated to
the Sub-Accounts.
In accordance with its view of applicable law, the Company will vote the shares
of the Underlying Mutual Funds at regular and special meetings of the
shareholders. These shares will be voted in accordance with instructions
received from Policy Owners. If the 1940 Act or any regulation thereunder should
be amended or if the present interpretation should changes, permitting the
Company to vote the shares of the Underlying Mutual Funds in its own right, the
Company may elect to do so.
The Policy Owner is the person who has the voting interest under a Policy. The
number of Underlying Mutual Fund shares attributable to each Policy Owner is
determined by dividing the Policy Owner's interest in each respective
Sub-Account by the Net Asset Value of the Underlying Mutual Fund corresponding
to the Sub-Account. The number of shares which may be voted will be determined
as of a date chosen by the Company not more than 90 days prior to the meeting of
the Underlying Mutual Fund. Each person having a voting interest will receive
periodic reports relating to the Underlying Mutual Funds, proxy material and a
form with which to give voting instructions.
Voting instructions will be solicited by written communication at least 21 days
prior to such meeting. Underlying Mutual Fund shares to which no timely
instructions are received will be voted by the Company in the same proportion as
the voting instructions which are received with respect to all Policies
participating in the Variable Account.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
Underlying Mutual Fund shares in any manner necessary to enable the Underlying
Mutual Fund to: (1) make or refrain from making any change in the investments or
investment policies for any of the Underyling Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the Underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that the change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance regulatory
authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
MINIMUM REQUIREMENTS FOR ISSUANCE OF A POLICY
The minimum amount of initial premium that will be accepted by the Company is
$10,000. Policies may be issued to Insureds issue ages 80 or younger. Before
issuing any Policy, the Company requires satisfactory evidence of insurability
which may include a medical examination.
PREMIUM PAYMENTS
The initial premium for a Policy is payable in full at the Home Office. The
minimum amount of initial premium required is $10,000 for issue ages 75 or
younger and $50,000 for issue ages 76 through 80. The Specified Amount is
determined by treating the initial premium as equal to 100% of the Guideline
Single Premium. Upon payment of an initial premium, temporary insurance may be
provided, subject to a maximum amount. The
10
<PAGE> 14
effective date of permanent insurance coverage is dependent upon completion of
all underwriting requirements, payment of the initial premium, and delivery of
the Policy while the Insured is still living.
The Policy Owner may make additional premium payments. The Policy is primarily
intended to be a single premium with a limited ability to make additional
payments. Subsequent premium payments under the Policy are permitted under the
following circumstances:
1. an additional premium payment is required to keep the Policy in force
(see "Grace Period"); or
2. except in Virginia, additional premium payments of at least $1,000 may be
made at any time provided the premium limits prescribed by the IRS to
qualify the Policy as a life insurance contract are not violated.
Payment of additional premiums if accepted, may increase the Specified Amount of
insurance. However, the Company reserves the right to require satisfactory
evidence of insurability before accepting any additional premium payment which
results in an increase in the net amount at risk. The Company may also require
that any existing Policy indebtedness is repaid prior to accepting any
additional premium payments.
The Company will not accept a subsequent premium payment which would result in
total premiums paid exceeding the premium limitations prescribed by the IRS to
qualify the Policy as a life insurance contract.
ALLOCATION OF CASH VALUE
At the time a Policy is issued, its Cash Value will be based on the Money Market
Portfolio value or the Fixed Account as if the Policy had been issued and the
premium invested on the date the premium was received in good order by the
Company. When the Policy is issued, the Cash Value will be allocated to the
Money Market Portfolio (for any Cash Value Allocated to any other Sub-Account on
the application) or the Fixed Account until the expiration of the period in
which the Policy Owner may exercise his or her short-term right to cancel the
Policy. Cash Value not designated for the Fixed Account will be placed in the
Money Market Portfolio. At the expiration of the period in which the Policy
Owner may exercise his or her short term right to cancel the Policy, shares of
the Mutual Portfolios specified by the Policy Owner are purchased at Net Asset
Value for the respective Sub-Account(s). The Policy Owner may change the
allocation of Cash Value or may transfer Cash Value from one Sub-Account to
another, subject to the terms and conditions as may be imposed by each
Underlying Mutual Fund option and as set forth in the prospectus. Cash Value
allocated to the Fixed Account at the time of application may not be transferred
prior to the first Policy Anniversary (see "Transfers" and "Investments of the
Variable Account").
The designation of investment allocations will be made by the prospective Policy
Owner at the time of application for a Policy. The Policy Owner may change the
way in which future premiums are allocated by giving written notice to the
Company. All percentage allocations must be in whole numbers, and must be at
least 5%. The sum of allocations must equal 100%.
SHORT-TERM RIGHT TO CANCEL POLICY
A Policy may be returned for cancellation and a full refund of premium within 10
days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or
delivered to the registered representative who sold it or the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund either the total premiums paid or the
Cash Value less Indebtedness as prescribed by the state in which the Policy was
issued within seven days after it receives the Policy. The scope of this right
may vary by state.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
No deduction is made from any premium at the time of payment. 100% of each
premium payment is applied to the Cash Value.
DEDUCTIONS FROM CASH VALUE
The Company may deduct certain charges from the Policy's Cash Value. While the
Company reserves the right to change current charges, it has no present intent
to do so. Charges are comprised of the following items:
11
<PAGE> 15
CHARGES ON SURRENDER
No charges are deducted from any premium payment. The Company incurs certain
expenses related to the sale of the Policies. These expenses include commissions
paid to sales personnel, the cost of sales literature and other promotional
activity. To recover these expenses, the Company imposes a Surrender Charge. The
Surrender Charge may be insufficient to recover all these expenses. Unrecovered
expenses are borne by the Company's general assets which may include profits, if
any, from Mortality and Expense Risk Charges. The initial premium payment and
any subsequent premium payment which results in an increased net amount at risk
will have a Surrender Charge associated with it that will be less than or equal
to 8.5% of such premium payment, as set forth in the chart in this provision.
The Surrender Charge applies for nine years after the effective date of each
premium payment. Certain surrenders may result in adverse tax consequences (see
"Tax Matters").
<TABLE>
<CAPTION>
COMPLETED YEAR(S) SINCE CHARGES ON SURRENDER AS A
PREMIUM PAYMENT % PREMIUM PAYMENT
--------------- -----------------
<S> <C> <C>
0 8.5%
1 8.5%
2 8.0%
3 8.0%
4 7.5%
5 7.0%
6 6.0%
7 5.0%
8 4.0%
9 0.0%
</TABLE>
In no event will the Surrender Charge deducted on surrender exceed 8.5% of the
total premiums paid.
The amount of the Surrender Charge may be eliminated when the Policies are
issued to an officer, director, former director, partner, employee, or retired
employee of the Company; an employee of the General Distributor of the Policies,
Van Kampen American Capital Distributors, Inc.; an employee of an affiliate of
the Company or the General Distributor; or, a duly appointed representative of
the Company who receives no commission as a result of the purchase.
Elimination of the Surrender Charge will be permitted by the Company only in
those situations where the Company does not incur sales or administrative
expenses normally associated with sales of a Policy. In no event will reduction
of the Surrender Charge be permitted where such reduction will be unfairly
discriminatory to any person.
ANNUAL ADMINISTRATIVE CHARGE
The Company deducts an annual administrative charge at the beginning of each
Policy Year after the first. It will be charged proportionately to the Cash
Values in Sub-Account and the Fixed Account. The amount of this annual charge is
determined by the total net premium payments (premium payments less any previous
partial surrenders) as follows:
<TABLE>
<CAPTION>
TOTAL NET PREMIUM PAYMENTS CURRENT ANNUAL
GREATER THAN BUT LESS ADMINISTRATIVE GUARANTEED MAXIMUM ANNUAL
OR EQUAL TO THAN CHARGE ADMINISTRATIVE CHARGE
----------- ---- ------ ---------------------
<S> <C> <C> <C>
$10,000 $25,000 $90 Non-New York $135 Non-New York
$65 In New York $120 In New York
$25,000 $50 All States $ 75 All States
</TABLE>
COST OF INSURANCE CHARGE
A monthly deduction for the Cost of insurance is charged proportionately against
the Cash Value in each Sub-Account and the Fixed Account on the Policy Date and
each Monthly Anniversary Day. The Company will determine the Monthly Cost of
Insurance charge by multiplying the applicable cost of insurance rate by the net
amount at risk. The net amount at risk is equal to the Death Benefit minus the
Cash Value.
Guaranteed cost of insurance charges will not exceed the cost based on the
guaranteed cost of insurance rate and the Policy's net amount at risk.
Guaranteed cost of insurance rates for Standard-Simplified issues are based on
the 1980 Commissioner's Extended Term Mortality Table, Age Last Birthday (1980
CET). Guaranteed
12
<PAGE> 16
cost of insurance rates for Standard Preferred issues are based on the 1980
Commissioner's Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO).
Guaranteed cost of insurance rates for substandard issues are based on
appropriate percentage multiples of the 1980 CSO. These mortality tables are sex
distinct. In addition, separate mortality tables will be used for standard and
non-tobacco.
For Policies issued in Texas, guaranteed cost of insurance rates for
Standard-Simplified issues ("Special Class-Simplified" in Texas) are based on
130% of the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO).
The rate class of an Insured may affect the cost of insurance rate. The Company
currently places Insureds into both standard rate classes and substandard
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. The Company may also
issue certain Policies on a "Simplified Issue" basis to certain categories of
individuals. Due to the underwriting criteria established for Policies issued on
a Simplified Issue basis, actual rates for healthy individuals will be higher
than the current cost of insurance rates being charged under otherwise identical
Policies that are issued on a Preferred basis.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company will deduct, on a daily basis, certain charges from the assets of
the Variable Account. On an annual basis, these charges are equivalent to:
<TABLE>
<CAPTION>
POLICY YEARS POLICY YEARS
<S> <C> <C>
1-10 11+
---- ---
Current 1.30% 1.00%
Guaranteed Maximum 1.60% 1.30%
</TABLE>
While the Company reserves the right to change current charges, it has no
present intent to do so.
These charges consist of the following items:
MORTALITY AND EXPENSE RISK CHARGE
The Company assumes certain risks for guaranteeing 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, the Company assumes risks associated with the nonrecovery
of policy issue, underwriting, and other administrative expenses due to Policies
which lapse or are surrendered during the first ten years following each premium
payment.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts a daily charge from the assets of the Sub-Accounts. This
charge currently is equivalent to an effective annual rate of 0.75%. To the
extent that future levels of mortality and expenses are less than or equal to
those expected, the Company may realize a profit from these charges. This charge
is guaranteed not to exceed 0.90%.
ADMINISTRATIVE EXPENSE CHARGE
The Company deducts a daily Administrative Expense Charge to reimburse it for
expenses related to issuance and maintenance of the Policies including
underwriting, establishing policy records, accounting and record keeping, and
periodic reporting to Policy Owners. This charge is designed only to reimburse
the Company for its actual administrative expenses. In the aggregate, the
Company expects that the charges for administrative costs will be approximately
equal to the related expenses.
This charge is deducted daily from the assets of the Sub-Accounts. This charge
currently is equivalent to an annual effective rate of 0.25%. This charge is
guaranteed not to exceed 0.40%.
PREMIUM TAX RECOVERY CHARGE
Premium taxes are not deducted at the time a premium is paid. The Company pays
any state premium taxes attributable to a particular Policy when incurred by the
Company. The Company expects to pay an average state premium tax rate of
approximately 2.5% of premiums for all states, although tax rates gradually can
range from 0% to 4%. To reimburse the Company for the payment of state premium
taxes associated with the Policies, during the first ten Policy Years, the
Company deducts a daily charge from the assets of the Sub-Accounts. This charge
is computed on a daily basis, and is equivalent to an annual effective rate of
0.30% of the assets of the Variable Account during the first ten Policy Years,
and 0% thereafter. This charge may be more or less than the
13
<PAGE> 17
amount actually assessed by the state in which a particular Policy owner lives.
The Company does not expect to make a profit from this charge.
INCOME TAX CHARGE
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the Sub-Accounts (see "Taxation of
the Company"). The Company reserves the right to assess a charge for taxes
against the Variable Account if the Company determines that taxes will be
incurred.
EXPENSES OF THE UNDERLYING MUTUAL FUNDS
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. The
management fees and other expenses for each Underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the Underlying
Mutual Fund's average assets, are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
MANAGEMENT FEES OTHER EXPENSES TOTAL PORTFOLIO EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Van Kampen American Capital Life 0.50% 0.10% 0.60%
Investment Trust Asset Allocation
Portfolio*
- -----------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.50% 0.10% 0.60%
Investment Trust Domestic Income
Portfolio*
- -----------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.70% 0.15% 0.85%
Investment Trust Emerging Growth
Portfolio*
- -----------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.50% 0.10% 0.60%
Investment Trust Enterprise
Portfolio*
- -----------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 1.00% 0.20% 1.20%
Investment Trust Global Equity-
Portfolio*
- -----------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.50% 0.10% 0.60%
Investment Trust Government
Portfolio*
- -----------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.50% 0.10% 0.60%
Investment Trust Money Market
Portfolio*
- -----------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 1.00% 0.07% 1.07%
Investment Trust-Morgan Stanley
Real Estate Securities Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Underlying Mutual Portfolio expenses shown above are assessed at the
Underlying Mutual Fund level and are not direct charges against the Variable
Account or reductions in Cash Value. These Underlying Mutual Fund expenses are
taken into consideration in computing each Underlying Mutual Fund's Net Asset
Value, which is the share price used to calculate the Variable Account's unit
value. None of the above Underlying Mutual Funds are subject to 12(b)(1) fees.
The information relating to the Underlying Mutual fund expenses was provided by
the Underlying Mutual Fund and was not independently verified by the Company.
Except as otherwise noted, the Management Fees and Other Expenses are not
currently subject to fee waivers or expense reimbursements.
*The investment advisers for the indicated Underlying Mutual Funds have
voluntarily agreed to reimburse a portion of the management fees and/or other
expenses resulting in a reduction of total expenses. Absent any partial
reimbursement, "Management Fees" and "Other Expenses" would have been 0.50% and
0.21% for Asset Allocation Portfolio, 0.50% and 0.55% for Domestic Income
Portfolio, 0.70% and 1.44% for Emerging Growth Portfolio, 0.50% and 0.16% for
Enterprise Portfolio, 1.00% and 5.78% for Global Equity Portfolio, 0.50% and
0.24% for Government Portfolio, and 0.50% and 0.48% for Money Market Portfolio.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any premium applied since the previous Valuation
Date, plus or minus any investment results, and less any Policy Charges.
14
<PAGE> 18
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.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each Sub-Account is converted to Accumulation Units of that
Sub-Account. The conversion is accomplished by dividing the amount of Cash Value
allocated to a Sub-Account by the value of an Accumulation Unit for the
Sub-Account of the Valuation Period during which the allocation occurs.
The value for any subsequent Valuation Period is determined by multiplying the
Accumulation Unit value for each Sub-Account for the immediately preceding
Valuation Period by the net investment factor for the Sub-Account during the
subsequent Valuation Period. The value of an Accumulation Unit may increase or
decrease from Valuation Period to Valuation Period. The number of Accumulation
Units will not change as a result of investment experience.
NET INVESTMENT FACTOR
The net investment factor for any Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the Net Asset Value per share of the Underlying Mutual Fund
held in the Sub- Account determined at the end of the current
Valuation Period; plus
(2) the per share amount of any dividend or capital gain
Distributions made by the Underlying Mutual Fund held in the
Sub-Account if the "ex-dividend" date occurs during the current
Valuation Period.
(b) is the Net Asset Value per share of the Underlying Mutual Fund
held in the Sub- Account determined at the end of the immediately
preceding Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk
Charge, Administration Expense Charge and Premium Tax Recovery
Charge deducted from the Variable Account. Such factor is equal to
an annual rate of 1.30% for the first ten years and then 1.00%
thereafter of the daily Net Asset Value of the Variable Account.
The Net investment factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the net investment factor may not be directly proportional to changes
in the Net Asset Value of Underlying Mutual Fund shares, because of the
deduction for Mortality and Expense Risk Charge, Administration Expense Charge,
Premium Tax Recovery Charge and any charge or credit for tax reserves.
DETERMINING THE CASH VALUE
The Cash Value is the sum of the value of all Accumulation Units and amounts
credited to the Fixed Account. The number of Accumulation Units credited to each
Sub-Account are 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 the Company. 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 the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION DATE AND VALUATION PERIOD
A Valuation Date is each day that the New York Stock Exchange and the Home
Office are open for business or any other day during which there is sufficient
degree of trading the Underlying Mutual Fund shares that the current Variable
Account Contract Value might be materially affected. A Valuation Period is the
period
15
<PAGE> 19
commencing at the close of a Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. The written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a commercial bank
or a savings and loan, which is a member of the Federal Deposit Insurance
Corporation or other guarantor institution as defined by the federal security
laws and regulations. In some cases, the Company 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 the Company 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 5 Policy Years, the Policy Owner may
request a partial surrender. Partial surrenders will be permitted only if they
satisfy the following requirements:
1 The maximum partial surrender in any Policy Year is limited to 10%
of the total premium payment;
2 Partial surrenders must not result in a reduction of the Cash
Surrender Value below $10,000; and
3 After the partial surrender, the Policy continues to qualify as
life insurance.
When a partial surrender is made, the Cash Value is reduced by the amount of the
partial surrender. Under Death Benefit Option 1, the Specified Amount is reduced
by the amount of the partial surrender, unless the death benefit is based on the
applicable percentage of cash value. In such a case, a partial surrender will
decrease the Specified Amount by the amount by which the partial surrender
exceeds the difference between the death benefit and Specified Amount. Partial
surrender amounts must be first deducted from the values in the Sub-Accounts.
Partial surrenders will be deducted from the Fixed Account only to the extent
that insufficient values are available in the Sub-Accounts. Surrender Charges
will be waived for any partial surrenders which satisfy the above conditions.
Certain partial surrenders may result in currently taxable income and tax
penalties (see "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The Maturity Proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her 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 of the
contract exceeds the employer's interest in the contract. Participants should
consult with the sponsor or the administrator of the plan, and/or with their
personal tax or
16
<PAGE> 20
legal advisers, to determine the tax consequences, if any, of their
employer-sponsored life insurance arrangements.
POLICY LOANS
TAKING A POLICY LOAN
The Policy Owner may take a loan using the Policy as security. During the first
year, maximum Policy indebtedness is limited to 50% of the Cash Surrender Value
less interest due on the next Policy Anniversary. After the first Policy Year,
the maximum Policy indebtedness is limited to 90% of the Cash Surrender Value
less interest due on the next Policy Anniversary. The Company will not grant a
loan for an amount less than $1,000 ($200 in Connecticut, $500 in New York).
Should the Death Benefit become payable, the Policy be surrendered, or the
Policy mature while a loan is outstanding, the amount of Policy indebtedness
will be deducted from the Death Benefit, Cash Surrender Value or the Maturity
Value, respectively.
Maximum Policy indebtedness, in Texas, is limited to 90% of the Cash Surrender
Value in the Sub-Accounts and 100% of the Cash Surrender Value in the Fixed
Account less interest due on the next Policy Anniversary.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange or by a commercial bank or a savings and
loan which is a member of the Federal Deposit Insurance Corporation. Certain
Policy loans may result in currently taxable income and tax penalties (see "Tax
Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one Sub-Account, withdrawals from Sub-Accounts
will be made in proportion to the assets in each Sub-Account at the time of the
loan. Policy Loans will be transferred from the Fixed Account only when
insufficient amounts are 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
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer.
Policy Loans will be currently credited interest daily at an annual effective
rate of 5.0%. This rate is guaranteed never to be lower than 4%. The Company may
change the current interest crediting rate on Policy Loans at any time at its
sole discretion. This earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary.
It will be allocated according to the Underlying Mutual Fund Allocation Factors
in effect at the time of the transfer. The loan interest rate is 6% per year for
all Policy Loans. Interest is charged daily and is payable at the end of each
Policy year. 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 loan indebtedness plus accrued interest exceeds the Cash
Value less any Surrender Charges, the Company will send a notice to the Policy
Owner and the assignee, if any. The Policy will terminate without value 61 days
after the mailing of the notice unless a sufficient repayment is made during
that period. A repayment is sufficient if it is large enough to reduce the total
loan indebtedness plus accrued interest 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.
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 a loan may be repaid at any time while the Policy is in force
during the insured's lifetime. Any payment intended as a loan repayment, rather
than a premium payment, must be identified as such. Loan repayments will be
credited to the Sub-Accounts and the Fixed Account in proportion to the Policy
Owner's
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<PAGE> 21
Premium allocation in effect at the time of the repayment. Each repayment may
not be less than $1,000 ($50 in Connecticut and New York). The Company 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.
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Specified Amount is determined by treating the initial premium as
equal to 100% of the Guideline Single Premium. Additional premium payments, if
accepted, may increase the Specified Amount. Guideline Single Premiums vary by
attained age, sex, smoking classification, underwriting classification and total
premium payments. The following table illustrates representative initial
Specified Amounts, under Death Benefit Option 1, for non-tobacco.
<TABLE>
<CAPTION>
ISSUE $25,000 SINGLE PREMIUM $50,000 SINGLE PREMIUM
AGE MALE FEMALE MALE FEMALE
--- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
35 $179,733 $208,354 $364,774 $423,008
40 143,373 166,704 290,792 338,264
45 114,856 134,300 232,769 272,332
50 92,583 108,739 187,452 220,323
55 75,306 88,601 152,298 179,349
60 62,112 72,636 125,453 146,866
65 52,094 59,930 105,070 121,014
</TABLE>
Generally, for a given premium payment, the initial Specified Amount is greater
for non-tobacco than standard, females than males, preferred issue than
simplified issue. The Specified Amount is shown in the Policy.
While the Policy is in force, the Death Benefit will never be less than the
Specified Amount. The Death Benefit may vary with the Cash Value of the Policy,
which depends on investment performance.
The Policy Owner may choose one of two Death Benefit Options. Under Option (1),
the Death Benefit will be the greater of the Specified Amount or the Applicable
Percentage of Cash Value. Under Option (1), the amount of the Death Benefit will
ordinarily not change for several years to reflect the investment performance
and may not change at all. If investment performance is favorable the amount of
Death Benefit may increase. To see how and when investment performance will
begin to affect Death Benefits, please see the illustrations. Under Option (2),
the Death Benefit will be the greater of the Specified Amount plus the Cash
Value, or the Applicable Percentage of Cash Value and will vary directly with
the investment performance. Policy Owners who are satisfied with the amount of
their current insurance coverage and prefer to have favorable investment
performance and any future premium payments reflected in increased Policy Cash
Values should choose Death Benefit Option (1). Policy Owners who prefer to have
favorable investment performance and any future premium payments increase Death
Benefits should choose Death Benefit Option (2).
The monthly Cost of Insurance for Option (1) will always be less than or equal
to the monthly Cost of Insurance for the same amount of Death Benefit under
Option (2) (see "Cost of Insurance Charge").
The term "applicable percentage" means:
1. 250% when the Insured is Attained Age 40 or less at the beginning
of a Policy Year, and
2. when the Insured is above Attained Age 40, the percentage shown in
the "Applicable Percentage of Cash Value Table" shown in this
provision.
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
--- ------------- --- ------------- --- -------------
<S> <C> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
</TABLE>
18
<PAGE> 22
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
--- ------------- --- ------------- --- -------------
<S> <C> <C> <C> <C> <C> <C>
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
</TABLE>
PROCEEDS PAYABLE ON DEATH
The actual Proceeds payable on the Insured's death will be the Death Benefit as
described above less any outstanding Policy loans, and less any unpaid Policy
Charges. Under certain circumstances, the proceeds may be adjusted (see
"Incontestability," "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a modified single premium life
insurance policy offered by the Company on the Policy Date. If not available,
the new policy may be a flexible premium adjustable life insurance policy
offered by the Company 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, the Company will pay
the excess to the Policy Owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the Investment Policy of a Variable Account.
The Company must inform the Policy Owner 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 holders or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, the Policy may be converted to a
substantially comparable Nationwide General Account Life Insurance Policy on the
life of the insured. 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 this conversion. The
Company will not require evidence of insurability for this conversion.
The new policy will not be affected by the investment experience of any Variable
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.
GRACE PERIOD
If the Cash Surrender Value in the Policy is insufficient to pay the Cost of
Insurance Charges, Policy loan interest, or other charges which become due but
are unpaid, a grace period of 61 days will be allowed for payment of sufficient
premium to continue the Policy in force. The Company will notify the Policy
Owner of the
19
<PAGE> 23
amount required to continue the Policy in force. If the required amount is not
received within 61 days of the notice, the Policy will terminate without value.
If the Insured dies during the Grace Period, the Company will pay the Death
Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. Submitting a written request at any time within 3 years after the end of
the Grace Period and prior to the Maturity Date;
2. Providing evidence of insurability satisfactory to the Company;
3. Paying sufficient premium to cover all Policy Charges that were due and
unpaid during the Grace Period;
4. Paying sufficient premium to keep the Policy in force for 3 months from
the date of reinstatement; and
5. Paying or reinstating any indebtedness against the Policy which existed
at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day on
or next following the date the application for reinstatement is approved by the
Company. 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 appropriate Surrender Charge. The Surrender Charge will
be based on the length of time from the date of premium payments to the
effective date of the reinstatement. Unless the Policy Owner has provided
otherwise, the allocation of the amount of the Surrender Charge, additional
premium payments, and any loan repayments will be based on the Underlying Mutual
Fund Allocation factors in effect at the start of the Grace Period.
THE FIXED ACCOUNT OPTION
A Policy Owner may elect to allocate or transfer all or part of the Cash Value
to the Fixed Account and the amount allocated or transferred becomes part of the
Company's General Account. The Company's General Account consists of all assets
of the Company other than those in the Variable Account and in other separate
accounts that have been or may be established by the Company. Subject to
applicable law, the Company has sole discretion over the investment of the
assets of the General Account, and Policy Owners do not share in the investment
experience of those assets.
Under exemptive and exclusionary provisions, interests in the Company's General
Account have not been registered under the Securities Act of 1933 and the
General Account has not been registered as an investment company under the 1940
Act. Accordingly, neither the General Account nor any interests therein are
subject to the provisions of these Acts, and the Company 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 provisions of the federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
The Company guarantees that the part of the Cash Value invested under the Fixed
Account option will accrue interest daily at an effective annual rate that the
Company declares periodically. The Fixed Account crediting rate will not be less
than an effective annual rate of 4%. Upon request and in the annual statement
the Company will inform a Policy Owner of the then applicable rate. The Company
is not obligated to credit interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
After the first Policy Year, the Policy Owner may request certain changes in the
insurance coverage under the Policy. Any request must be in writing and received
at the Home Office. 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.
CHANGES IN THE SPECIFIED AMOUNT
Payment of additional premiums or changes in the Death Benefit Option may
require an increase to the Specified Amount. The minimum increase in the
Specified Amount permitted by the Company is $10,000. An approved increase will
have an effective date of the Monthly Anniversary Day on or next following the
date the Company approves the supplemental application. The Company reserves the
right to limit increases to one per Policy Year, and to require satisfactory
evidence of insurability for any increase in the Specified Amount. In addition,
the rate class, rate class multiple and rate type for the increase in Specified
Amount must be identical to those on
20
<PAGE> 24
the Policy Date. The Specified Amount can not be decreased if, after the
decrease the policy would fail to satisfy the definition of Life Insurance under
Section 7702 of the Code.
CHANGES IN THE DEATH BENEFIT OPTION
The Policy Owner may change the Death Benefit Option under the Policy. If the
change is from Option 1 to Option 2, the Specified Amount will be decreased by
the amount of the Cash Value. If the change is from Option 2 to Option 1, the
Specified Amount will be increased by the amount of the Cash Value. Evidence of
insurability is not required for a change from Option 2 to Option 1. The Company
reserves the right to require evidence of insurability for a change from Option
1 to Option 2. The effective date of the change will be the Monthly Anniversary
Day on or next following the date the Company approves the request for change.
Only one change of option is permitted per Policy Year. 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 prescribed by the IRS to
qualify the Policy as a life insurance contract.
OTHER 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 the Company and recorded at the Home Office. Once recorded, the
change will be effective when signed. The change will not affect any payment
made or action taken by the Company before it was recorded. The Company may
require that the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent 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 on the application or as subsequently
changed, subject to any assignment.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at the
Home Office. Once recorded, the change will be effective when signed. The change
will not affect any payment made or action taken by the Company before it was
recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary, unless otherwise provided. Multiple beneficiaries
will be paid in equal shares, unless otherwise provided. If no named Beneficiary
survives the Insureds, the proceeds be paid to the Policy Owner or the Policy
Owner's estate.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded at the Home Office. The Company is not responsible for any assignment
not submitted for recording, nor is the Company responsible for the sufficiency
or validity of any assignment.
The assignment will be subject to any indebtedness owed to the Company before it
was recorded.
INCONTESTABILITY
The Company will not contest a Death Benefit based on representations in any
written application when such benefit has been in force, during the lifetime of
the Insured, for two years.
ERROR IN AGE OR SEX
If the Insured's age, sex or both, as stated in the application, are incorrect,
the affected benefits will be adjusted to reflect the correct age or sex.
SUICIDE
If the Insured dies by suicide within two years from the Policy Date, the
Company will pay no more than the sum of the premiums, less any unpaid loan. If
the Insured dies by suicide within two years from the date an application is
accepted for an increase in the Specified Amount, the Company will pay no more
than the amount paid for the additional benefit.
21
<PAGE> 25
NONPARTICIPATING POLICIES
The Policies are nonparticipating; they do not participate in any dividend
distribution of the Company's surplus.
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 contributions made on or
after August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provided 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.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Agents will be registered representatives of
broker dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. (NASD). The
Policies will be distributed by the General Distributor, Van Kampen American
Capital Distributors, Inc.
Nationwide Advisory Services, Inc., One Nationwide Plaza, Columbus, Ohio 43215,
("NAS") acts as general distributor for the Nationwide Multi-Flex Variable
Account, Nationwide DC Variable Account, Nationwide Variable Account-II,
Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide
Variable Account-8, Nationwide Variable Account-9, Nationwide VA Separate
Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate Account-C,
Nationwide VL Separate Account-A, Nationwide VL Separate Account-B, Nationwide
VLI Separate Account -2, Nationwide VLI Separate Account-3, Nationwide VLI
Separate Account-4, NACo Variable Account, Nationwide Variable Account, and the
Nationwide DCVA-II, all of which are separate investment accounts of the Company
or its affiliates. NAS is a wholly owned subsidiary of the Company.
NAS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Investing Foundation III, Nationwide Separate Account Trust,
Financial Horizons Investment Trust, Nationwide Asset Allocation Trust and
Nationwide Investing Foundation II, which are open-end management investment
companies.
Gross commissions paid by the Company on the sale of these Policies plus fees
for marketing services provided by the General Distributor are not more than
7.50% of the premiums paid.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are met, a policy will
be treated as a life insurance policy for federal tax purposes. The Company 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
life insurance proceeds payable under a policy are excludable from gross income
of the beneficiary under Section 101 of the Code.
The Policies described in this prospectus, meet the definition of "modified
endowment contracts" under Section 7702A of the Code. The Code defines modified
endowment contracts as those policies issued or materially changed 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. The policies offered in this prospectus
typically fall within this definition. The Code provides for taxation of
surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts in a manner similar to
the way annuities are taxed. Any distribution is taxable to the extent the Cash
Value of the Policy exceeds, at the time of the distribution, the premiums paid
into the Policy. The Code generally provides for a 10% tax penalty on the
taxable portion of such distributions. That penalty is applicable unless the
distribution is: (1) paid after the Policy Owner is 59 1/2 or disabled; or (2)
the distribution is part of a series of substantially equal payments paid over
the life or life expectancy of the payee.
22
<PAGE> 26
Even though exchanges under Section 1035 of the Code qualify as material
changes, certain exchanges of pre-June 22, 1988 policies may retain their
non-modified endowment status. Therefore, the policies offered by this
prospectus may or may not be issued as modified endowment contracts. The Company
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 fifteen 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 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 certain material changes or a reduction in benefits as defined by
Section 7702A(c) of the Code.
In addition to meeting the tests required under Sections 7702, Section 817(h) of
the 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 insurance policy which does not satisfy the diversification
standards will not be treated as life insurance unless the failure to satisfy
the regulations was inadvertent, the failure is corrected, and the Policy Owner
or the Company pays an amount to the IRS. The amount will be based on the tax
that would have been paid by the 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.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances.
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 if no taxpayer identification number
is provided to the Company, or if the IRS notifies the Company that back-up
withholding is required.
FEDERAL ESTATE AND GENERATION - SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 1998, 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
owner of a policy, 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, the transfer may be subject to a
federal gift tax. In addition, if a 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 IRS,
the Company 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 their counsel or other competent advisors regarding these taxes.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
23
<PAGE> 27
NON-RESIDENT ALIENS
Predeath distributions to nonresident aliens (NRAs) from a modified endowment
contract are generally subject to federal income tax and tax withholding, at a
statutory rate of thirty percent (30%) of the amount of income that is
distributed. The Company 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 the Company
sufficient proof of his or her residency and citizenship in the form and manner
prescribed by the IRS. In addition, for any Distribution made after December 31,
1997, the NRA must obtain an Individual Taxpayer Identification Number from the
IRS, and furnish that number to the Company prior to the Distribution. If the
Company does not have the proper proof of citizenship or residency and (for
Distributions after December 31, 1997) a proper Individual Taxpayer
Identification Number prior to any Distribution, the Company will be required to
withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient sufficiently
establishes to the Company that the payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that the
payment is includable in the recipient's gross income for United States federal
income tax purposes. Any 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.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the value of Accumulation Units. As a result,
investment income and realized capital gains are automatically applied to
increase reserves under the Policies.
The Company 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, the Company determines that on a separate company
basis taxes may be incurred, it reserves the right to assess a charge for taxes
against the Variable Account.
The Company 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 the Company's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.
The Code has been subjected to numerous amendments and changes, and it is
reasonable to believe that it will continue to be revised. The United States
Congress has, in the past, considered numerous legislative proposal that, if
enacted, could change the tax treatment of the Policies. It is reasonable to
believe that such proposals may be enacted into law. In addition, the Treasury
Department may amend existing regulations, issue new regulations, or adopt new
interpretations of existing law that may be in variance with its current
positions on these matters. In addition, state law (which is not discussed
herein) 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 or 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 Benefit, or other distributions under the Policy. If there is currently a
treaty that provides favorable treatment for distributions from the Policy
and/or ownership of the Policy, that 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 whether, when, and to what extent any change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
24
<PAGE> 28
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
INSURANCE CONTRACTS. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD
NOT TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
THE COMPANY
The life insurance business, which includes product lines in health insurance
and annuities, is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company serves as depositor for the 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, MFS
Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI
Separate Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate
Account-3, the NACo Variable Account, the Nationwide DC Variable Account, and
the Nationwide DCVA-II, each of which is a registered investment company, and
each of which is a separate investment account of the Company. The Company, 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.
The Company 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,
the Company shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares its Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life and Annuity Insurance Company, together with Nationwide Mutual
Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide
Indemnity Company, Nationwide Life Insurance Company, Nationwide Property and
Casualty Insurance Company, National Casualty Company, Scottsdale Indemnity
Company and Nationwide General Insurance Company and their affiliated companies
comprise the Nationwide Insurance Enterprise. The companies comprising the
Nationwide Insurance Enterprise have substantially common boards of directors
and officers. Nationwide Financial Services, Inc. is the sole shareholder of
Nationwide Life.
<TABLE>
<CAPTION>
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICERS WITH PRINCIPAL OCCUPATION
PRINCIPAL BUSINESS ADDRESS DEPOSITOR
-------------------------- ---------
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator (1)
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
Keith W. Eckel Director Partner, Fred W. Eckel Sons;
1647 Falls Road President, Eckel Farms, Inc. (1)
Clarks Summit, PA 18411
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICERS WITH DEPOSITOR PRINCIPAL OCCUPATION
PRINCIPAL BUSINESS ADDRESS
<S> <C> <C>
Willard J. Engel Director Retired General Manager, Lyon County
301 East Marshall Street Co-operative Oil Company (1)
Marshall, MN 44691
Fred C. Finney Director Owner and Operator, Moreland Fruit
1558 West Moreland Road Farm; Operator, Melrose Orchard (1)
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director Chief Executive Officer, Fuellgraf
600 South Washington Street Electric Company (1)
Butler, PA 16001
Joseph J. Gasper President and Chief Operating Officer President and Chief Operating Officer,
One Nationwide Plaza and Director Nationwide Life Insurance Company and
Columbus, OH 43215 Nationwide Life and Annuity Insurance
Company (2)
Dimon R. McFerson Chairman and Chief Executive Chairman and Chief Executive
One Nationwide Plaza Officer-Nationwide Insurance Enterprise Officer-Nationwide Insurance
Columbus, OH 43215 and Director Enterprise (2)
David O. Miller Chairman of the Board and Director President, Owen Potato Farm, Inc.;
115 Sprague Drive Partner, M&M Enterprises (1)
Hebron, OH 43025
Yvonne L. Montgomery Director Senior Vice President-General Manager
Suite 1600 Southern Customer Operations for U.S.
2859 Paces Ferry Road Customer Operations, Xerox Corporation
Atlanta, GA 30339 (2)
C. Ray Noecker Director Owner and Operator Noecker Farms (1)
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director Vice President, Pattersons, Inc.;
8765 Mulberry Road President, Patterson Farms, Inc. (1)
Chesterland, OH 44026
Arden L. Shisler Director President and Chief Executive Officer,
1356 North Wenger Road K&B Transport, Inc. (1)
Dalton, OH 44618
Robert L. Stewart Director Owner and Operator Sunnydale Farms and
88740 Fairview Road Mining (1)
Jewett, OH 43986
Nancy C. Thomas Director Farm Owner and Operator, Da-Ma-Lor
10835 Georgetown Street NE Farms (1)
Louisville, OH 44641
Harold W. Weihl Director Farm Owner and Operator, Weihl Farms
14282 King Road (1)
Bowling Green, OH 43402
</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 affiliates of the
Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of the
Company and Nationwide Life and Annuity Insurance Company. Messrs. McFerson and
Gasper are directors of Nationwide Advisory Services, Inc., a registered
broker-dealer.
26
<PAGE> 30
Messrs., McFerson, Miller, Patterson Shisler and Fuellgraf are directors of
Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson, Ms. Thomas and
Mr. Weihl are trustees of Nationwide Investing Foundation and Nationwide
Investing Foundation III, registered investment companies. Messrs. Gasper and
Woodward are trustees of Nationwide Separate Account Trust and Nationwide Asset
Allocation Trust, registered investment companies Mr. McFerson is a trustee of
Financial Horizons Investment Trust and Nationwide Investing Foundation II,
registered investment companies. Mr. Engel is a director of Western Cooperative
Transport.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME OFFICE HELD
EXECUTIVE OFFICERS OF THE COMPANY
OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL ADDRESS OFFICES OF THE DEPOSITOR
<S> <C>
Robert A. Oakley Executive Vice President - Chief Executive Officer
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary, Health and Annuities
One Nationwide Plaza
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales and Financial Services
One Nationwide Plaza
Columbus, OH 43215
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
Matthew S. Easley Vice President - Life Marketing and Administrative Services
One Nationwide Plaza
Columbus, OH 43215
Timothy E. Murphy Vice President - Strategic Marketing
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President - Product and Market Compliance
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company 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 the Company.
STATE REGULATION
The Company 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
the Company for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine the Company's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. The Company'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, the Company is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner, at the last known address of record,
an annual statement showing the amount of the current Death Benefit, the Cash
Value, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each Sub-Account of the Variable Account, and any Policy
debt, as well as interest on the debt for the preceding year.
27
<PAGE> 31
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as change in Specified Amount, change in Death Benefit Option, changes in
future premium allocation, transfers among Sub-Accounts, premium payments,
loans, increase in loan principal, loan repayments, unpaid loan interest added
to principal, reinstatement and termination.
ADVERTISING
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of the
Company. The ratings are not intended to reflect the investment experience or
financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts . Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs based on selected tax brackets or
discussions of alternative investment vehicles and general economic conditions.
YEAR 2000 COMPLIANCE ISSUES
The Company has developed a plan to address issues related to the year 2000. The
problem relates to many existing computer programs using only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Company has been evaluating its exposure to the Year
2000 issue through a review of all of its operating systems as well as
dependencies on the systems of other users since 1996. The Company expects all
system changes and replacements needed to achieve Year 2000 compliance to be
completed by the end of 1998. Compliance testing will be completed in the first
quarter of 1999. The Company charges all costs associated with these system
changes as they occur.
Operating expenses in 1997 include approximately $45 million on technology
projects, which includes costs related to Year 2000 and the development of a new
policy administration system for traditional life insurance products and other
system enhancements. The Company anticipates spending a comparable amount in
1998 on technology projects, including Year 2000 initiatives. These expenses do
not have an effect on the assets of the Variable Account and are not charged
through to the Contract Owner.
LEGAL PROCEEDINGS
The Company is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on the Company.
The General Distributor, Van Kampen American Capital Distributors, Inc., is not
engaged in any material litigation of any nature.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In February, 1997, Nationwide Life was named as a
defendant in a lawsuit filed in New York Supreme Court which also related to the
sale of whole life policies on a "vanishing premium" basis (John H. Snyder v
Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks to represent
a national class of Nationwide Life policyholders and claims unspecified
compensatory and punitive damages. This lawsuit is in an early stage and has not
been certified as a class action. In April, 1997, a motion to dismiss the Snyder
complaint in its entirety was filed by the defendants, and the plaintiff has
opposed such motion.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and another who was the owner of a variable annuity contract,
commenced an action against Nationwide life Insurance Company and the American
Century group of defendants (Robert Young and David D Distad v. Nationwide Life
Insurance Company et al.). In this action, plaintiffs seek to represent a class
of variable insurance contract owners and variable annuity contract owners whom
they claim were allegedly misled when purchasing these variable contracts into
believing that some portion of their premiums were invested in a publicly traded
mutual fund when, in fact, the premium monies were invested in a mutual fund
whose shares may only be purchased by insurance companies. The complaint seeks
unspecified compensatory, treble and punitive damages. In January 1998, both
Nationwide Life Insurance Company and American Century filed motions to dismiss
the entire complaint. Plaintiff's counsel have opposed these motions and the
federal court in Texas heard arguments on the motions
28
<PAGE> 32
to dismiss in April, 1998. This lawsuit is in an early stage and has not been
certified as a class action. Nationwide Life Insurance Company intends to defend
this case vigorously.
There can be no assurance that any litigation relating to pricing and sales
practices will not have a material adverse effect on the Company in the future.
EXPERTS
The audited financial statements and schedules have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the 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, the Company, and the Policies offered hereby. Statements contained in
this prospectus as to the content of Policies and other legal instruments are
summaries. For a complete statement of the terms thereof, reference is made to
such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Deitrich, Reynolds and Koogler, One Nationwide Plaza, Columbus,
Ohio 43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
29
<PAGE> 33
APPENDIX 1
ILLUSTRATIONS OF WHEN ADDITIONAL PREMIUM PAYMENTS ARE PERMITTED
Example 1: A male non-tobacco, age 35, purchases a Policy with an initial
premium of $25,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a Specified
Amount of $179,733. In the 12th and subsequent policy years, annual premiums of
$2,177 may be paid without violating the premium limitations prescribed by the
IRS to qualify the Policy as a life insurance contract. Additional premiums
which increase the Specified Amount may be made at any time, subject to the
$1,000 minimum. The Company reserves the right to require satisfactory evidence
of insurability with any premium payment which increases the net amount at risk.
In addition, premium payments may be made at any time if they are required to
continue the Policy in force.
Example 2: A male non-tobacco, age 55, purchases a Policy with an initial
premium of $100,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a Specified
Amount of $306,283. In the 11th and subsequent policy years, annual premiums of
$9,591 may be paid without violating the premium limitations prescribed by the
IRS to qualify the Policy as a life insurance contract. Additional premiums
which increase the Specified Amount may be made at any time, subject to the
$1,000 minimum. The Company reserves the right to require satisfactory evidence
of insurability with any premium payment which increases the net amount at risk.
In addition, premium payments may be made at any time if they are required to
continue the Policy in force.
30
<PAGE> 34
APPENDIX 2
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 daily charges made against the assets of the Sub-Accounts for assuming
mortality and expense risks, recovering premium taxes and providing for
administrative expenses. On a current basis, these charges are equivalent to an
annual effective rate of 1.30% in the first 10 policy years and 1.00%
thereafter. On a guaranteed basis, these charges are equivalent to an annual
maximum effective rate of 1.60% in the first 10 policy years and 1.30%
thereafter. In addition, the net investment returns also reflect the deduction
of Underlying Mutual Fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.80%.
Taking account of the current charges for mortality and expense risks,
recovering premium taxes and providing for administrative and Underlying Mutual
Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net
investment experience at constant annual rates of -2.1%, 3.9%, and 9.9%
respectively, in policy years 1 through ten, and -1.8%, 4.2%, and 10.2%
thereafter. Taking account of guaranteed charges, gross annual rates of return
of 0%, 6% and 12% correspond to net investment experience at constant annual
rates of -2.4%, 3.6%, and 9.6% respectively, in policy years 1 through 10, and
- -2.1%, 3.9% and 9.9% thereafter.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for policies which are
issued as standard (including non-tobacco). Policies issued on a substandard
basis would result in lower Cash Values and Death Benefits than those
illustrated. Death Benefit Option 1 has been assumed in all the illustrations.
In addition, the illustrations reflect the fact that the Company deducts an
annual administrative charge at the beginning of each Policy Year after the
first. 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, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
31
<PAGE> 35
<TABLE>
<CAPTION>
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
CURRENT VALUES
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> <C>
1 10,500 9,657 8,807 43,190 10,242 9,392 43,190 10,826 9,976 43,190
2 11,025 9,246 8,396 43,190 10,415 9,565 43,190 11,654 10,804 43,190
3 11,576 8,830 8,030 43,190 10,585 9,785 43,190 12,555 11,755 43,190
4 12,155 8,408 7,608 43,190 10,750 9,950 43,190 13,536 12,736 43,190
5 12,763 7,978 7,228 43,190 10,908 10,158 43,190 14,605 13,855 43,190
6 13,401 7,539 6,839 43,190 11,059 10,359 43,190 15,771 15,071 43,190
7 14,071 7,088 6,488 43,190 11,199 10,599 43,190 17,043 16,443 43,190
8 14,775 6,622 6,122 43,190 11,325 10,825 43,190 18,430 17,930 43,190
9 15,513 6,136 5,736 43,190 11,435 11,035 43,190 19,946 19,546 43,190
10 16,289 5,629 5,629 43,190 11,525 11,525 43,190 21,603 21,603 43,190
11 17,103 5,112 5,112 43,190 11,627 11,627 43,190 23,488 23,488 43,190
12 17,959 4,571 4,571 43,190 11,710 11,710 43,190 25,566 25,566 43,190
13 18,856 4,004 4,004 43,190 11,772 11,772 43,190 27,862 27,862 43,190
14 19,799 3,408 3,408 43,190 11,811 11,811 43,190 30,403 30,403 43,190
15 20,789 2,780 2,780 43,190 11,822 11,822 43,190 33,219 33,219 44,513
16 21,829 2,114 2,114 43,190 11,801 11,801 43,190 36,323 36,323 47,220
17 22,920 1,407 1,407 43,190 11,745 11,745 43,190 39,724 39,724 50,846
18 24,066 651 651 43,190 11,646 11,646 43,190 43,448 43,448 54,745
19 25,270 (*) (*) (*) 11,497 11,497 43,190 47,528 47,528 58,935
20 26,533 (*) (*) (*) 11,292 11,292 43,190 52,000 52,000 63,440
21 27,860 (*) (*) (*) 11,023 11,023 43,190 56,902 56,902 68,283
22 29,253 (*) (*) (*) 10,659 10,659 43,190 62,259 62,259 74,088
23 30,715 (*) (*) (*) 10,186 10,186 43,190 68,110 68,110 80,370
24 32,251 (*) (*) (*) 9,583 9,583 43,190 74,502 74,502 87,167
25 33,864 (*) (*) (*) 8,829 8,829 43,190 81,482 81,482 94,520
26 35,557 (*) (*) (*) 7,891 7,891 43,190 89,104 89,104 102,469
27 37,335 (*) (*) (*) 6,728 6,728 43,190 97,461 97,461 110,130
28 39,201 (*) (*) (*) 5,286 5,286 43,190 106,635 106,635 118,365
29 41,161 (*) (*) (*) 3,501 3,501 43,190 116,725 116,725 127,230
30 43,219 (*) (*) (*) 1,296 1,296 43,190 127,847 127,847 136,797
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
32
<PAGE> 36
<TABLE>
<CAPTION>
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
GUARANTEED VALUES
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> <C>
1 10,500 9,616 8,766 43,190 10,199 9,349 43,190 10,781 9,931 43,190
2 11,025 9,110 8,260 43,190 10,268 9,418 43,190 11,495 10,645 43,190
3 11,576 8,600 7,800 43,190 10,327 9,527 43,190 12,267 11,467 43,190
4 12,155 8,084 7,284 43,190 10,374 9,574 43,190 13,101 12,301 43,190
5 12,763 7,561 6,811 43,190 10,407 9,657 43,190 14,004 13,254 43,190
6 13,401 7,029 6,329 43,190 10,424 9,724 43,190 14,981 14,281 43,190
7 14,071 6,483 5,883 43,190 10,420 9,820 43,190 16,039 15,439 43,190
8 14,775 5,920 5,420 43,190 10,393 9,893 43,190 17,185 16,685 43,190
9 15,513 5,336 4,936 43,190 10,337 9,937 43,190 18,426 18,026 43,190
10 16,289 4,726 4,726 43,190 10,248 10,248 43,190 19,772 19,772 43,190
11 17,103 4,098 4,098 43,190 10,151 10,151 43,190 21,298 21,298 43,190
12 17,959 3,434 3,434 43,190 10,013 10,013 43,190 22,965 22,965 43,190
13 18,856 2,729 2,729 43,190 9,827 9,827 43,190 24,791 24,791 43,190
14 19,799 1,976 1,976 43,190 9,587 9,587 43,190 26,796 26,796 43,190
15 20,789 1,168 1,168 43,190 9,283 9,283 43,190 29,002 29,002 43,190
16 21,829 294 294 43,190 8,905 8,905 43,190 31,438 31,438 43,190
17 22,920 (*) (*) (*) 8,441 8,441 43,190 34,137 34,137 43,695
18 24,066 (*) (*) (*) 7,874 7,874 43,190 37,104 37,104 46,751
19 25,270 (*) (*) (*) 7,185 7,185 43,190 40,336 40,336 50,016
20 26,533 (*) (*) (*) 6,352 6,352 43,190 43,856 43,856 53,504
21 27,860 (*) (*) (*) 5,352 5,352 43,190 47,691 47,691 57,229
22 29,253 (*) (*) (*) 4,156 4,156 43,190 51,858 51,858 61,711
23 30,715 (*) (*) (*) 2,735 2,735 43,190 56,383 56,383 66,532
24 32,251 (*) (*) (*) 1,045 1,045 43,190 61,298 61,298 71,719
25 33,864 (*) (*) (*) (*) (*) (*) 66,636 66,636 77,298
26 35,557 (*) (*) (*) (*) (*) (*) 72,430 72,430 83,295
27 37,335 (*) (*) (*) (*) (*) (*) 78,761 78,761 89,000
28 39,201 (*) (*) (*) (*) (*) (*) 85,690 85,690 95,116
29 41,161 (*) (*) (*) (*) (*) (*) 93,292 93,292 101,689
30 43,219 (*) (*) (*) (*) (*) (*) 101,661 101,661 108,778
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $135 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
33
<PAGE> 37
<TABLE>
<CAPTION>
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
CURRENT VALUES
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> <C>
1 10,500 9,672 8,822 41,661 10,256 9,406 41,661 10,841 9,991 41,661
2 11,025 9,252 8,402 41,661 10,421 9,571 41,661 11,660 10,810 41,661
3 11,576 8,829 8,029 41,661 10,583 9,783 41,661 12,552 11,752 41,661
4 12,155 8,402 7,602 41,661 10,741 9,941 41,661 13,524 12,724 41,661
5 12,763 7,970 7,220 41,661 10,895 10,145 41,661 14,586 13,836 41,661
6 13,401 7,532 6,832 41,661 11,043 10,343 41,661 15,745 15,045 41,661
7 14,071 7,084 6,484 41,661 11,184 10,584 41,661 17,012 16,412 41,661
8 14,775 6,625 6,125 41,661 11,314 10,814 41,661 18,396 17,896 41,661
9 15,513 6,152 5,752 41,661 11,431 11,031 41,661 19,909 19,509 41,661
10 16,289 5,661 5,661 41,661 11,532 11,532 41,661 21,566 21,566 41,661
11 17,103 5,165 5,165 41,661 11,651 11,651 41,661 23,453 23,453 41,661
12 17,959 4,649 4,649 41,661 11,754 11,754 41,661 25,533 25,533 41,661
13 18,856 4,112 4,112 41,661 11,841 11,841 41,661 27,832 27,832 41,661
14 19,799 3,549 3,549 41,661 11,909 11,909 41,661 30,376 30,376 41,918
15 20,789 2,958 2,958 41,661 11,954 11,954 41,661 33,184 33,184 44,467
16 21,829 2,335 2,335 41,661 11,973 11,973 41,661 36,272 36,272 47,153
17 22,920 1,675 1,675 41,661 11,962 11,962 41,661 39,654 39,654 50,757
18 24,066 971 971 41,661 11,915 11,915 41,661 43,359 43,359 54,633
19 25,270 218 218 41,661 11,826 11,826 41,661 47,420 47,420 58,800
20 26,533 (*) (*) (*) 11,690 11,690 41,661 51,870 51,870 63,282
21 27,860 (*) (*) (*) 11,499 11,499 41,661 56,751 56,751 68,101
22 29,253 (*) (*) (*) 11,229 11,229 41,661 62,085 62,085 73,881
23 30,715 (*) (*) (*) 10,866 10,866 41,661 67,916 67,916 80,141
24 32,251 (*) (*) (*) 10,396 10,396 41,661 74,288 74,288 86,917
25 33,864 (*) (*) (*) 9,799 9,799 41,661 81,250 81,250 94,250
26 35,557 (*) (*) (*) 9,048 9,048 41,661 88,856 88,856 102,184
27 37,335 (*) (*) (*) 8,111 8,111 41,661 97,197 97,197 109,832
28 39,201 (*) (*) (*) 6,943 6,943 41,661 106,355 106,355 118,054
29 41,161 (*) (*) (*) 5,491 5,491 41,661 116,427 116,427 126,905
30 43,219 (*) (*) (*) 3,694 3,694 41,661 127,528 127,528 136,455
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
34
<PAGE> 38
<TABLE>
<CAPTION>
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
GUARANTEED VALUES
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> <C>
1 10,500 9,623 8,773 41,661 10,206 9,356 41,661 10,788 9,938 41,661
2 11,025 9,109 8,259 41,661 10,267 9,417 41,661 11,494 10,644 41,661
3 11,576 8,592 7,792 41,661 10,319 9,519 41,661 12,258 11,458 41,661
4 12,155 8,071 7,271 41,661 10,359 9,559 41,661 13,084 12,284 41,661
5 12,763 7,543 6,793 41,661 10,385 9,635 41,661 13,979 13,229 41,661
6 13,401 7,006 6,306 41,661 10,396 9,696 41,661 14,948 14,248 41,661
7 14,071 6,457 5,857 41,661 10,387 9,787 41,661 15,997 15,397 41,661
8 14,775 5,892 5,392 41,661 10,355 9,855 41,661 17,135 16,635 41,661
9 15,513 5,306 4,906 41,661 10,295 9,895 41,661 18,369 17,969 41,661
10 16,289 4,697 4,697 41,661 10,204 10,204 41,661 19,708 19,708 41,661
11 17,103 4,071 4,071 41,661 10,107 10,107 41,661 21,228 21,228 41,661
12 17,959 3,410 3,410 41,661 9,968 9,968 41,661 22,889 22,889 41,661
13 18,856 2,710 2,710 41,661 9,785 9,785 41,661 24,711 24,711 41,661
14 19,799 1,964 1,964 41,661 9,549 9,549 41,661 26,714 26,714 41,661
15 20,789 1,165 1,165 41,661 9,252 9,252 41,661 28,920 28,920 41,661
16 21,829 303 303 41,661 8,884 8,884 41,661 31,358 31,358 41,661
17 22,920 (*) (*) (*) 8,434 8,434 41,661 34,053 34,053 43,588
18 24,066 (*) (*) (*) 7,884 7,884 41,661 36,997 36,997 46,617
19 25,270 (*) (*) (*) 7,217 7,217 41,661 40,203 40,203 49,852
20 26,533 (*) (*) (*) 6,412 6,412 41,661 43,694 43,694 53,307
21 27,860 (*) (*) (*) 5,446 5,446 41,661 47,499 47,499 56,999
22 29,253 (*) (*) (*) 4,293 4,293 41,661 51,632 51,632 61,442
23 30,715 (*) (*) (*) 2,922 2,922 41,661 56,121 56,121 66,223
24 32,251 (*) (*) (*) 1,295 1,295 41,661 60,996 60,996 71,366
25 33,864 (*) (*) (*) (*) (*) (*) 66,291 66,291 76,897
26 35,557 (*) (*) (*) (*) (*) (*) 72,038 72,038 82,843
27 37,335 (*) (*) (*) (*) (*) (*) 78,317 78,317 88,498
28 39,201 (*) (*) (*) (*) (*) (*) 85,190 85,190 94,561
29 41,161 (*) (*) (*) (*) (*) (*) 92,731 92,731 101,076
30 43,219 (*) (*) (*) (*) (*) (*) 101,032 101,032 108,104
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $135 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
35
<PAGE> 39
<TABLE>
<CAPTION>
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
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> <C>
1 26,250 24,174 22,049 114,856 25,636 23,511 114,856 27,097 24,972 114,856
2 27,563 23,291 21,166 114,856 26,223 24,098 114,856 29,328 27,203 114,856
3 28,941 22,397 20,397 114,856 26,810 24,810 114,856 31,759 29,759 114,856
4 30,388 21,492 19,492 114,856 27,396 25,396 114,856 34,411 32,411 114,856
5 31,907 20,572 18,697 114,856 27,978 26,103 114,856 37,306 35,431 114,856
6 33,502 19,633 17,883 114,856 28,553 26,803 114,856 40,467 38,717 114,856
7 35,178 18,669 17,169 114,856 29,116 27,616 114,856 43,920 42,420 114,856
8 36,936 17,675 16,425 114,856 29,663 28,413 114,856 47,693 46,443 114,856
9 38,783 16,643 15,643 114,856 30,186 29,186 114,856 51,817 50,817 114,856
10 40,722 15,567 15,567 114,856 30,681 30,681 114,856 56,332 56,332 114,856
11 42,758 14,484 14,484 114,856 31,235 31,235 114,856 61,462 61,462 114,856
12 44,896 13,349 13,349 114,856 31,762 31,762 114,856 67,116 67,116 114,856
13 47,141 12,159 12,159 114,856 32,260 32,260 114,856 73,356 73,356 114,856
14 49,498 10,907 10,907 114,856 32,724 32,724 114,856 80,254 80,254 114,856
15 51,973 9,584 9,584 114,856 33,146 33,146 114,856 87,888 87,888 117,770
16 54,572 8,182 8,182 114,856 33,518 33,518 114,856 96,305 96,305 125,196
17 57,300 6,689 6,689 114,856 33,833 33,833 114,856 105,530 105,530 135,078
18 60,165 5,089 5,089 114,856 34,076 34,076 114,856 115,640 115,640 145,707
19 63,174 3,368 3,368 114,856 34,235 34,235 114,856 126,722 126,722 157,136
20 66,332 1,510 1,510 114,856 34,297 34,297 114,856 138,873 138,873 169,425
21 69,649 (*) (*) (*) 34,250 34,250 114,856 152,200 152,200 182,641
22 73,132 (*) (*) (*) 34,034 34,034 114,856 166,778 166,778 198,465
23 76,788 (*) (*) (*) 33,625 33,625 114,856 182,720 182,720 215,609
24 80,627 (*) (*) (*) 32,991 32,991 114,856 200,153 200,153 234,179
25 84,659 (*) (*) (*) 32,091 32,091 114,856 219,214 219,214 254,289
26 88,892 (*) (*) (*) 30,868 30,868 114,856 240,050 240,050 276,058
27 93,336 (*) (*) (*) 29,254 29,254 114,856 262,908 262,908 297,086
28 98,003 (*) (*) (*) 27,158 27,158 114,856 288,008 288,008 319,689
29 102,903 (*) (*) (*) 24,470 24,470 114,856 315,612 315,612 344,017
30 108,049 (*) (*) (*) 21,069 21,069 114,856 346,029 346,029 370,251
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
36
<PAGE> 40
<TABLE>
<CAPTION>
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
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> <C>
1 26,250 24,010 21,885 114,856 25,465 23,340 114,856 26,920 24,795 114,856
2 27,563 22,932 20,807 114,856 25,837 23,712 114,856 28,914 26,789 114,856
3 28,941 21,839 19,839 114,856 26,189 24,189 114,856 31,070 29,070 114,856
4 30,388 20,726 18,726 114,856 26,515 24,515 114,856 33,402 31,402 114,856
5 31,907 19,589 17,714 114,856 26,813 24,938 114,856 35,927 34,052 114,856
6 33,502 18,421 16,671 114,856 27,075 25,325 114,856 38,663 36,913 114,856
7 35,178 17,214 15,714 114,856 27,293 25,793 114,856 41,626 40,126 114,856
8 36,936 15,959 14,709 114,856 27,457 26,207 114,856 44,836 43,586 114,856
9 38,783 14,642 13,642 114,856 27,555 26,555 114,856 48,317 47,317 114,856
10 40,722 13,254 13,254 114,856 27,577 27,577 114,856 52,095 52,095 114,856
11 42,758 11,820 11,820 114,856 27,592 27,592 114,856 56,370 56,370 114,856
12 44,896 10,287 10,287 114,856 27,510 27,510 114,856 61,045 61,045 114,856
13 47,141 8,645 8,645 114,856 27,318 27,318 114,856 66,169 66,169 114,856
14 49,498 6,877 6,877 114,856 26,999 26,999 114,856 71,799 71,799 114,856
15 51,973 4,962 4,962 114,856 26,531 26,531 114,856 78,001 78,001 114,856
16 54,572 2,876 2,876 114,856 25,887 25,887 114,856 84,854 84,854 114,856
17 57,300 592 592 114,856 25,041 25,041 114,856 92,441 92,441 118,325
18 60,165 (*) (*) (*) 23,949 23,949 114,856 100,752 100,752 126,948
19 63,174 (*) (*) (*) 22,565 22,565 114,856 109,801 109,801 136,153
20 66,332 (*) (*) (*) 20,838 20,838 114,856 119,657 119,657 145,981
21 69,649 (*) (*) (*) 18,711 18,711 114,856 130,397 130,397 156,477
22 73,132 (*) (*) (*) 16,118 16,118 114,856 142,065 142,065 169,057
23 76,788 (*) (*) (*) 12,984 12,984 114,856 154,740 154,740 182,593
24 80,627 (*) (*) (*) 9,213 9,213 114,856 168,506 168,506 197,152
25 84,659 (*) (*) (*) 4,678 4,678 114,856 183,456 183,456 212,810
26 88,892 (*) (*) (*) (*) (*) (*) 199,687 199,687 229,640
27 93,336 (*) (*) (*) (*) (*) (*) 217,419 217,419 245,684
28 98,003 (*) (*) (*) (*) (*) (*) 236,825 236,825 262,876
29 102,903 (*) (*) (*) (*) (*) (*) 258,116 258,116 281,347
30 108,049 (*) (*) (*) (*) (*) (*) 281,551 281,551 301,260
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $135 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
37
<PAGE> 41
<TABLE>
<CAPTION>
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
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> <C>
1 105,000 96,836 88,336 306,283 102,691 94,191 306,283 108,548 100,048 306,283
2 110,250 93,571 85,071 306,283 105,349 96,849 306,283 117,822 109,322 306,283
3 115,763 90,250 82,250 306,283 108,023 100,023 306,283 127,957 119,957 306,283
4 121,551 86,860 78,860 306,283 110,707 102,707 306,283 139,044 131,044 306,283
5 127,628 83,384 75,884 306,283 113,391 105,891 306,283 151,185 143,685 306,283
6 134,010 79,805 72,805 306,283 116,067 109,067 306,283 164,497 157,497 306,283
7 140,710 76,105 70,105 306,283 118,726 112,726 306,283 179,113 173,113 306,283
8 147,746 72,256 67,256 306,283 121,349 116,349 306,283 195,180 190,180 306,283
9 155,133 68,229 64,229 306,283 123,922 119,922 306,283 212,872 208,872 306,283
10 162,889 63,997 63,997 306,283 126,430 126,430 306,283 232,394 232,394 306,283
11 171,034 59,715 59,715 306,283 129,248 129,248 306,283 254,742 254,742 306,283
12 179,586 55,153 55,153 306,283 131,999 131,999 306,283 279,440 279,440 332,534
13 188,565 50,283 50,283 306,283 134,674 134,674 306,283 306,515 306,515 361,688
14 197,993 45,069 45,069 306,283 137,258 137,258 306,283 336,192 336,192 393,344
15 207,893 39,461 39,461 306,283 139,732 139,732 306,283 368,719 368,719 427,714
16 218,287 33,394 33,394 306,283 142,065 142,065 306,283 404,368 404,368 465,023
17 229,202 26,782 26,782 306,283 144,217 144,217 306,283 443,535 443,535 501,195
18 240,662 19,519 19,519 306,283 146,139 146,139 306,283 486,596 486,596 540,121
19 252,695 11,491 11,491 306,283 147,781 147,781 306,283 533,980 533,980 582,038
20 265,330 2,589 2,589 306,283 149,098 149,098 306,283 586,184 586,184 627,217
21 278,596 (*) (*) (*) 150,051 150,051 306,283 643,783 643,783 675,972
22 292,526 (*) (*) (*) 150,385 150,385 306,283 706,896 706,896 742,241
23 307,152 (*) (*) (*) 150,001 150,001 306,283 776,024 776,024 814,825
24 322,510 (*) (*) (*) 148,772 148,772 306,283 851,706 851,706 894,291
25 338,635 (*) (*) (*) 146,527 146,527 306,283 934,517 934,517 981,243
26 355,567 (*) (*) (*) 143,025 143,025 306,283 1,025,070 1,025,070 1,076,324
27 373,346 (*) (*) (*) 137,948 137,948 306,283 1,124,009 1,124,009 1,180,210
28 392,013 (*) (*) (*) 130,863 130,863 306,283 1,232,009 1,232,009 1,293,610
29 411,614 (*) (*) (*) 121,216 121,216 306,283 1,349,781 1,349,781 1,417,270
30 432,194 (*) (*) (*) 108,302 108,302 306,283 1,478,079 1,478,079 1,551,983
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
38
<PAGE> 42
<TABLE>
<CAPTION>
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
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> <C>
1 105,000 95,948 87,448 306,283 101,775 93,275 306,283 107,604 99,104 306,283
2 110,250 91,708 83,208 306,283 103,374 94,874 306,283 115,732 107,232 306,283
3 115,763 87,336 79,336 306,283 104,857 96,857 306,283 124,525 116,525 306,283
4 121,551 82,805 74,805 306,283 106,202 98,202 306,283 134,051 126,051 306,283
5 127,628 78,081 70,581 306,283 107,381 99,881 306,283 144,385 136,885 306,283
6 134,010 73,125 66,125 306,283 108,360 101,360 306,283 155,616 148,616 306,283
7 140,710 67,894 61,894 306,283 109,104 103,104 306,283 167,850 161,850 306,283
8 147,746 62,323 57,323 306,283 109,560 104,560 306,283 181,201 176,201 306,283
9 155,133 56,345 52,345 306,283 109,670 105,670 306,283 195,814 191,814 306,283
10 162,889 49,889 49,889 306,283 109,374 109,374 306,283 211,865 211,865 306,283
11 171,034 43,014 43,014 306,283 108,940 108,940 306,283 230,263 230,263 306,283
12 179,586 35,483 35,483 306,283 107,985 107,985 306,283 250,728 250,728 306,283
13 188,565 27,207 27,207 306,283 106,434 106,434 306,283 273,495 273,495 322,725
14 197,993 18,072 18,072 306,283 104,191 104,191 306,283 298,360 298,360 349,082
15 207,893 7,926 7,926 306,283 101,127 101,127 306,283 325,428 325,428 377,496
16 218,287 (*) (*) (*) 97,072 97,072 306,283 354,887 354,887 408,120
17 229,202 (*) (*) (*) 91,803 91,803 306,283 387,101 387,101 437,424
18 240,662 (*) (*) (*) 85,031 85,031 306,283 422,374 422,374 468,835
19 252,695 (*) (*) (*) 76,405 76,405 306,283 461,068 461,068 502,564
20 265,330 (*) (*) (*) 65,518 65,518 306,283 503,621 503,621 538,875
21 278,596 (*) (*) (*) 51,895 51,895 306,283 550,563 550,563 578,091
22 292,526 (*) (*) (*) 34,952 34,952 306,283 601,683 601,683 631,768
23 307,152 (*) (*) (*) 13,965 13,965 306,283 657,322 657,322 690,188
24 322,510 (*) (*) (*) (*) (*) (*) 717,842 717,842 753,734
25 338,635 (*) (*) (*) (*) (*) (*) 783,619 783,619 822,800
26 355,567 (*) (*) (*) (*) (*) (*) 855,039 855,039 897,791
27 373,346 (*) (*) (*) (*) (*) (*) 932,494 932,494 979,119
28 392,013 (*) (*) (*) (*) (*) (*) 1,016,372 1,016,372 1,067,191
29 411,614 (*) (*) (*) (*) (*) (*) 1,107,070 1,107,070 1,162,424
30 432,194 (*) (*) (*) (*) (*) (*) 1,204,998 1,204,998 1,265,248
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $135 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
39
<PAGE> 43
<TABLE>
<CAPTION>
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
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> <C>
1 105,000 96,508 88,008 211,021 102,374 93,874 211,021 108,241 99,741 211,021
2 110,250 92,854 84,354 211,021 104,682 96,182 211,021 117,213 108,713 211,021
3 115,763 89,070 81,070 211,021 106,972 98,972 211,021 127,070 119,070 211,021
4 121,551 85,137 77,137 211,021 109,240 101,240 211,021 137,933 129,933 211,021
5 127,628 81,027 73,527 211,021 111,476 103,976 211,021 149,940 142,440 211,021
6 134,010 76,704 69,704 211,021 113,668 106,668 211,021 163,251 156,251 211,021
7 140,710 72,123 66,123 211,021 115,796 109,796 211,021 178,060 172,060 211,021
8 147,746 67,225 62,225 211,021 117,840 112,840 211,021 194,591 189,591 215,996
9 155,133 61,951 57,951 211,021 119,777 115,777 211,021 212,875 208,875 232,034
10 162,889 56,238 56,238 211,021 121,591 121,591 211,021 232,962 232,962 249,269
11 171,034 50,190 50,190 211,021 123,647 123,647 211,021 255,820 255,820 268,611
12 179,586 43,354 43,354 211,021 125,474 125,474 211,021 280,866 280,866 294,909
13 188,565 35,600 35,600 211,021 127,041 127,041 211,021 308,299 308,299 323,714
14 197,993 26,767 26,767 211,021 128,308 128,308 211,021 338,333 338,333 355,249
15 207,893 16,637 16,637 211,021 129,219 129,219 211,021 371,196 371,196 389,756
16 218,287 4,918 4,918 211,021 129,691 129,691 211,021 407,131 407,131 427,488
17 229,202 (*) (*) (*) 129,613 129,613 211,021 446,394 446,394 468,714
18 240,662 (*) (*) (*) 128,837 128,837 211,021 489,252 489,252 513,715
19 252,695 (*) (*) (*) 127,175 127,175 211,021 535,989 535,989 562,788
20 265,330 (*) (*) (*) 124,397 124,397 211,021 586,902 586,902 616,247
21 278,596 (*) (*) (*) 120,215 120,215 211,021 642,311 642,311 674,426
22 292,526 (*) (*) (*) 114,104 114,104 211,021 702,504 702,504 737,629
23 307,152 (*) (*) (*) 105,486 105,486 211,021 767,818 767,818 806,209
24 322,510 (*) (*) (*) 93,550 93,550 211,021 838,603 838,603 880,533
25 338,635 (*) (*) (*) 77,123 77,123 211,021 915,212 915,212 960,973
26 355,567 (*) (*) (*) 54,481 54,481 211,021 997,997 997,997 1,047,897
27 373,346 (*) (*) (*) 23,024 23,024 211,021 1,089,398 1,089,398 1,132,973
28 392,013 (*) (*) (*) (*) (*) (*) 1,190,757 1,190,757 1,226,479
29 411,614 (*) (*) (*) (*) (*) (*) 1,303,713 1,303,713 1,329,788
30 432,194 (*) (*) (*) (*) (*) (*) 1,430,336 1,430,336 1,444,639
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
40
<PAGE> 44
<TABLE>
<CAPTION>
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
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> <C>
1 105,000 95,130 86,630 211,021 100,970 92,470 211,021 106,812 98,312 211,021
2 110,250 89,907 81,407 211,021 101,644 93,144 211,021 114,088 105,588 211,021
3 115,763 84,356 76,356 211,021 102,066 94,066 211,021 121,987 113,987 211,021
4 121,551 78,419 70,419 211,021 102,196 94,196 211,021 130,609 122,609 211,021
5 127,628 72,016 64,516 211,021 101,980 94,480 211,021 140,072 132,572 211,021
6 134,010 65,041 58,041 211,021 101,345 94,345 211,021 150,520 143,520 211,021
7 140,710 57,359 51,359 211,021 100,195 94,195 211,021 162,134 156,134 211,021
8 147,746 48,791 43,791 211,021 98,404 93,404 211,021 175,149 170,149 211,021
9 155,133 39,127 35,127 211,021 95,825 91,825 211,021 189,879 185,879 211,021
10 162,889 28,128 28,128 211,021 92,288 92,288 211,021 206,608 206,608 221,071
11 171,034 15,598 15,598 211,021 87,881 87,881 211,021 225,818 225,818 237,109
12 179,586 1,122 1,122 211,021 82,107 82,107 211,021 246,737 246,737 259,074
13 188,565 (*) (*) (*) 74,678 74,678 211,021 269,505 269,505 282,980
14 197,993 (*) (*) (*) 65,220 65,220 211,021 294,270 294,270 308,983
15 207,893 (*) (*) (*) 53,215 53,215 211,021 321,186 321,186 337,245
16 218,287 (*) (*) (*) 37,932 37,932 211,021 350,411 350,411 367,931
17 229,202 (*) (*) (*) 18,350 18,350 211,021 382,105 382,105 401,210
18 240,662 (*) (*) (*) (*) (*) (*) 416,427 416,427 437,249
19 252,695 (*) (*) (*) (*) (*) (*) 453,540 453,540 476,217
20 265,330 (*) (*) (*) (*) (*) (*) 493,610 493,610 518,290
21 278,596 (*) (*) (*) (*) (*) (*) 536,814 536,814 563,655
22 292,526 (*) (*) (*) (*) (*) (*) 583,336 583,336 612,502
23 307,152 (*) (*) (*) (*) (*) (*) 633,366 633,366 665,035
24 322,510 (*) (*) (*) (*) (*) (*) 687,104 687,104 721,459
25 338,635 (*) (*) (*) (*) (*) (*) 744,737 744,737 781,974
26 355,567 (*) (*) (*) (*) (*) (*) 806,444 806,444 846,766
27 373,346 (*) (*) (*) (*) (*) (*) 874,778 874,778 909,769
28 392,013 (*) (*) (*) (*) (*) (*) 950,870 950,870 979,396
29 411,614 (*) (*) (*) (*) (*) (*) 1,036,099 1,036,099 1,056,821
30 432,194 (*) (*) (*) (*) (*) (*) 1,132,229 1,132,229 1,143,552
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $135 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR 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.
41
<PAGE> 45
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide VLI Separate Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account as of December 31,
1997, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value 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 and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the transfer agents of the
underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VLI Separate Account as of December 31, 1997, and the
results of its operations and its changes in contract owners' equity and
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1998
<PAGE> 2
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in Van Kampen American Capital Life
Investment Trust, at market value:
Asset Allocation Fund
2,228,577 shares (cost $25,502,538) ........ $ 26,542,347
Domestic Income Fund
238,818 shares (cost $1,983,580) ........... 1,970,248
Emerging Growth Fund
124,404 shares (cost $1,926,652) ........... 2,046,452
Enterprise Fund
1,854,728 shares (cost $28,119,444) ........ 33,589,123
Global Equity Fund
110,739 shares (cost $1,364,424) ........... 1,217,018
Government Fund
5,195,955 shares (cost $45,750,900) ........ 46,347,922
Money Market Fund
6,952,567 shares (cost $6,952,567) ......... 6,952,567
Morgan Stanley Real Estate Securities Portfolio
41,789 shares (cost $636,325) .............. 662,354
------------
Total investments ....................... 119,328,031
Accounts receivable .............................. --
------------
Total assets ............................ 119,328,031
ACCOUNTS PAYABLE .................................... 73,300
------------
CONTRACT OWNERS' EQUITY ............................. $119,254,731
============
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
--------- ---------------- ----------------
<S> <C> <C> <C> <C>
Single Premium contracts issued prior
to April 16, 1990 (policy years 1
through 10):
Asset Allocation Fund ............. 122,920 $ 29.287817 $ 3,600,058 21%
Domestic Income Fund .............. 15,656 20.186939 316,047 11%
Emerging Growth Fund .............. 8,741 16.064598 140,421 19%
Enterprise Fund ................... 49,821 35.993026 1,793,209 29%
Global Equity Fund ................ 4,685 13.614803 63,785 15%
Government Fund ................... 380,541 20.830122 7,926,715 9%
Money Market Fund ................. 27,312 16.972125 463,543 4%
Morgan Stanley Real Estate
Securities Portfolio ........... 2,854 18.062622 51,551 20%
Single Premium contracts issued prior
to April 16, 1990 (policy years 11 and
thereafter):
Asset Allocation Fund ............. 769,061 29.508511 22,693,845 21%
Domestic Income Fund .............. 72,875 20.339100 1,482,212 11%
Emerging Growth Fund .............. 113,239 16.185767 1,832,860 20%
Enterprise Fund ................... 867,374 36.264286 31,454,699 30%
Global Equity Fund ................ 83,414 13.717407 1,144,224 15%
Government Fund ................... 1,827,060 20.988344 38,346,964 9%
Money Market Fund ................. 375,312 17.100077 6,417,864 5%
Morgan Stanley Real Estate
Securities Portfolio ........... 33,445 18.198663 608,654 21%
Single Premium contracts issued on or
after April 16, 1990:
Asset Allocation Fund ............. 5,402 25.080225 135,483 20%
Domestic Income Fund .............. 8,589 19.887916 170,817 10%
Emerging Growth Fund .............. 4,455 15.924922 70,946 19%
Enterprise Fund ................... 5,773 33.768883 194,948 29%
Global Equity Fund ................ 601 13.496423 8,111 14%
Government Fund ................... 2,998 15.737995 47,183 8%
Money Market Fund ................. 5,402 12.508709 67,572 4%
Morgan Stanley Real Estate
Securities Portfolio ........... 97 17.905659 1,737 20%
Multiple Payment and
Flexible Premium contracts:
Asset Allocation Fund ............. 4,430 22.707666 100,595 21%
Enterprise Fund ................... 4,147 29.102562 120,688 30%
========= ================ ----------------
$ 119,254,731
================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
INVESTMENT ACTIVITY:
<S> <C> <C> <C>
Reinvested dividends ................................ $ 4,695,756 5,220,160 6,137,134
Mortality and expense charges (note 3)
Single Premium contracts issued prior to
April 16, 1990 (years 1 through 10) ........ (245,990) (905,516) (1,117,265)
Single Premium contracts issued prior to
April 16, 1990 (years 11 and after) ........ (467,486) (116,717) --
Single Premium contracts issued on or after
April 16, 1990 ............................. (4,007) (5,466) (5,489)
Multiple Payment and Flexible Premium contracts (1,712) (2,386) (2,024)
------------- ------------- -------------
Net investment activity .......................... 3,976,561 4,190,075 5,012,356
------------- ------------- -------------
Proceeds from mutual fund shares sold ............... 31,042,460 24,568,211 23,835,749
Cost of mutual funds sold ........................... (28,311,120) (22,544,406) (21,777,460)
------------- ------------- -------------
Realized gain on investments ..................... 2,731,340 2,023,805 2,058,289
Change in unrealized gain (loss) on investments ..... 3,917,689 (1,839,618) 11,069,519
------------- ------------- -------------
Net gain on investments .......................... 6,649,029 184,187 13,127,808
------------- ------------- -------------
Reinvested capital gains ............................ 7,592,712 5,806,648 4,959,015
------------- ------------- -------------
Net increase in contract owners'
equity resulting from operations ........... 18,218,302 10,180,910 23,099,179
------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners ..... 20,253 23,475 25,652
Surrenders .......................................... (15,789,351) (13,731,809) (11,745,567)
Death benefits (note 4) ............................. (2,575,326) (1,201,226) (1,552,445)
Policy loans (net of repayments) (note 5) ........... 2,317,220 3,043,009 833,405
Deductions for surrender charges (note 2d) .......... (6,591) (16,455) (193,286)
Redemptions to pay cost of insurance charges
and administration charges (notes 2b and 2c) ..... (1,430,627) (1,499,564) (1,756,639)
------------- ------------- -------------
Net decrease in equity transactions ........... (17,464,422) (13,382,570) (14,388,880)
------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .................. 753,880 (3,201,660) 8,710,299
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ............ 118,500,851 121,702,511 112,992,212
------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD .................. $ 119,254,731 118,500,851 121,702,511
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLI Separate Account (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life
Insurance Company (the Company) on August 8, 1984. The Account has been
registered as a unit investment trust under the Investment Company Act
of 1940.
The Company offers modified single premium, multiple payment and
flexible premium variable life insurance contracts through the Account.
The primary distribution for the contracts is through the brokerage
community; however, other distributors may be utilized.
(b) The Contracts
Prior to December 31, 1990, only contracts without a front-end sales
charge, but with a contingent deferred sales charge and certain other
fees, were offered for purchase. Beginning December 31, 1990, contracts
with a front-end sales charge, a contingent deferred sales charge and
certain other fees, are offered for purchase. See note 2 for a
discussion of policy charges and note 3 for asset charges.
Contract owners may invest in the following funds:
Funds of the Van Kampen American Capital Life Investment Trust (Van
Kampen American Capital LIT);
Van Kampen American Capital LIT - Asset Allocation Fund
Van Kampen American Capital LIT - Domestic Income Fund
Van Kampen American Capital LIT - Emerging Growth Fund
Van Kampen American Capital LIT - Enterprise Fund
Van Kampen American Capital LIT - Global Equity Fund
Van Kampen American Capital LIT - Government Fund
Van Kampen American Capital LIT - Money Market Fund
Van Kampen American Capital LIT - Morgan Stanley Real Estate
Securities Portfolio
(formerly Van Kampen American Capital LIT - Real Estate
Securities Fund)
At December 31, 1997, contract owners have invested in all of the above
funds.
The contract owners' equity is affected by the investment results of
each fund, equity transactions by contract owners and certain policy
charges (see notes 2 and 3). The accompanying financial statements
include only contract owners' purchase payments pertaining to the
variable portions of their contracts and exclude any purchase payments
for fixed dollar benefits, the latter being included in the accounts of
the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1997. Fund purchases and
sales are accounted for on the trade date (date the order to buy or
sell is executed). The cost of investments sold is determined on a
specific identification basis, and dividends (which include capital
gain distributions) are accrued as of the ex-dividend date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with,
operations of the Company, which is taxed as a life insurance company
under the provisions of the Internal Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or
withdrawal.
<PAGE> 6
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if
any, at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(f) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform with
the current period presentation.
(2) POLICY CHARGES
(a) Deductions from Premiums
For single premium contracts, no deduction is made from any premium at
the time of payment. On multiple payment contracts and flexible premium
contracts, the Company deducts a charge for state premium taxes equal
to 2.5% of all premiums received to cover the payment of these premium
taxes. The Company also deducts a sales load from each premium payment
received not to exceed 3.5% of each premium payment. The Company may at
its sole discretion reduce this sales loading.
(b) Cost of Insurance
A cost of insurance charge is assessed monthly against each contract by
liquidating units. The amount of the charge is based upon age, sex,
rate class and net amount at risk (death benefit less total contract
value).
(c) Administrative Charges
For single premium contracts, the Company deducts an annual
administrative charge which is determined as follows:
Contracts issued prior to April 16, 1990:
Purchase payments totalling less than $25,000 - $10/month
Purchase payments totalling $25,000 or more - none
Contracts issued on or after April 16, 1990:
Purchase payments totalling less than $25,000 - $90/year ($65/year
in New York)
Purchase payments totalling $25,000 or more - $50/year
For multiple payment contracts the Company currently deducts a monthly
administrative charge of $5 (may deduct up to $7.50, maximum) to
recover policy maintenance, accounting, record keeping and other
administrative expenses.
For flexible premium contracts, the Company currently deducts a monthly
administrative charge of $12.50 during the first policy year and $5 per
month thereafter (may deduct up to $7.50, maximum) to recover policy
maintenance, accounting, record keeping and other administrative
expenses. Additionally, the Company deducts an increase charge of $2.04
per year per $1,000 applied to any increase in the specified amount
during the first 12 months after the increase becomes effective.
The above charges are assessed against each contract by liquidating
units.
(d) Surrender Charges
Policy surrenders result in a redemption of the contract value from the
Account and payment of the surrender proceeds to the contract owner or
designee. The surrender proceeds consist of the contract value, less
any outstanding policy loans, and less a surrender charge, if
applicable. The charge is determined according to contract type.
For single premium contracts, the charge is determined based upon a
specified percentage of the original purchase payment. For single
premium contracts issued prior to April 16, 1990, the charge is 8% in
the first year and declines to 0% after the ninth year. For single
premium contracts issued on or after April 16, 1990, the charge is 8.5%
in the first year and declines to 0% after the ninth year.
For multiple payment contracts and flexible premium contracts, the
amount charged is based upon a specified percentage of the initial
surrender charge, which varies by issue age, sex and rate class. The
charge is 100% of the initial surrender charge in the first year, with
certain exceptions, declining to 0% after the ninth year.
The Company may waive the surrender charge for certain contracts in
which the sales expenses normally associated with the distribution of a
contract are not incurred.
<PAGE> 7
(3) ASSET CHARGES
For single premium contracts, the Company deducts a charge from the
contract to cover mortality and expense risk charges related to operations,
and to recover policy maintenance and premium tax charges. For contracts
issued prior to April 16, 1990, the charge is equal to an annual rate of
.95% during the first ten policy years, and .50% thereafter. A reduction of
charges on these contracts is possible in policy years six through ten for
those contracts achieving certain investment performance criteria; for
contracts issued on or after April 16, 1990, the charge is equal to an
annual rate of 1.30% during the first ten policy years, and 1.00%
thereafter.
For multiple payment contracts and flexible premium contracts, the Company
deducts a charge equal to an annual rate of .80%, with certain exceptions,
to cover mortality and expense risk charges related to operations.
The above charges are assessed through the daily unit value calculation.
(4) DEATH BENEFITS
Death benefits result in a redemption of the contract value from the
Account and payment of the death benefit proceeds, less any outstanding
policy loans and policy charges, to the legal beneficiary. The excess of
the death benefit proceeds over the contract value on the date of death is
paid by the Company's general account.
(5) POLICY LOANS (NET OF REPAYMENTS)
Contract provisions allow contract owners to borrow up to 90% (50% during
first year of single premium contracts) of a policy's cash surrender value.
For single premium contracts issued prior to April 16, 1990, 6.5% interest
is due and payable annually in advance. For single premium contracts issued
on or after April 16, 1990, multiple payment contracts and flexible premium
contracts, 6% interest is due and payable in advance on the policy
anniversary when there is a loan outstanding on the policy.
At the time the loan is granted, the amount of the loan is transferred from
the Account to the Company's general account as collateral for the
outstanding loan. Collateral amounts in the general account are credited
with the stated rate of interest in effect at the time the loan is made,
subject to a guaranteed minimum rate. Loan repayments result in a transfer
of collateral, including interest, back to the Account.
(6) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
(7) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for contract owners' equity. This schedule is presented in
the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gain and dividend distributions from the underlying mutual
funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Asset charges
(This amount reflects the decrease in the unit value due to the
charges discussed in note 3.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
<PAGE> 8
SCHEDULE I
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
(POLICY YEARS 1 THROUGH 10)
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
Asset Domestic Emerging
Allocation Income Growth Enterprise
Fund Fund Fund Fund
------------ ------------ ------------ ------------
1997
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $ 24.272482 18.211426 13.467256 27.810473
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 4.001033 1.610349 .000000 5.118148
------------ ------------ ------------ ------------
Unrealized gain (loss) 1.265248 .546307 2.737897 3.375233
------------ ------------ ------------ ------------
Asset charges (.250946) (.181143) (.140555) (.310828)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 29.287817 20.186939 16.064598 35.993026
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 21% 11% 19% 29%
============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 21.519909 17.235188 11.655608 22.498859
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 3.456144 1.551321 .000000 3.050863
------------ ------------ ------------ ------------
Unrealized gain (loss) (.488445) (.410339) 1.935098 2.501932
------------ ------------ ------------ ------------
Asset charges (.215126) (.164744) (.123450) (.241181)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 24.272482 18.211426 13.467256 27.810473
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 13% 6% 16% 24%
============ ============ ============ ============
1995
Beginning unit value - Jan. 1 $ 16.538427 14.336077 10.000000 16.580891
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 2.418600 1.359225 .000000 3.004553
------------ ------------ ------------ ------------
Unrealized gain (loss) 2.744315 1.690878 1.707069 3.100329
------------ ------------ ------------ ------------
Asset charges (.181433) (.150992) (.051461) (.186914)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 21.519909 17.235188 11.655608 22.498859
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 30% 20% 17%(b) 36%
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Global Money Real Estate
Equity Government Market Securities
Fund Fund Fund Portfolio
------------ ------------ ------------ ------------
1997
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 11.864328 19.185493 16.307639 15.011508
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 2.506526 1.231903 .822488 2.041009
------------ ------------ ------------ ------------
Unrealized gain (loss) (.630887) .602372 .000000 1.163065
------------ ------------ ------------ ------------
Asset charges (.125164) (.189646) (.158002) (.152960)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 13.614803 20.830122 16.972125 18.062622
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 15% 9% 4% 20%
============ ============ ============ ============
1996
Beginning unit value - Jan. 1 10.262083 18.968390 15.695093 10.784280
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends .358540 1.225305 .764922 .288822
------------ ------------ ------------ ------------
Unrealized gain (loss) 1.350014 (.828963) .000000 4.051625
------------ ------------ ------------ ------------
Asset charges (.106309) (.179239) (.152376) (.113219)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 11.864328 19.185493 16.307639 15.011508
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 16% 1% 4% 39%
============ ============ ============ ============
1995
Beginning unit value - Jan. 1 10.000000 16.344365 15.022875 10.000000
------------ ------------ ------------ ------------
Reinvested capital gains
and dividends .000000 1.217414 .817690 .092106
------------ ------------ ------------ ------------
Unrealized gain (loss) .309271 1.576618 .000000 .740132
------------ ------------ ------------ ------------
Asset charges (.047188) (.170007) (.145472) (.047958)
------------ ------------ ------------ ------------
Ending unit value - Dec. 31 10.262083 18.968390 15.695093 10.784280
------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) 3%(b) 16% 4% 8%(b)
============ ============ ============ ============
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in
note 2; and
(b) This investment option was not utilized for the entire year
indicated.
<PAGE> 9
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
(POLICY YEARS 11 AND THEREAFTER)
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997 AND 1996
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
Asset Domestic Emerging Global
Allocation Income Growth Enterprise Equity
Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997
Beginning unit value - Jan. 1 $ 24.345677 18.266338 13.507925 27.894373 11.900110
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 4.028773 1.622049 .000000 5.154574 2.524570
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) 1.266844 .546552 2.752212 3.379811 (.641040)
------------ ------------ ------------ ------------ ------------
Asset charges (.132783) (.095839) (.074370) (.164472) (.066233)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 29.508511 20.339100 16.185767 36.264286 13.717407
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 21% 11% 20% 30% 15%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 21.519909 17.235188 11.655608 22.498859 10.262083
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 3.464578 1.555582 .000000 3.057101 .359541
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) (.492537) (.411984) 1.935344 2.501147 1.350463
------------ ------------ ------------ ------------ ------------
Asset charges (.146273) (.112448) (.083027) (.162734) (.071977)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 24.345677 18.266338 13.507925 27.894373 11.900110
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 13% 6% 16% 24% 16%
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Money Real Estate
Government Market Securities
Fund Fund Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
1997
Beginning unit value - Jan. 1 19.243796 16.356824 15.056707
------------ ------------ ------------
Reinvested capital gains
and dividends 1.238209 .826847 2.055828
------------ ------------ ------------
Unrealized gain (loss) .606462 .000000 1.167058
------------ ------------ ------------
Asset charges (.100123) (.083594) (.080930)
------------ ------------ ------------
Ending unit value - Dec. 31 20.988344 17.100077 18.198663
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 9% 5% 21%
============ ============ ============
1996
Beginning unit value - Jan. 1 18.968390 15.695093 10.784280
------------ ------------ ------------
Reinvested capital gains
and dividends 1.226436 .765692 .289605
------------ ------------ ------------
Unrealized gain (loss) (.828621) .000000 4.058907
------------ ------------ ------------
Asset charges (.122409) (.103961) (.076085)
------------ ------------ ------------
Ending unit value - Dec. 31 19.243796 16.356824 15.056707
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 1% 4% 40%
============ ============ ============
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
<PAGE> 10
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
Asset Domestic Emerging Global
Allocation Income Growth Enterprise Equity
Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------
1997
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $ 20.858239 18.004549 13.396950 26.183349 11.802380
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 3.427827 1.586829 .000000 4.803438 2.485382
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) 1.088735 .541166 2.718959 3.181817 (.621245)
------------ ------------ ------------ ------------ ------------
Asset charges (.294576) (.244628) (.190987) (.399721) (.170094)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 25.080225 19.887916 15.924922 33.768883 13.496423
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 20% 10% 19% 29% 14%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 18.558022 17.099466 11.635640 21.257132 10.244489
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends 2.971435 1.534027 .000000 2.874772 .356729
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) (.417798) (.405672) 1.929643 2.362697 1.346140
------------ ------------ ------------ ------------ ------------
Asset charges (.253420) (.223272) (.168333) (.311252) (.144978)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 $ 20.858239 18.004549 13.396950 26.183349 11.802380
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value* 12% 5% 15% 23% 15%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 $ 14.311997 14.272889 ** 15.720497 **
------------ ------------ ------------
Reinvested capital gains
and dividends 2.086061 1.348751 2.839638
------------ ------------ ------------
Unrealized gain (loss) 2.374431 1.683177 2.939071
------------ ------------ ------------
Asset charges (.214467) (.205351) (.242074)
------------ ------------ ------------
Ending unit value - Dec. 31 $ 18.558022 17.099466 21.257132
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 30% 20% 35%
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Money Real Estate
Government Market Securities
Fund Fund Portfolio
------------ ------------ ------------
1997
<S> <C> <C> <C>
Beginning unit value - Jan. 1 14.546815 12.061110 14.933196
------------ ------------ ------------
Reinvested capital gains
and dividends .932504 .607223 2.023697
------------ ------------ ------------
Unrealized gain (loss) .455416 .000000 1.156620
------------ ------------ ------------
Asset charges (.196740) (.159624) (.207854)
------------ ------------ ------------
Ending unit value - Dec. 31 15.737995 12.508709 17.905659
------------ ------------ ------------
Percentage increase (decrease)
in unit value* 8% 4% 20%
============ ============ ============
1996
Beginning unit value - Jan. 1 14.433482 11.648994 **
------------ ------------
Reinvested capital gains
and dividends .930855 .566598
------------ ------------
Unrealized gain (loss) (.630892) .000000
------------ ------------
Asset charges (.186630) (.154482)
------------ ------------
Ending unit value - Dec. 31 14.546815 12.061110
------------
Percentage increase (decrease)
in unit value* 1% 4%
============ ===========
1995
Beginning unit value - Jan. 1 12.480782 11.189053 **
------------ ------------
Reinvested capital gains
and dividends .928076 .607952
------------ ------------
Unrealized gain (loss) 1.202259 .000000
------------ ------------
Asset charges (.177635) (.148011)
------------ ------------
Ending unit value - Dec. 31 14.433482 11.648994
------------ ------------
Percentage increase (decrease)
in unit value* 16% 4%
============ ============
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
** This investment option was not being utilized or was not available.
<PAGE> 11
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
ASSET
ALLOCATION ENTERPRISE
FUND FUND
------------ ------------
1997**
<S> <C> <C>
Beginning unit value - Jan 1 $ 18.790954 22.452797
------------ ------------
Reinvested capital gains
and dividends 3.101494 4.137761
------------ ------------
Unrealized gain (loss) .978939 2.723484
------------ ------------
Asset charges (.163721) (.211480)
------------ ------------
Ending unit value - Dec. 31 $ 22.707666 29.102562
------------ ------------
Percentage increase (decrease)
in unit value* 21% 30%
============ ============
1996
Beginning unit value - Jan 1 $ 16.634918 18.137100
------------ ------------
Reinvested capital gains
and dividends 2.675077 2.462233
------------ ------------
Unrealized gain (loss) (.378897) 2.017312
------------ ------------
Asset charges (.140144) (.163848)
------------ ------------
Ending unit value - Dec. 31 $ 18.790954 22.452797
------------ ------------
Percentage increase (decrease)
in unit value* 13% 24%
============ ============
1995
Beginning unit value - Jan 1 $ 12.765144 13.346462
------------ ------------
Reinvested capital gains
and dividends 1.869449 2.421740
------------ ------------
Unrealized gain (loss) 2.118344 2.495698
------------ ------------
Asset charges (.118019) (.126800)
------------ ------------
Ending unit value - Dec. 31 $ 16.634918 18.137100
------------ ------------
Percentage increase (decrease)
in unit value* 30% 36%
============ ============
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
** No other investment options were being utilized.
See note 7.
<PAGE> 46
<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, 1997 and
1996, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 30, 1998
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
ASSETS 1997 1996
------
----------------- ---------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $13,204.1 $12,304.6
Equity securities 80.4 59.1
Mortgage loans on real estate, net 5,181.6 5,272.1
Real estate, net 311.4 265.8
Policy loans 415.3 371.8
Other long-term investments 25.2 28.7
Short-term investments 358.4 4.8
---------- ---------
19,576.4 18,306.9
---------- ---------
Cash 175.6 43.8
Accrued investment income 210.5 210.2
Deferred policy acquisition costs 1,665.4 1,366.5
Investment in subsidiaries classified as discontinued operations - 485.7
Other assets 438.4 426.5
Assets held in Separate Accounts 37,724.4 26,926.7
---------- ---------
$59,790.7 $47,766.3
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims $18,702.8 $17,600.6
Other liabilities 885.6 1,101.1
Liabilities related to Separate Accounts 37,724.4 26,926.7
---------- ---------
57,312.8 45,628.4
---------- ---------
Commitments and contingencies (notes 7 and 13)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 527.9
Retained earnings 1,312.3 1,432.6
Unrealized gains on securities available-for-sale, net 247.1 173.6
---------- ---------
2,477.9 2,137.9
---------- ---------
$59,790.7 $47,766.3
========== =========
</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 of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Investment product and universal life insurance product policy charges $ 545.2 $ 400.9 $ 286.6
Traditional life insurance premiums 205.4 198.6 199.1
Net investment income 1,409.2 1,357.8 1,294.0
Realized gains (losses) on investments 11.1 (0.3) (1.7)
Other 46.5 35.9 20.7
---------- ---------- ----------
2,217.4 1,992.9 1,798.7
---------- ---------- ----------
Benefits and expenses:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Other benefits and claims 178.2 178.3 165.2
Policyholder dividends on participating policies 40.6 41.0 39.9
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Other operating expenses 384.9 342.4 273.0
---------- ---------- ----------
1,787.5 1,677.4 1,511.1
---------- ---------- ----------
Income from continuing operations before federal income tax expense 429.9 315.5 287.6
Federal income tax expense 150.2 110.9 99.8
---------- ---------- ----------
Income from continuing operations 279.7 204.6 187.8
Income from discontinued operations (less federal income tax expense
of $4.5 and $7.4 in 1996 and 1995, respectively) - 11.3 24.7
---------- ---------- ----------
Net income $ 279.7 $ 215.9 $ 212.5
========== ========== ==========
</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
(in millions of dollars)
<TABLE>
<CAPTION>
Unrealized
gains
(losses)
Additional on securities Total
Common paid-in Retained available- shareholder's
stock capital earnings for-sale, net equity
----------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $3.8 $ 606.2 $1,378.2 $(119.7) $1,868.5
Capital contribution - 51.0 - (4.1) 46.9
Net income - - 212.5 - 212.5
Dividends to shareholder - - (7.5) - (7.5)
Unrealized gains on securities available-
for-sale, net - - - 508.1 508.1
-------- -------- -------- -------- ---------
December 31, 1995 3.8 657.2 1,583.2 384.3 2628.5
Net income - - 215.9 - 215.9
Dividends to shareholder - (129.3) (366.5) (39.8) (535.6)
Unrealized losses on securities available-
for-sale, net - - - (170.9) (170.9)
-------- -------- -------- -------- ---------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Capital contribution - 836.8 - - 836.8
Net income - - 279.7 - 279.7
Dividends to shareholder - (450.0) (400.0) - (850.0)
Unrealized gains on securities available-
for-sale, net - - - 73.5 73.5
-------- -------- -------- -------- ---------
December 31, 1997 $3.8 $ 914.7 $1,312.3 $ 247.1 $2,477.9
======== ======== ======== ======== =========
</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 of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1997 1996 1995
------------------------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 279.7 $ 215.9 $ 212.5
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Capitalization of deferred policy acquisition costs (487.9) (422.6) (321.3)
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Amortization and depreciation (2.0) 7.0 10.2
Realized (gains) losses on invested assets, net (11.1) (0.3) 3.3
(Increase) decrease in accrued investment income (0.3) 2.8 (16.9)
(Increase) decrease in other assets (12.7) (38.9) 39.9
(Decrease) increase in policy liabilities (23.1) (151.0) 123.9
Increase in other liabilities 230.6 191.4 27.0
Other, net (10.9) (61.7) 1.8
----------- --------- --------
Net cash provided by operating activities 1,146.1 858.3 1,113.4
----------- --------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 993.4 1,162.8 634.6
Proceeds from sale of securities available-for-sale 574.5 299.6 107.3
Proceeds from maturity of fixed maturity securities held-to-maturity - - 564.4
Proceeds from repayments of mortgage loans on real estate 437.3 309.0 207.8
Proceeds from sale of real estate 34.8 18.5 48.3
Proceeds from repayments of policy loans and sale of other invested assets 22.7 22.8 53.6
Cost of securities available-for-sale acquired (2,828.1) (1,573.6) (1,942.4)
Cost of fixed maturity securities held-to-maturity acquired - - (593.6)
Cost of mortgage loans on real estate acquired (752.2) (972.8) (796.0)
Cost of real estate acquired (24.9) (7.9) (10.9)
Policy loans issued and other invested assets acquired (62.5) (57.7) (75.9)
Short-term investments, net (354.8) 28.0 77.8
----------- --------- --------
Net cash used in investing activities (1,959.8) (771.3) (1,725.0)
----------- --------- --------
Cash flows from financing activities:
Proceeds from capital contributions 836.8 - -
Cash dividends paid - (50.0) (7.5)
Increase in investment product and universal life insurance
product account balances 2,488.5 1,781.8 1,883.7
Decrease in investment product and universal life insurance
product account balances (2,379.8) (1,784.5) (1,258.7)
----------- --------- --------
Net cash provided by (used in) financing activities 945.5 (52.7) 617.5
----------- --------- --------
Net increase in cash 131.8 34.3 5.9
Cash, beginning of year 43.8 9.5 3.6
----------- --------- --------
Cash, end of year $ 175.6 $ 43.8 $ 9.5
=========== ========= =========
</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, 1997, 1996 and 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 11 and 15. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are
classified and reported as discontinued operations are not
consolidated but rather are reported as "Investment in
subsidiaries classified as discontinued operations" in the
accompanying consolidated balance sheets and "Income from
discontinued operations" in the accompanying consolidated
statements of income. All significant intercompany balances and
transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1997 or 1996.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities. Universal life insurance products
include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of
insurance, policy administration and surrender charges that have
been earned and assessed against policy account balances during
the period. Policy benefits and claims that are charged to expense
include interest credited to policy account balances and benefits
and claims incurred in the period in excess of related policy
account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
(d) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses
on fixed maturity securities available-for-sale as described in
note 2(b). For traditional life insurance products, these deferred
policy acquisition costs are predominantly being amortized with
interest over the premium paying period of the related policies in
proportion to the ratio of actual annual premium revenue to the
anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for
computing liabilities for future policy benefits.
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $365.5 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the Separate Accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) FUTURE POLICY BENEFITS
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
Future policy benefits for traditional life insurance policies
have been calculated using a net level premium method based on
estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the
time the policies were issued, rather than the assumptions
prescribed by state regulatory authorities. See note 4.
<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 50% in 1997 (52%
in 1996 and 54% in 1995) of the Company's life insurance in force,
77% in 1997 (78% in 1996 and 79% in 1995) of the number of life
insurance policies in force, and 27% in 1997 (40% in 1996 and 47%
in 1995) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) FEDERAL INCOME TAX
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 11 and 15.
(j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - REPORTING
COMPREHENSIVE INCOME was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. The statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income includes all changes in equity during a
period except those resulting from investments by shareholders and
distributions to shareholders and includes net income.
Comprehensive income would be reported in addition to earnings
amounts currently presented. The Company will adopt the statement
and begin reporting comprehensive income in the first quarter of
1998.
(k) RECLASSIFICATION
Certain items in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997
presentation.
<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, 1997 and
1996 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ - $ 313.7
Obligations of states and political subdivisions 1.6 - - 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
------------ --------- --------- -----------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
------------ --------- --------- -----------
$ 12,800.7 $ 498.3 $ (14.5) $ 13,284.5
============ ========= ========= ===========
December 31, 1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 275.7 $ 4.8 $ (1.3) $ 279.2
Obligations of states and political subdivisions 6.2 0.5 - 6.7
Debt securities issued by foreign governments 100.7 2.1 (0.9) 101.9
Corporate securities 7,999.3 285.9 (33.7) 8,251.5
Mortgage-backed securities 3,589.0 91.4 (15.1) 3,665.3
------------ --------- --------- -----------
Total fixed maturity securities 11,970.9 384.7 (51.0) 12,304.6
Equity securities 43.9 15.6 (0.4) 59.1
------------ --------- --------- -----------
$ 12,014.8 $ 400.3 $ (51.4) $ 12,363.7
============ ========= ========= ===========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1997, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
-------------- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 419.2 $ 422.1
Due after one year through five years 4,573.5 4,708.4
Due after five years through ten years 2,772.6 2,879.7
Due after ten years 1,333.4 1,443.6
----------- -----------
9,098.7 9,453.8
Mortgage-backed securities 3,634.2 3,750.3
----------- -----------
$ 12,732.9 $ 13,204.1
=========== ===========
</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 gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- ----------
<S> <C> <C>
Gross unrealized gains $ 483.8 $349.0
Adjustment to deferred policy acquisition costs (103.7) (81.9)
Deferred federal income tax (133.0) (93.5)
-------- -------
$ 247.1 $173.6
======== =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------- -----------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $137.5 $(289.2) $876.3
Equity securities (2.7) 8.9 -
Fixed maturity securities held-to-maturity - - 75.6
------- ------- -------
$134.8 $(280.3) $ 951.9
======= ======= =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1997,
1996 and 1995 were $574.5 million, $299.6 million and $107.3 million,
respectively. During 1997, gross gains of $9.9 million ($6.6 million
and $4.8 million in 1996 and 1995, respectively) and gross losses of
$18.0 million ($6.9 million and $2.1 million in 1996 and 1995,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25.4 million to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of those
fixed maturity securities resulted in a gross unrealized loss of $3.5
million.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November
1995, the Company transferred nearly all of its fixed maturity
securities previously classified as held-to-maturity to
available-for-sale. As of December 14, 1995, the date of transfer, the
fixed maturity securities had amortized cost of $3.32 billion,
resulting in a gross unrealized gain of $155.9 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million ($51.8 million as
of December 31, 1996), which includes $3.9 million ($41.7 million as of
December 31, 1996) of impaired mortgage loans on real estate for which
the related valuation allowance was $0.1 million ($8.5 million as of
December 31, 1996) and $16.0 million ($10.1 million as of December 31,
1996) of impaired mortgage loans on real estate for which there was no
valuation allowance. During 1997, the average recorded investment in
impaired mortgage loans on real estate was approximately $31.8 million
($39.7 million in 1996) and interest income recognized on those loans
was $1.0 million ($2.1 million in 1996), which is equal to interest
income recognized using a cash-basis method of income recognition.
<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 of dollars) 1997 1996
------------- -------------
<S> <C> <C>
Allowance, beginning of year $51.0 $49.1
(Reductions) additions charged to operations (1.2) 4.5
Direct write-downs charged against the allowance (7.3) (2.6)
------ ------
Allowance, end of year $42.5 $51.0
====== ======
</TABLE>
Real estate is presented at cost less accumulated depreciation of $45.1
million as of December 31, 1997 ($30.3 million as of December 31, 1996)
and valuation allowances of $11.1 million as of December 31, 1997
($15.2 million as of December 31, 1996).
Investments that were non-income producing for the twelve month period
preceding December 31, 1997 amounted to $19.4 million ($26.8 million
for 1996) and consisted of $3.0 million ($0.2 million in 1996) in
securities available-for-sale, $16.4 million ($20.6 million in 1996) in
real estate and none ($5.9 million in 1996) in other long-term
investments.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 911.6 $ 917.1 $ 685.8
Equity securities 0.8 1.3 1.3
Fixed maturity securities held-to-maturity - - 201.8
Mortgage loans on real estate 457.7 432.8 395.5
Real estate 42.9 44.3 38.3
Short-term investments 22.7 4.2 10.6
Other 21.0 4.0 7.2
-------- -------- --------
Total investment income 1,456.7 1,403.7 1,340.5
Less investment expenses 47.5 45.9 46.5
-------- -------- --------
Net investment income $1,409.2 $1,357.8 $1,294.0
======== ======== ========
</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 of dollars) 1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ 3.6 $(3.5) $ 4.2
Equity securities 2.7 3.2 3.4
Mortgage loans on real estate 1.6 (4.1) (7.1)
Real estate and other 3.2 4.1 (2.2)
------ ------ ------
$11.1 $(0.3) $(1.7)
====== ====== ======
</TABLE>
Fixed maturity securities with an amortized cost of $6.2 million as
of December 31, 1997 and 1996 were on deposit with various
regulatory agencies as required by law.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts
represents approximately 86% and 87% of the total liability for future
policy benefits as of December 31, 1997 and 1996, respectively. The
average interest rate credited on investment product policies was
approximately 6.1%, 6.3% and 6.6% for the years ended December 31,
1997, 1996 and 1995, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
INTEREST RATES: Interest rates vary by issue year and were 6.9%
and 6.6% in 1997 and 1996, respectively. Interest rates have
generally ranged from 6.0% to 10.5% for previous issue years.
WITHDRAWALS: Rates, which vary by issue age, type of coverage and
policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on published
tables, modified for the Company's actual experience.
The Company has entered into a reinsurance contract to cede a portion
of its general account individual annuity business to The Franklin Life
Insurance Company (Franklin). Total recoveries due from Franklin were
$220.2 million and $240.5 million as of December 31, 1997 and 1996,
respectively. The contract is immaterial to the Company's results of
operations. The ceding of risk does not discharge the original insurer
from its primary obligation to the policyholder. Under the terms of the
contract, Franklin has established a trust as collateral for the
recoveries. The trust assets are invested in investment grade
securities, the market value of which must at all times be greater than
or equal to 102% of the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as
described in note 11. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(5) FEDERAL INCOME TAX
The Company's current federal income tax liability was $60.1 million
and $30.2 million as of December 31, 1997 and 1996, respectively.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $200.1 $183.0
Liabilities in Separate Accounts 242.0 188.4
Mortgage loans on real estate and real estate 19.0 23.4
Other assets and other liabilities 59.2 53.7
------- ------
Total gross deferred tax assets 520.3 448.5
Less valuation allowance (7.0) (7.0)
------- ------
Net deferred tax assets 513.3 441.5
------- ------
Deferred tax liabilities:
Deferred policy acquisition costs 480.5 399.3
Fixed maturity securities 193.3 133.2
Deferred tax on realized investment gains 40.1 37.6
Equity securities and other long-term investments 7.5 8.2
Other 22.2 25.4
------- ------
Total gross deferred tax liabilities 743.6 603.7
------- ------
Net deferred tax liability $230.3 $162.2
======= ======
</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, 1997, 1996 and 1995.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable $121.7 $116.5 $88.7
Deferred tax expense (benefit) 28.5 (5.6) 11.1
------ ------ ------
$150.2 $110.9 $99.8
====== ====== ======
</TABLE>
Total federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
(in millions of dollars) Amount % Amount % Amount %
---------------------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $150.5 35.0 $110.4 35.0 $100.6 35.0
Tax exempt interest and dividends
received deduction - 0.0 (0.2) (0.1) - 0.0
Other, net (0.3) (0.1) 0.7 0.3 (0.8) (0.3)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $150.2 34.9 $110.9 35.2 $ 99.8 34.7
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $91.8 million, $115.8 million and
$51.8 million during the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
FIXED MATURITY AND EQUITY SECURITIES: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
MORTGAGE LOANS ON REAL ESTATE, NET: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
POLICY LOANS, SHORT-TERM INVESTMENTS AND CASH: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender
charges.
INVESTMENT CONTRACTS: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 13.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $13,204.1 $13,204.1 $12,304.6 $12,304.6
Equity securities 80.4 80.4 59.1 59.1
Mortgage loans on real estate, net 5,181.6 5,509.7 5,272.1 5,397.9
Policy loans 415.3 415.3 371.8 371.8
Short-term investments 358.4 358.4 4.8 4.8
Cash 175.6 175.6 43.8 43.8
Assets held in Separate Accounts 37,724.4 37,724.4 26,926.7 26,926.7
Liabilities:
Investment contracts 14,708.2 14,322.1 13,914.4 13,484.5
Policy reserves on life insurance contracts 3,345.4 3,182.4 3,392.8 3,197.5
Liabilities related to Separate Accounts 37,724.4 36,747.0 26,926.7 26,164.2
</TABLE>
(7) RISK DISCLOSURES
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduce demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
CREDIT RISK: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $341.4 million
extending into 1998 were outstanding as of December 31, 1997. The
Company also had $63.9 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1997.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 20% (21% in 1996) in any geographic area and no more than 2% (2%
in 1996) with any one borrower as of December 31, 1997. As of December
31, 1997, 46% (44% in 1996) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1997 and 1996. See note 4.
(8) PENSION PLAN
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. Benefits are based upon the highest average annual
salary of a specified number of consecutive years of the last ten years
of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost
of the enhanced benefit was borne by NMIC and certain of its property
and casualty insurance company affiliates.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau Insurance
Companies Pension Plan to form the Nationwide Insurance Enterprise
Retirement Plan (the Retirement Plan). Immediately prior to the merger,
the plans were amended to provide consistent benefits for service after
January 1, 1996. These amendments had no significant impact on the
accumulated benefit obligation or projected benefit obligation as of
December 31, 1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1997, 1996 and 1995 were $7.5 million, $7.4
million and $10.5 million, respectively.
The Company had no net accrued pension expense as of December 31, 1997
($1.1 million as of December 31, 1996).
The net periodic pension cost for the Retirement Plan as a whole for
the years ended December 31, 1997 and 1996 and for the Nationwide
Insurance Companies and Affiliates Retirement Plan as a whole for the
year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 77.3 $ 75.5 $ 64.5
Interest cost on projected benefit obligation 118.6 105.5 95.3
Actual return on plan assets (328.0) (210.6) (249.3)
Net amortization and deferral 196.4 101.8 143.4
-------- -------- --------
$ 64.3 $ 72.2 $ 53.9
======== ======== ========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate 6.50% 6.00% 7.50%
Rate of increase in future compensation levels 4.75% 4.25% 6.25%
Expected long-term rate of return on plan assets 7.25% 6.75% 8.75%
</TABLE>
Information regarding the funded status of the Retirement Plan as a
whole as of December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,547.5 $1,338.6
Nonvested 13.5 11.1
-------- ---------
$1,561.0 $1,349.7
======== =========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $2,033.8 $1,847.8
Plan assets at fair value 2,212.9 1,947.9
--------- ---------
Plan assets in excess of projected benefit obligation 179.1 100.1
Unrecognized prior service cost 34.7 37.9
Unrecognized net gains (330.7) (202.0)
Unrecognized net asset at transition 33.3 37.2
--------- ---------
$ (83.6) $ (26.8)
========= =========
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Weighted average discount rate 6.00% 6.50%
Rate of increase in future compensation levels 4.25% 4.75%
</TABLE>
Assets of the Retirement Plan are invested in group annuity contracts
of NLIC and Employers Life Insurance Company of Wausau (ELICW).
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1997 and 1996 was $36.5 million and $34.9 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1997, 1996 and
1995 was $3.0 million, $3.3 million and $3.1 million, respectively.
Information regarding the funded status of the plan as a whole as of
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 93.3 $ 93.0
Fully eligible, active plan participants 31.6 23.7
Other active plan participants 113.0 84.0
-------- --------
Accumulated postretirement benefit obligation 237.9 200.7
Plan assets at fair value 69.2 63.0
-------- --------
Plan assets less than accumulated postretirement benefit obligation (168.7) (137.7)
Unrecognized transition obligation of affiliates 1.5 1.7
Unrecognized net losses (gains) 1.6 (23.2)
-------- --------
$(165.6) $(159.2)
======== ========
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year) $ 7.0 $ 6.5 $ 6.2
Interest cost on accumulated postretirement
benefit obligation 14.0 13.7 14.2
Actual return on plan assets (3.6) (4.3) (2.7)
Amortization of unrecognized transition
obligation of affiliates 0.2 0.2 3.0
Net amortization and deferral (0.5) 1.8 (1.6)
------- ------ ------
$17.1 $17.9 $19.1
======= ====== ======
</TABLE>
Actuarial assumptions used for the measurement of the APBO and the
NPPBC for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
APBO:
Discount rate 6.70% 7.25% 6.75%
Assumed health care cost trend rate:
Initial rate 12.13% 11.00% 11.00%
Ultimate rate 6.12% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
NPPBC:
Discount rate 7.25% 6.65% 8.00%
Long term rate of return on plan
assets, net of tax 5.89% 4.80% 8.00%
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 10.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the plan as a whole, a one percentage point increase in the assumed
health care cost trend rate would increase the APBO as of December 31,
1997 by $0.4 million and have no impact on the NPPBC for the year ended
December 31, 1997.
(10) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The statutory capital and surplus of NLIC as of December 31, 1997, 1996
and 1995 was $1.13 billion, $1.00 billion and $1.36 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1997, 1996 and 1995 was $111.7 million, $73.2 million and
$86.5 million, respectively.
As a result of the $850.0 million dividend paid on February 24, 1997,
any dividend paid by NLIC during the twelve-month period immediately
following the $850.0 million dividend would be an extraordinary
dividend under Ohio insurance laws. Accordingly, no such dividend could
be paid without prior regulatory approval. The Company has no reason to
believe that any reasonably foreseeable dividend to be paid by NLIC
would not receive the required approval.
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(11) TRANSACTIONS WITH AFFILIATES
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1997, 1996 and 1995, the
Company made lease payments to NMIC and its subsidiaries of $8.4
million, $9.1 million and $9.0 million, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $85.8 million, $101.6 million and $107.1
million in 1997, 1996 and 1995, respectively. The allocations are based
on techniques and procedures in accordance with insurance regulatory
guidelines. Measures used to allocate expenses among companies include
individual employee estimates of time spent, special cost studies,
salary expense, commissions expense and other methods agreed to by the
participating companies that are within industry guidelines and
practices. The Company believes these allocation methods are
reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated
on a stand alone basis. Amounts payable to NMIC from the Company under
the cost sharing agreement were $20.5 million and $15.1 million as of
December 31, 1997 and 1996, respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1997 and
1996 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements exist between NLIC and,
respectively, NMIC and ELICW whereby all of NLIC's accident and health
and group life insurance business is ceded on a modified coinsurance
basis. NLIC entered into the reinsurance agreements during 1996 because
the accident and health and group life insurance business was unrelated
to the Company's long-term savings and retirement products.
Accordingly, the accident and health and group life insurance business
has been accounted for as discontinued operations for all periods
presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company's retention of such risk. The agreements
will remain in force until all policy obligations are settled. However,
with respect to the agreement between NLIC and NMIC, either party may
terminate the contract on January 1 of any year with prior notice. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW
-------------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Premiums $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other revenue $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and other expenses $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $211.0 million and $4.8 million as of
December 31, 1997 and 1996, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding
shares of common stock of Farmland Life Insurance Company (Farmland) to
NLIC. Farmland merged into WCLIC effective June 30, 1995. The
contribution resulted in a direct increase to consolidated
shareholder's equity of $46.9 million. As discussed in note 15, WCLIC
is accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1997 were $66.1
million, $76.9 million and $57.3 million, respectively.
(12) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million loan over
a five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several and
not joint liability with respect to any amount drawn by either NLIC or
NMIC. NLIC and NMIC pay facility and usage fees to the financial
institutions to maintain the revolving credit facility. All previously
existing line of credit agreements were canceled. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(13) CONTINGENCIES
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to
be material to the Company's financial position or results of
operations.
(14) SEGMENT INFORMATION
The Company has three product segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists
of annuity contracts that provide the customer with the opportunity to
invest in mutual funds managed by the Company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. The Fixed Annuities segment consists of annuity
contracts that generate a return for the customer at a specified
interest rate, fixed for a prescribed period, with returns accumulating
on a tax-deferred basis. The Fixed Annuities segment also includes the
fixed option under the Company's variable annuity contracts. The Life
Insurance segment consists of insurance products that provide a death
benefit and may also allow the customer to build cash value on a
tax-deferred basis. In addition, the Company reports corporate expenses
and investments, and the related investment income supporting capital
not specifically allocated to its product segments in a Corporate and
Other segment. In addition, all realized gains and losses and
investment management fees and other revenue earned from mutual funds,
other than the portion allocated to the variable annuities and life
insurance segments, are reported in the Corporate and Other segment.
The following table summarizes revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1997, 1996 and 1995 and assets as of December 31, 1997,
1996 and 1995, by segment.
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 404.0 $ 284.6 $ 189.1
Fixed Annuities 1,141.4 1,092.6 1,052.0
Life Insurance 473.1 435.6 409.1
Corporate and Other 198.9 180.1 148.5
----------- ---------- ----------
$ 2,217.4 $ 1,992.9 $ 1,798.7
=========== ========== ==========
Income from continuing operations before federal income tax
expense:
Variable Annuities $ 150.9 $ 90.3 $ 50.8
Fixed Annuities 169.5 135.4 137.0
Life Insurance 70.9 67.2 67.6
Corporate and Other 38.6 22.6 32.2
----------- ---------- ----------
$ 429.9 $ 315.5 $ 287.6
=========== ========== ==========
Assets:
Variable Annuities $ 35,278.7 $ 25,069.7 $ 17,333.0
Fixed Annuities 14,436.3 13,994.7 13,250.4
Life Insurance 3,901.4 3,353.3 3,027.4
Corporate and Other 6,174.3 5,348.6 4,896.8
----------- ---------- ----------
$ 59,790.7 $ 47,766.3 $ 38,507.6
=========== ========== ==========
</TABLE>
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(15) DISCONTINUED OPERATIONS
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, NLIC effected certain transactions with respect to certain
subsidiaries and lines of business that were unrelated to long-term
savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend
payable to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of three subsidiaries: ELICW, NCC
and WCLIC. ELICW writes group accident and health and group life
insurance business and maintains it offices in Wausau, Wisconsin. NCC
is a property and casualty company with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC and
WCLIC have been accounted for as discontinued operations in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
Also, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 11 for a
complete discussion of the reinsurance agreements. The Company has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated
companies. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company did not recognize any gain or loss on the disposal of the
accident and health and group life insurance business. The assets,
liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for
financial reporting purposes from the remaining assets, liabilities,
results of operations and activities of the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Revenues $ - $ 668.9 $ 776.9
Net income $ - $ 11.3 $ 24.7
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Assets, consisting primarily of investments $247.3 $3,288.5 $3,206.7
Liabilities, consisting primarily of policy benefits and claims $247.3 $2,802.8 $2,700.0
</TABLE>
<PAGE> 47
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 17 to Form S-6 Registration Statement
comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 76 pages.
Representations and Undertakings.
Accountants' Consent.
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
1. Power of Attorney dated April 1, 1998 Attached hereto.
<TABLE>
<S> <C>
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for
authorizing the establishment of the Registrant, the Nationwide VLI Separate Account, and hereby incorporated
adopted. herein by reference.
3. Distribution Contracts Included with the Registration Statement on Form
N-8B-2 for the Nationwide VLI Separate Account, and
hereby incorporated herein by reference.
4. Form of Security Included with Post-Effective Amendment No. 8 and hereby
incorporated herein by reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form
N-8B-2 for the Nationwide VLI Separate Account, and
hereby incorporated herein by reference.
6. Application form of Security Included with Post-Effective Amendment No. 8 and hereby
incorporated herein by reference.
7. Opinion of Counsel Included with Post-Effective Amendment No. 8 and hereby
incorporated herein by reference.
</TABLE>
<PAGE> 48
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940 (the "1940 Act"). The Registrant and the Company elect to be
governed by Rule 6e-3(T)(b)(13)(i)(B) under the 1940 Act with respect to the
Policies described in the prospectus. The Policies have been designed in such a
way as to qualify for the exemptive relief from various provisions of the 1940
Act afforded by Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges") assumed by
the Company under the Policies. The Company represents that the risk charges are
within the range of industry practice for comparable policies and reasonable in
relation to all of the risks assumed by the issuer under the Policies. Actuarial
memoranda demonstrating the reasonableness of these charges are maintained by
the Company, and will be made available to the Securities and Exchange
Commission (the "SEC") on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available to the
SEC on request a memorandum setting forth the basis for this representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the SEC such
supplementary and periodic information, documents, and reports as may be
prescribed by any rule or regulation of the SEC heretofore or hereafter duly
adopted pursuant to authority conferred in that section.
(f) The fees and charges deducted under the Policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the Company.
<PAGE> 49
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of the Nationwide VLI Separate Account:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 29, 1998
<PAGE> 50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
NATIONWIDE VLI SEPARATE ACCOUNT, certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 17 and has duly caused this Post-Effective Amendment No. 17 to be signed on
its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Columbus, and State of Ohio,
on this 29th day of April, 1998.
NATIONWIDE VLI SEPARATE ACCOUNT
----------------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Seal) -----------------------------------------------
Attest: (Sponsor)
W. SIDNEY DRUEN By: JOSEPH P. RATH
- -------------------------- -------------------------------------------
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President-Product and Market Compliance
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 17 has been signed below by the following persons in the
capacities indicated on the day of April 29, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- -------------------------------------------------
Lewis J. Alphin
A. I. BELL Director
- -------------------------------------------------
A. I. Bell
KEITH W. ECKEL Director
- -------------------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -------------------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- -------------------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- -------------------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief
- -------------------------------------------------
Joseph J. Gasper Operating Office and Director
DIMON R. McFERSON Chairman and Chief Executive Officer-
- ------------------------------------------------- -
Dimon R. McFerson Nationwide Insurance Enterprise and Director
DAVID O. MILLER Chairman of the Board and Director
- -------------------------------------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- -------------------------------------------------
Yvonne L. Montgomery
C. RAY NOECKER Director
- -------------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ------------------------------------------------- ----------------------------
James F. Patterson Joseph P. Rath
ARDEN L. SHISLER Director Attorney-in-Fact
- -------------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -------------------------------------------------
Harold W. Weihl
</TABLE>
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, and if applicable, of the Investment
Company Act of 1940, as amended, various Registration Statements and amendments
thereto for the registration under said Act of Individual Deferred Variable
Annuity Contracts in connection with MFS Variable Account, Nationwide Variable
Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide Variable
Account-9, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B,
Nationwide VA Separate Account-C and Nationwide VA Separate Account-Q; and the
registration of fixed interest rate options subject to a market value adjustment
offered under some or all of the aforementioned individual Variable Annuity
Contracts in connection with Nationwide Multiple Maturity Separate Account and
Nationwide Multiple Maturity Separate Account-A, and the registration of Group
Flexible Fund Retirement Contracts in connection with Nationwide DC Variable
Account, Nationwide DCVA-II, and NACo Variable Account; and the registration of
Group Common Stock Variable Annuity Contracts in connection with Separate
Account No. 1; and the registration of variable life insurance policies in
connection with Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4,
Nationwide VL Separate Account-A and Nationwide VL Separate Account-B,
Nationwide VL Separate Account-C, hereby constitutes and appoints Dimon R.
McFerson, Joseph J. Gasper, W. Sidney Druen, Mark R. Thresher, and Joseph P.
Rath, and each of them with power to act without the others, his/her attorney,
with full power of substitution and resubstitution, for and in his/her name,
place and stead, in any and all capacities, to approve, and sign such
Registration Statements and any and all amendments thereto, with power to affix
the corporate seal of said corporation thereto and to attest said seal and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the U.S. Securities and Exchange Commission, hereby granting
unto said attorneys, and each of them, full power and authority to do and
perform all and every act and thing requisite to all intents and purposes as
he/she might or could do in person, hereby ratifying and confirming that which
said attorneys, or any of them, may lawfully do or cause to be done by virtue
hereof. This instrument may be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 1st day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ Yvonne L. Montgomery
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director Yvonne L. Montgomery, Director
/s/ A. I. Bell /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
A. I. Bell, Director C. Ray Noecker, Director
/s/ Keith W. Eckel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Keith W. Eckel, Director Robert A. Oakley, Executive Vice President - Chief
Financial Officer
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Charles L. Fuellgraf /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Robert L. Stewart, Director
/s/ Joseph J. Gasper /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Nancy C. Thomas, Director
and Director
/s/ Dimon R. McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon R. McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
/s/ David O. Miller
- -------------------------------------------------
David O. Miller, Chairman of the Board, Director
</TABLE>
