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Registration No. 33-35698
================================================================================
REGISTRATION STATEMENT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 9
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)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of rule (485)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective
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: Multiple Payment 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>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<C> <S>
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
</TABLE>
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<TABLE>
<C> <S>
43..............................................................................Not Applicable
44..............................................................................How The Cash Value Varies
45..............................................................................Not Applicable
46..............................................................................How The Cash Value Varies
47..............................................................................Not Applicable
48..............................................................................Custodian of Assets
49..............................................................................Not Applicable
50..............................................................................Not Applicable
51..............................................................................Summary of The Policies;
Information About The Policies
52..............................................................................Substitution of Securities
53..............................................................................Taxation of The Company
54..............................................................................Not Applicable
55..............................................................................Not Applicable
56..............................................................................Not Applicable
57..............................................................................Not Applicable
58..............................................................................Not Applicable
59..............................................................................Financial Statements
</TABLE>
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NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 182150
One Nationwide Plaza
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800)238-3035
MULTIPLE PAYMENT VARIABLE LIFE INSURANCE POLICIES
ISSUED BY THE 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, meet the definition of life insurance
contracts under Section 7702 of the Internal Revenue Code (the "Code"). The
Policies are designed to generally require the payment of the Guideline Single
Premium in five annual installments for death benefit Option 1 and five or more
annual Guideline Level Premiums under death benefit Option 2.
The Policy Owner may allocate Net 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 the following Underlying Mutual Fund
options:
<TABLE>
<S> <C>
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")
</TABLE>
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 without value. Also, during the
first five Policy Years, the total premium payments less any existing Policy
Indebtedness must be greater than or equal to the Minimum Premium requirement in
order for the Policy to continue in force.
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 BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN EVERY
JURISDICTION. PLEASE REFER TO YOUR POLICY FOR SPECIFIC BENEFIT INFORMATION.
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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<PAGE> 5
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 Death Proceeds are paid.
CASH VALUE- The sum of the Policy values 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 LEVEL PREMIUM- The amount of level annual premium calculated in
accordance with the provisions of the Code. It represents the level annual
premiums required to mature the Policy under guaranteed mortality and expense
charges, and an interest rate of 4%.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Code. 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.
INDEBTEDNESS- Amounts owed the Company as a result of Policy loans including
both principal and accrued interest.
INITIAL PREMIUM- The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy Data Page.
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.
MINIMUM PREMIUM- The Minimum Premium is shown on the Policy Data Page. It is
used to measure the total amount that must be paid during the first five Policy
Years to continue the Policy in force.
MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding
month.
NET ASSET VALUE- The value of one share of an Underlying Mutual Fund at the end
of a market day or at the close of the New York Stock Exchange. It is computed
by adding the value of all portfolio holdings plus other assets, deducting
liabilities and then dividing the result by the number of shares outstanding.
NET PREMIUMS- Net Premiums are equal to the actual premiums minus the percent of
premium charge. The percent of premium charges are shown on the Policy Data
Page.
POLICY ANNIVERSARY- The same day and month as the Policy Date for succeeding
years.
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
Indebtedness.
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
Anniversary thereafter.
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SCHEDULED PREMIUM- The Scheduled Premium is shown on the Policy Data Page. It is
used to calculate the initial specified amount.
SPECIFIED AMOUNT- A dollar amount used to determine the Death Benefit under a
Policy as shown on the Policy Data Page.
SUB-ACCOUNTS- Separate and distinct divisions of the Variable Account, to which
specific Underlying Mutual Fund shares are allocated and for which Accumulation
Units are separately maintained.
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-Account will be invested.
UNSCHEDULED PREMIUM- Additional premium payments which may be allowed under
certain conditions.
VALUATION DATE- Each day the New York Stock Exchange and the Home Office are
open for business, or any other day during which there is a sufficient degree of
trading of the 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......................................................................................................2
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...................................................................................................8
Investments of the Variable Account...........................................................................8
Van Kampen American Capital Life Investment Trust.............................................................9
Reinvestment.................................................................................................10
Transfers....................................................................................................10
Dollar Cost Averaging........................................................................................10
Substitution of Securities...................................................................................10
Voting Rights................................................................................................11
INFORMATION ABOUT THE POLICIES........................................................................................11
Underwriting and Issuance....................................................................................11
Minimum Requirements for Issuance of a Policy................................................................11
Premium Payments.............................................................................................11
Allocation of Cash Value.....................................................................................12
Short-Term Right to Cancel Policy............................................................................12
POLICY CHARGES........................................................................................................12
Deductions from Premiums.....................................................................................12
Surrender Charges............................................................................................12
Reductions to Surrender Charges..............................................................................13
Deductions from Cash Value...................................................................................13
Monthly Cost of Insurance....................................................................................14
Monthly Administrative Charge................................................................................14
Deductions from the Sub-Accounts.............................................................................14
Expenses of the Underlying Mutual Funds......................................................................15
HOW THE CASH VALUE VARIES.............................................................................................15
How the Investment Experience is Determined..................................................................15
Net investment factor........................................................................................16
Determining The Cash Value...................................................................................16
Valuation Date and Valuation Period..........................................................................16
SURRENDERING THE POLICY FOR CASH......................................................................................16
Right to Surrender...........................................................................................16
Cash Surrender Value.........................................................................................16
Partial Surrenders...........................................................................................17
Maturity Proceeds............................................................................................17
Income Tax Withholding.......................................................................................17
POLICY LOANS..........................................................................................................17
Taking a Policy Loan.........................................................................................17
Effect on Investment Performance.............................................................................18
Interest.....................................................................................................18
Effect on Death Benefit and Cash Value.......................................................................18
Repayment....................................................................................................18
HOW THE DEATH BENEFIT VARIES..........................................................................................18
Calculation of the Death Benefit.............................................................................18
Proceeds Payable on Death....................................................................................20
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY..........................................................................20
CHANGES OF INVESTMENT POLICY..........................................................................................20
GRACE PERIOD..........................................................................................................20
First Five Policy Years......................................................................................20
Policy Years Six and After...................................................................................21
All Policy Years.............................................................................................21
REINSTATEMENT.........................................................................................................21
THE FIXED ACCOUNT OPTION..............................................................................................21
CHANGES IN EXISTING INSURANCE COVERAGE................................................................................22
Specified Amount Increases...................................................................................22
Specified Amount Decreases...................................................................................22
Changes in the Death Benefit Option..........................................................................22
</TABLE>
4
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<TABLE>
<S> <C>
OTHER POLICY PROVISIONS...............................................................................................22
Policy Owner.................................................................................................22
Beneficiary..................................................................................................23
Assignment...................................................................................................23
Incontestability.............................................................................................23
Error in Age or Sex..........................................................................................23
Suicide......................................................................................................23
Nonparticipating Policies....................................................................................23
LEGAL CONSIDERATIONS..................................................................................................23
DISTRIBUTION OF THE POLICIES..........................................................................................23
CUSTODIAN OF ASSETS...................................................................................................24
TAX MATTERS...........................................................................................................24
Policy Proceeds..............................................................................................24
Withholding..................................................................................................25
Federal Estate and Generation - Skipping Transfer Taxes......................................................25
Non-Resident Aliens..........................................................................................25
Taxation of the Company......................................................................................25
Tax Changes..................................................................................................26
THE COMPANY...........................................................................................................26
COMPANY MANAGEMENT....................................................................................................27
Directors of the Company.....................................................................................28
Executive Officers of the Company............................................................................29
OTHER CONTRACTS ISSUED BY THE COMPANY.................................................................................29
STATE REGULATION......................................................................................................29
REPORTS TO POLICY OWNERS..............................................................................................29
ADVERTISING...........................................................................................................29
YEAR 2000 COMPLIANCE ISSUES...........................................................................................29
LEGAL PROCEEDINGS.....................................................................................................30
EXPERTS...............................................................................................................30
REGISTRATION STATEMENT................................................................................................30
LEGAL OPINIONS........................................................................................................30
APPENDIX 1............................................................................................................31
APPENDIX 2............................................................................................................32
FINANCIAL STATEMENTS..................................................................................................49
</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.
5
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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 the Policy Charges, the Policy will lapse without value.
Also, during the first five Policy Years, the total premium payments less any
existing Policy Indebtedness must be greater than or equal to the Minimum
Premium requirement in order for the Policy to continue in force. The Policies
are designed to generally permit the payment of the Guideline Single Premium in
five annual installments for death benefit Option 1 and five annual Guideline
Level Premiums under death benefit Option 2.
The Policies are designed to avoid classification as modified endowment
contracts under Section 7702A of the Code, which provides for taxation of
surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions in the same way as annuities are taxed. Under certain
conditions, a Policy may become a modified endowment contract as a result of a
material change or a reduction in benefits as defined by the Code. Excess
premiums paid may also cause the Policy to become a modified endowment contract.
The Company will monitor premiums paid and other policy transactions and will
notify the Policy Owner when the Policy's non-modified endowment contract status
is in jeopardy (see "Tax Matters").
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed 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"). When the Policy is issued, the Net Premiums
will be Allocated to the Van Kampen American Capital Life Investment Trust Money
Market Portfolio ("Money Market Portfolio"), for any Net Premiums allocated to a
Sub-Account on the application or to 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 (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. For a discussion of any charges
imposed by the Underlying Mutual Fund options, see the prospectuses of the
respective Underlying Mutual Fund options.
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. (The Company may reduce this sales load at
its sole discretion.) The total sales load actually deducted from any Policy
will be equal to the sum of the 3.5% front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also deducts a charge for state premium taxes equal to 2.5% of all
premium payments.
The Company deducts the following charges from the Policy's Cash Value on the
Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
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3. current administrative expense charge of $5. This charge may be
increased at the sole discretion of the Company but may not exceed
$7.50.
The Company also deducts on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
equal on an annual basis to 0.80% of the Variable Account assets.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The initial
Surrender Charge varies by issue age, sex and underwriting classification and is
calculated based on the initial Specified Amount. The following table
illustrates the initial Surrender Charge per $1,000 of initial Specified Amount
for Policies which are issued on a Standard basis (see Appendix 1 for specific
examples). Special guaranteed maximum Surrender Charges apply in Pennsylvania
(see Appendix 1).
<TABLE>
<CAPTION>
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
--- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
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").
PREMIUMS
The minimum Initial Premium for which a Policy may be issued is $2,000. A Policy
may be issued to an Insured up to age 75.
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").
The Initial Premium is due on the Policy Date. It will be credited on the
initial investment date. Any due and unpaid monthly deductions will be
subtracted from the Cash Value at this time. Insurance will not be effective
until the Initial Premium is paid. The Initial Premium is shown on the Policy
Data Page.
Premiums, other than the Initial Premium may be made at any time while your
Policy is in force subject to the limits described below. During the first five
Policy Years, the total premium payments less any Policy Indebtedness must be
greater than or equal to the Minimum Premium in order for the Policy to continue
in force. The Minimum Premium is equal to the monthly Minimum Premium multiplied
by the number of completed policy months. The monthly Minimum Premium is shown
on the Policy Data Page.
We will send Scheduled Premium payment reminder notices to you. We will send
them according to the premium mode shown on the Policy Data Page.
You may pay the Initial Premium to us at our Home Office or to an authorized
agent. All premiums after the first are payable at our Home Office. Premium
receipts will be furnished upon request.
Each premium must be at least equal to the monthly Minimum Premium. The Company
reserves the right to require satisfactory evidence of insurability before
accepting any additional premium payment which results in any increase in the
net amount at risk. Also, we will refund any portion of any premium payment
which is determined to be in excess of the premium limit established by law to
qualify your Policy as a contract for life insurance. We may also require that
any existing Policy Indebtedness is repaid prior to accepting any additional
premium payments.
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 Policies are distributed by Van Kampen
American Capital Distributors, Inc.
7
<PAGE> 11
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors, on August 8, 1984, pursuant to the provisions of Ohio law. The
Company has caused the Variable Account to be registered with the SEC as a unit
investment trust pursuant to Investment Company Act of 1940 (the "1940 Act").
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").
Net Premium payments and Cash Value are allocated within the Variable Account
among one or more Sub-Accounts (see "Tax Matters"). 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 Net Premiums
allocated among one or more of the Sub-Accounts and the Fixed Account (see
"Allocation of Cash Value"). During the period in which the Policy Owner may
exercise his or her short-term right to cancel the Policy, all Net Premiums not
allocated to the Fixed Account are placed in the Money Market Portfolio. At the
end of this period, the Cash Value in that Sub-Account will be transferred to
the Sub-Accounts based on the Underlying Mutual Fund allocation factors. Any
subsequent Net Premiums received after this period will be allocated based on
the Underlying Mutual Fund allocation factors.
No less than 5% of Net Premiums may be allocated to any one Sub-Account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums 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 option 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").
These Underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity contracts and variable life insurance
policies issued through separate accounts of the 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 is disclosed
in each Underlying Mutual Funds' prospectus. A full description of each
Underlying Mutual Fund, its investment policies and restrictions, risks and
charges is contained in each prospectus for the respective Underlying Mutual
Fund.
Each of the Underlying Mutual Fund options receives investment advice from Van
Kampen American Capital Asset Management, Inc., (the "Advisor"), 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 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
8
<PAGE> 12
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 investment adviser for the Trust and its Portfolios.
-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, 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 in securities believed by the Advisor to have
above average potential for capital 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
Government Fund invests primarily in debt securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities. In order to
hedge against changes in interest rates, the Government fund 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 as high a level of
current income as is considered consistent with the preservation of
capital and liquidity by investing primarily in money market instruments.
9
<PAGE> 13
-MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
The investment objective of this Portfolio is to seek long-term capital
growth by investing in a diversified portfolio of securities of companies
operating in the real estate industry ("Real Estate Securities"). Current
income is a secondary consideration. Real Estate Securities include
equity securities, including common stocks and convertible securities, as
well as non-convertible preferred stocks and debt securities of real
estate industry companies. A "real estate industry company" is a company
that derives at least 50% of its assets (marked to market), gross income
or net profits from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the 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 Fund options 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 Policy 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 30 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") 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 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 above Underlying Mutual Funds are no longer available for
investment by the Variable Account or, if in the judgment of the Company's
management further investment in such Underlying Mutual Fund options is
inappropriate, the Company may eliminate Sub-Accounts, combine two or more
Sub-Accounts, or substitute shares of another Underlying Mutual Fund for
Underlying Mutual Fund shares already purchased or to be
10
<PAGE> 14
purchased in the future by Net Premium payments under the Policy. No
substitution of securities in the Variable Account may take place without prior
approval of the SEC.
VOTING RIGHTS
Voting rights under the Policies apply only 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 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 Policies are designed to generally permit the payment of the Guideline
Single Premium in five annual installments for death benefit Option 1 and five
annual Guideline Level Premiums under death benefit Option 2. At issue, the
Policy Owner selects a Scheduled Premium level. This Scheduled Premium is used
to determine the initial Specified Amount. The minimum Scheduled Premium is
$2,000. Policies may be issued to Insureds with issue ages 75 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
effective date of 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.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the first 5
Policy Years, the total premium payments less any Policy Indebtedness must be
greater than or equal to the Minimum Premium requirement in order for the Policy
to continue in force. The Minimum Premium requirement is equal to the monthly
Minimum Premium multiplied by the number of completed policy months. The monthly
Minimum Premium is shown on the Policy Data Page.
Each premium payment must be at least equal to the monthly Minimum Premium.
Additional premium payments may be made at any time while the Policy is in
force. 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. Also, the Company will refund any portion
of any premium payment which is determined to be in excess of the premium limit
established by law to qualify the Policy as a contract for life insurance. The
Company may also require that any existing Policy Indebtedness is repaid prior
to accepting any
11
<PAGE> 15
additional premium payments. Additional premium payments or other changes to the
contract, may jeopardize the Policy's non-modified endowment contract status.
The Company will monitor premiums paid and other policy transactions and will
notify the Policy Owner when non-modified endowment contract status is in
jeopardy by additional premiums (see "Tax Matters").
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
Initial Net Premium invested on the date such premium was received in good order
at the Home Office. When the Policy is issued, the Net Premiums will be
allocated to the Money Market Portfolio (for any Net Premiums Allocated to a
Sub-Account on the application) until the 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). The Policy Owner may change the allocation of Net
Premiums 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 the prospectus. Net Premiums 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 Net 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 to the Company.
Immediately after 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
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment (the Company may reduce this sales loading
at its sole discretion). The total sales load actually deducted from any Policy
will be equal to the sum of the 3.5% front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also 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 generally can range from 0% to 4%. To reimburse the Company for the
payment of state premium taxes associated with the Policies, the Company deducts
a charge for state premium taxes equal to 2.5% of all premium payments received.
This charge may be more or less than the amount actually assessed by the state
in which a particular Policy Owner lives.
SURRENDER CHARGES
The Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered during the first nine Policy Years. The initial Surrender
Charge varies by issue age, sex and underwriting classification and is
calculated based on the initial Specified Amount. The following tables
illustrates the initial Surrender Charge per $1,000 of initial Specified Amount
for Policies which are issued on a standard basis (see Appendix 1 for specific
examples). Special guaranteed maximum Surrender Charges apply in Pennsylvania
(see Appendix 1).
12
<PAGE> 16
<TABLE>
<CAPTION>
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
--- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
issue age in the following manner:
<TABLE>
<CAPTION>
ISSUE CHARGE PER $1,000 OF
AGE INITIAL SPECIFIED AMOUNT
--- ------------------------
<S> <C> <C>
0-39 $3.50
40-59 $5.00
60-75 $6.50
</TABLE>
The underwriting surrender charge is designed to cover the administrative
expenses associated with underwriting and issuing the Policy, including the
costs of processing applications, conducting medical exams, determining
insurability and the Insured's underwriting class, and establishing policy
records. The Company does not expect to profit from the underwriting surrender
charges. The Surrender Charge may be insufficient to recover certain expenses
related to the sale of the Policies. Unrecovered expenses are borne by the
Company's general assets which may include profits, if any, from Mortality and
Expense Risk Charges (see "Deductions from the Sub-Accounts"). Additional
premiums and/or income earned on assets in the Variable Account or partial
surrenders have no effect on these charges. The remainder of the Surrender
Charge which is not attributable to the underwriting surrender charge component
represents the sales surrender charge component. The purpose of the sales
surrender charge is to reimburse the Company for some of the expenses incurred
in the distribution of the Policies. The Company also deducts 3.5% of each
premium for sales load (see "Deductions from Premiums").
REDUCTIONS TO SURRENDER CHARGES
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
<TABLE>
<CAPTION>
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
0 100% 5 85%
1 100% 6 80%
2 100% 7 75%
3 95% 8 50%
4 90% 9+ 0%
</TABLE>
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see Appendix
1).
DEDUCTIONS FROM CASH VALUE
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance charges; plus
2. monthly cost of any additional benefits provided by riders; plus
13
<PAGE> 17
3. monthly administrative expense charge.
These deductions will be charged proportionately to the Cash Value in each
Sub-Account and the Fixed Account.
MONTHLY COST OF INSURANCE
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
If death benefit Option 1 is in effect and there have been increases in the
Specified Amount, then the Cash Value will first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it will then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on a simplified basis are
based on the 1980 Commissioners Extended Term Mortality Table, Age Last Birthday
(1980 CET). Guaranteed cost of insurance rates for Policies issued on a
preferred basis are based on the 1980 Commissioners Standard Ordinary Mortality
Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for
Policies issued on a substandard basis are based on appropriate percentage
multiples of the 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 Commissioners Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO).
The rates for Policies issued on a simplified or preferred basis will not exceed
the rates in the appropriate table. The cost of insurance rates per $1,000 of
net amount at risk is less for Policies issued on a preferred basis as compared
to a simplified basis.
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.
MONTHLY ADMINISTRATIVE CHARGE
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping, and periodic reporting to Policy Owners. This charge is designed only
to reimburse the Company for certain actual administrative expenses. Currently,
this charge is $5 per month. The Company does not expect to recover from this
charge any amount in excess of aggregate maintenance expenses. The Company may
at its sole discretion increase this charge. However, the Company guarantees
that this charge will never exceed $7.50 per month.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses due
to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts a daily Mortality and Expense Risk Charge from the assets of
the Sub-Accounts. This charge is equivalent to an annual effective rate of 0.80%
of the daily Net Asset Value of the Variable Account. 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 this charge. The Surrender Charge may be
insufficient to recover certain expenses related to the sale of the Policies.
Unrecovered expenses are borne by the Company's general assets which may include
profits, if any, from Mortality and Expense Risk Charges (see "Surrender
Charges").
14
<PAGE> 18
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 VARIABLE ACCOUNT
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 12b-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 Net Premiums applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in the
Fixed Account and Policy Loan Account depending on the allocation of Cash Value
by the Policy Owner.
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
15
<PAGE> 19
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 immediately preceding
Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk
Charge deducted from the Variable Account. Such factor is equal
to an annual rate of .80% 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, 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
allocated and 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 Variable Account Sub-Account by the Accumulation Unit value for the
Sub-Account for the Valuation Period during which the premium is received by the
Company. If 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 that the current Variable Account Contract Value might be
materially affected. A Valuation Period is the period commencing at the close of
business on the New York Stock Exchange 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 eligible guarantor institution as defined by the federal
securities laws and regulations. In some cases, the Company may require
additional documentation of a customary nature.
16
<PAGE> 20
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 payments;
2. the minimum partial surrender is $500; 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
Policy exceeds the employer's interest in the Policy. Participants should
consult with the sponsor or the administrator of the plan, and/or with their
personal tax or legal advisers, to determine the tax consequences, if any, of
their employer-sponsored life insurance arrangements.
POLICY LOANS
TAKING A POLICY LOAN
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Surrender Value less interest due on the next Policy Anniversary. 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. The Company will not grant a loan
for an amount less than $1,000 ($200 in Connecticut, $500 in New York). Should
the Death Proceeds 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.
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,
17
<PAGE> 21
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
eligible guarantor institution as defined by the federal securities laws and
regulations. 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 5.1%. This rate is guaranteed never to be lower than 5.1%. 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 or
at the time of loan repayment. 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 or at the time of loan
repayment. Unpaid interest will be added to the existing Policy Indebtedness as
of the due date and will be charged interest at the same rate as the rest of the
Indebtedness.
Whenever the total Policy Indebtedness exceeds the Cash Value less any Surrender
Charges, 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 Policy Indebtedness to an
amount equal to the total Cash Value less any Surrender Charges plus an amount
sufficient to continue the Policy in force for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account or
the Fixed Account will apply only to the non-loaned portion of the Cash Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account or the Fixed Account
while the loan is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the Indebtedness may be repaid at any time while the Policy is in
force during the Insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the Variable Account Sub-Accounts and the Fixed Account in
proportion to the Policy Owner's Fund allocation factors 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 Policy Owner selects a desired Scheduled Premium level. The
Scheduled Premium is used to determine the initial Specified Amount. Under death
benefit option 1, the initial Specified Amount is determined by treating the
Scheduled Premium as 20% of the Guideline Single Premium. Under Death Benefit
Option 2, the initial Specified Amount is determined by treating the Scheduled
Premium as the Guideline Level Premium. For either death benefit option, the
initial Specified Amount will be set at a level such that payment of the
Scheduled Premiums will not result in the Policy being classified as a modified
endowment contract (see "Tax Matters"). The following tables illustrate the
Initial Specified Amount that results from a $2,000 Scheduled Premium payment.
18
<PAGE> 22
<TABLE>
<CAPTION>
MALE FEMALE
ISSUE NON-TOBACCO NON-TOBACCO
AGE OPTION 1 OPTION 2 OPTION 1 OPTION 2
--- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
30 $85,779 $75,378 $99,541 $93,577
35 $68,165 $61,559 $79,212 $76,497
40 $54,111 $50,082 $63,070 $62,320
45 $43,165 $40,605 $50,599 $50,633
50 $34,675 $32,791 $40,824 $40,958
55 $28,136 $26,852 $33,171 $32,949
60 $23,176 $22,867 $27,141 $26,301
65 $19,474 $19,474 $22,369 $22,168
</TABLE>
Generally, for a given Scheduled Premium, the initial Specified Amount is
greater for non-tobacco than standard and females than males. 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.
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.
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
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%
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%
</TABLE>
19
<PAGE> 23
<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>
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 Death Proceeds payable on the Insured's death will be the death
benefit as described above less any Policy Indebtedness and less any unpaid
Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted
(see "Incontestability", "Error in Age or Sex", and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for 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 the Variable Account.
The Company must inform the Policy Owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the Policy Owners or if it renders 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
offered by the Company 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 separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the Policy converted on the date of the conversion.
GRACE PERIOD
FIRST FIVE POLICY YEARS
This Policy will not lapse during the first five Policy Years provided that on
each Monthly Anniversary Day (1) is greater than or equal to (2) where:
(1) is the sum of all premiums paid to date minus any Policy Indebtedness;
and
(2) is the sum of Monthly Minimum Premiums since the Policy Date including
the Monthly Minimum Premium for the current Monthly Anniversary Day.
20
<PAGE> 24
If (1) is less than (2), a Grace Period of 61 days from the Monthly Anniversary
Day will be allowed for the payment of sufficient premium to satisfy the Minimum
Premium requirement. If sufficient premium is not paid by the end of the Grace
Period, the Policy will lapse. The Policy will be terminated with the return of
any available Cash Surrender Value. The Cash Surrender Value will be calculated
as of the beginning of the Grace Period. The Policy Owner may also elect in
writing to have the Policy placed on Extended Term Insurance.
POLICY YEARS SIX AND AFTER
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current monthly deduction for insurance costs, administrative expenses
and other benefits, a Grace Period of 61 days from the Monthly Anniversary Day
will be allowed for the payment of sufficient premium to cover the current
monthly deduction plus an amount equal to three times the current monthly
deduction.
ALL POLICY YEARS
The Company will send such a notice at the start of the Grace Period to the
Policy Owner's last known address. 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 lesser of:
(1) the Cash Value at the end of the Grace Period; or
(2) the Surrender Charge for the Policy Year in which the Policy was
reinstated.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the Underlying Mutual Fund allocation factors in effect at the start of
the Grace Period.
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 option. Disclosures regarding the General Account
may, however, be subject to certain generally applicable 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 the Company will inform a
Policy Owner of the then applicable rate. The Company is not obligated to credit
interest at a higher rate.
21
<PAGE> 25
CHANGES IN EXISTING INSURANCE COVERAGE
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.
SPECIFIED AMOUNT INCREASES
After the fifth Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
(1) the request must be applied for in writing;
(2) satisfactory evidence of insurability must be provided;
(3) the increase must be for a minimum of $10,000;
(4) the Cash Surrender Value is sufficient to continue the Policy in force
for at least 3 months; and
(5) age limits are the same as a new issue.
Any 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 the number of Specified Amount increases
to one each Policy Year.
SPECIFIED AMOUNT DECREASES
After the fifth Policy Year, the Policy Owner may also request a decrease to the
Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any decrease will reduce insurance in the following order:
(1) against insurance provided by the most recent increase;
(2) against the next most recent increases successively; and
(3) against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount decreases
to one each Policy Year. The Company will refuse a request for a decrease which
would:
(1) reduce the Specified Amount to less than $10,000; or
(2) disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the fifth Policy Year, 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. The Company reserves the right to require evidence
of insurability for either change (from Option 1 to Option 2 only in New York).
The effective date of the change will be the Monthly Anniversary Date 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 on 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 Company's 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 Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
22
<PAGE> 26
BENEFICIARY
The Beneficiary(ies) will be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to 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(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insured, the Death Proceeds shall 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. Any assignment will not affect any payments made or
actions taken by the Company before it was recorded. 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 payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the Insured's
lifetime for 2 years from the Policy Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not contest payment of the
Death Proceeds based on an increase after it has been in force during the
Insured's lifetime for 2 years from its effective date.
ERROR IN AGE OR SEX
If the age or sex of the Insured has been misstated, the affected benefits will
be adjusted. The amount of the death benefit will be (1) multiplied by (2) and
then the result added to (3), where:
(1) is the amount of the death benefit at the time of the Insured's death
reduced by the amount of the Cash Value at the time of the Insured's
death;
(2) is the ratio of the monthly cost of insurance applied in the policy
month of death and the monthly cost of insurance that should have been
applied at the true age and sex in the policy month of death; and
(3) is the Cash Value at the time of the Insured's death.
SUICIDE
If the Insured dies by suicide, while sane or insane, within two years from the
Policy Date, the Company will pay no more than the sum of the premiums paid,
less any Indebtedness. If the Insured dies by suicide, while sane or insane,
within two years from the date an application is accepted for an increase in the
Specified Amount, the Company will pay no more than the amount paid for the
additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
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
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with legal
counsel, the impact of NORRIS on any employment related insurance or benefit
program before purchasing this Policy.
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
23
<PAGE> 27
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..
Gross first year 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 26% of the Scheduled Premium plus 5% of any excess premium payments.
Gross renewal commissions paid by the Company will not exceed 5% of actual
premium payments.
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
Death Proceeds payable under a Policy are excludable from gross income of the
beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those policies
issued or materially changed on or after June 21, 1988 on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums (see "Information about the Policies"). The 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. Modified endowment contract distributions are
defined by the Code as amounts not received as an annuity and are taxable to the
extent the cash value of the policy exceeds, at the time of distribution, the
premiums paid into the policy. A 10% tax penalty generally applies to the
taxable portion of distributions unless the Policy Owner is over age 59 1/2 or
disabled (as defined by the Code).
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 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 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the Policy Owner
pursuant to Section 7702 (f)(7) of the Code. The Policy Owner should carefully
consider this potential effect and seek further information before initiating
any changes in the terms of the policy. Under certain conditions, a policy may
become a modified endowment as a result of a material change or a reduction in
benefits as defined by Section 7702A (c) of the 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.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of Underlying Mutual Funds, transfers between Underlying
Mutual Funds, exchanges of Underlying Mutual Funds or changes in investment
objectives of funds such that the Policy would no longer qualify as life
insurance under Section 7702 of the Code, the Company will take whatever steps
are available to remain in compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the Sub-Account investments
to remain in compliance.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances.
24
<PAGE> 28
WITHHOLDING
Distributions of income from modified endowment contracts 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 waiver. 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.
NON-RESIDENT ALIENS
Predeath distributions from Modified Endowment Contracts to nonresident aliens
(NRAs) are generally subject to federal income tax and tax withholding, at a
statutory rate of thirty percent (30%) of the amount of income that is
distributed. The Company 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
25
<PAGE> 29
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 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 proposals 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.
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 Nationwide Variable Account, Nationwide
Variable Account-II, Nationwide Variable Account-3, Nationwide Variable
Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6,
Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account-8,
Nationwide Variable Account-9, MFS Variable Account, Nationwide Multi-Flex
Variable Account, Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4,
NACO Variable Account, Nationwide DC Variable Account, and 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.
26
<PAGE> 30
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 POSITIONS AND OFFICERS WITH PRINCIPAL OCCUPATION
------------------------------- --------------------------- --------------------
AND PRINCIPAL BUSINESS ADDRESS DEPOSITOR
------------------------------ ---------
<S> <C> <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
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 President and Chief Operating Officer,
One Nationwide Plaza Operating Officer Nationwide Life Insurance Company and
Columbus, OH 43215 and Director 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 President, Owen Potato Farm, Inc.;
115 Sprague Drive and Director 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
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
DIRECTORS OF THE DEPOSITOR NAME POSITIONS AND OFFICERS WITH PRINCIPAL OCCUPATION
------------------------------- --------------------------- --------------------
AND PRINCIPAL BUSINESS ADDRESS DEPOSITOR
------------------------------ ---------
<S> <C> <C> <C>
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
<FN>
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.
</FN>
</TABLE>
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life and Annuity Insurance Company. Messrs. McFerson
and Gasper are directors of Nationwide Advisory Services, Inc., a registered
broker-dealer.
Messrs. McFerson, Miller, Patterson, 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 trustee of
Financial Horizons Investment Trust and Nationwide Investing Foundation II,
registered investment companies. Mr. Engel is a director of Western Cooperative
Transport.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE COMPANY
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
<S> <C>
Robert A. Oakley Executive Vice President-Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General Counsel and Assistant
One Nationwide Plaza Secretary
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
</TABLE>
28
<PAGE> 32
<TABLE>
<CAPTION>
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
<S> <C>
Timothy E. Murphy Vice President-Strategic Marketing
One Nationwide Plaza
Columbus, OH 43215
R. Dennis Noice Vice President Retail Operations
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 and any Policy Indebtedness.
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 changes in Specified Amount, changes in death benefit option, changes in
future premium allocation, transfers among Sub-Accounts, premium payments,
loans, loan repayments, 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
29
<PAGE> 33
replacements needed to achieve Year 2000 compliance to be completed by the end
of 1998. Compliance testing will be completed in the first quarter of 1999. The
Company charges all costs associated with these system changes as the costs are
incurred.
Operating expenses in 1997 including 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 related to the sale of
whole life policies on a "vanishing premium" basis (John H. Snyder v.
Nationwide, Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks
to represent a national class of Nationwide Life policyholders and claims
unspecified compensatory and punitive damages. This lawsuit has not been
certified as a class action. In April 1997 a motion to dismiss the Snyder
complaint in its entirety was filed by the defendants, and the plaintiff has
opposed such motion.
In 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 owner 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. Plaintiffs counsel have opposed these motions and the
federal court in Texas heard arguments on the motions 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, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus,
Ohio 43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
30
<PAGE> 34
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco, age 45, purchases a Policy with a Scheduled
Premium of $2,000 yielding a Specified Amount of $50,599. She now wishes to
surrender the Policy during the first Policy year. By using the initial
surrender charge table reproduced below, (also see "Surrender Charges") the
total surrender charge per thousand multiplied by the Specified Amount expressed
in thousands equals the total surrender charge of $514.09 ($10.160 x 50.599 =
$514.09).
Example 2: A male non-tobacco, age 35, purchases a Policy with a Scheduled
Premium of $2,000 yielding a Specified Amount of $68,165. He now wants to
surrender the Policy in the sixth Policy Year. The total initial surrender value
is calculated using the method illustrated above. (Specified Amount in thousands
$68.165 x 7.260 = 494.88 total first year surrender charge). Because the fifth
Policy Year has been completed, the total initial surrender charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below (also see "Reductions to Surrender Charges"). In
this case, $494.88 x 85% = $420.65.
Initial Surrender Charge per $1,000 of initial Specified Amount:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
- ------------------------------------------------------------------------------------------------------------------
35 7.260 6.712 8.559 7.373
- ------------------------------------------------------------------------------------------------------------------
45 11.159 10.160 13.244 11.151
- ------------------------------------------------------------------------------------------------------------------
55 15.275 13.375 18.373 14.686
- ------------------------------------------------------------------------------------------------------------------
65 23.821 20.553 27.943 22.165
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Reductions to Surrender Charges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0 100% 5 85%
- ------------------------------------------------------------------------------------------------
1 100% 6 80%
- ------------------------------------------------------------------------------------------------
2 100% 7 75%
- ------------------------------------------------------------------------------------------------
3 95% 8 50%
- ------------------------------------------------------------------------------------------------
4 90% 9+ 0%
- ------------------------------------------------------------------------------------------------
</TABLE>
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are 8% higher than those
shown on pages 7, 14, and 32. In addition, the guaranteed maximum Surrender
Charge in subsequent years in Pennsylvania are reduced in the following manner:
<TABLE>
<CAPTION>
COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE
POLICY AS A % OF INITIAL POLICY YEARS AS A % OF INITIAL POLICY YEARS AS A % OF INITIAL
YEARS SURRENDER CHARGES SURRENDER CHARGES SURRENDER CHARGES
<S> <C> <C> <C> <C> <C> <C>
0 100% 5 83% 10 46%
1 98% 6 75% 11 37%
2 95% 7 70% 12 28%
3 92% 8 65% 13 14%
4 88% 9 55% 14+ 0%
</TABLE>
The illustrations of current values on pages 33-53 are the same for
Pennsylvania. However, the guaranteed maximum Surrender Charges are slightly
higher in Pennsylvania. If this contract is issued in Pennsylvania, please
contact the Home Office for an illustration.
The Company has no plans to change the current Surrender Charges.
31
<PAGE> 35
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 debt, 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. The Mortality and Expense Risk Charges are
equivalent to an annual effective rate of .80% of the daily Net Asset Value of
the Variable Account. In addition, the net investment returns also reflect the
deduction of Underlying Mutual Fund investment advisory fees and other expenses
which are equivalent to an annual effective rate of 0.80 % of the daily Net
Asset Value of the Variable Account.
Considering current charges for Mortality and Expense Risks, and Underlying
Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.60%, 4.40% and
10.40%.
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.
In addition, the illustrations reflect the fact that the Company deducts a
monthly administrative charge at the beginning of each Policy month. This
monthly administrative expense charge is currently $5 and is guaranteed not to
exceed $7.50. 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.
32
<PAGE> 36
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 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 2,100 1,669 1,187 43,165 1,774 1,293 43,165 1,880 1,398 43,165
2 4,305 3,309 2,827 43,165 3,623 3,142 43,165 3,950 3,469 43,165
3 6,620 4,920 4,438 43,165 5,550 5,068 43,165 6,231 5,749 43,165
4 9,051 6,503 6,046 43,165 7,559 7,101 43,165 8,746 8,288 43,165
5 11,604 8,056 7,623 43,165 9,652 9,218 43,165 11,518 11,084 43,165
6 12,184 7,723 7,314 43,165 9,865 9,455 43,165 12,495 12,086 43,165
7 12,793 7,382 6,997 43,165 10,076 9,691 43,165 13,566 13,181 43,165
8 13,433 7,032 6,670 43,165 10,285 9,924 43,165 14,741 14,379 43,165
9 14,105 6,672 6,431 43,165 10,492 10,252 43,165 16,031 15,790 43,165
10 14,810 6,299 6,299 43,165 10,694 10,694 43,165 17,448 17,448 43,165
15 18,901 4,212 4,212 43,165 11,602 11,602 43,165 27,019 27,019 43,165
20 24,124 1,479 1,479 43,165 12,112 12,112 43,165 42,818 42,818 52,238
25 30,788 (*) (*) (*) 11,629 11,629 43,165 68,225 68,225 79,141
30 39,295 (*) (*) (*) 8,751 8,751 43,165 108,941 108,941 116,567
35 50,151 (*) (*) (*) 407 407 43,165 174,797 174,797 183,537
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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.
</FN>
</TABLE>
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>
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 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 2,100 1,576 1,095 43,165 1,679 1,197 43,165 1,781 1,300 43,165
2 4,305 3,120 2,639 43,165 3,423 2,941 43,165 3,739 3,257 43,165
3 6,620 4,632 4,151 43,165 5,237 4,755 43,165 5,891 5,409 43,165
4 9,051 6,112 5,655 43,165 7,123 6,665 43,165 8,260 7,803 43,165
5 11,604 7,561 7,127 43,165 9,085 8,651 43,165 10,870 10,437 43,165
6 12,184 7,114 6,705 43,165 9,152 8,743 43,165 11,662 11,252 43,165
7 12,793 6,650 6,265 43,165 9,202 8,817 43,165 12,520 12,135 43,165
8 13,433 6,164 5,803 43,165 9,229 8,868 43,165 13,450 13,089 43,165
9 14,105 5,651 5,411 43,165 9,230 8,989 43,165 14,459 14,218 43,165
10 14,810 5,108 5,108 43,165 9,199 9,199 43,165 15,553 15,553 43,165
15 18,901 1,768 1,768 43,165 8,372 8,372 43,165 22,695 22,695 43,165
20 24,124 (*) (*) (*) 5,535 5,535 43,165 34,256 34,256 43,165
25 30,788 (*) (*) (*) (*) (*) (*) 53,378 53,378 61,918
30 39,295 (*) (*) (*) (*) (*) (*) 83,544 83,544 89,392
35 50,151 (*) (*) (*) (*) (*) (*) 131,940 131,940 138,537
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50
PER MONTH.
(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.
</FN>
</TABLE>
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>
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 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 2,100 1,671 1,218 42,276 1,777 1,323 42,382 1,882 1,429 42,487
2 4,305 3,309 2,855 43,914 3,622 3,169 44,227 3,948 3,495 44,553
3 6,620 4,911 4,458 45,516 5,538 5,085 46,143 6,217 5,764 46,822
4 9,051 6,480 6,050 47,085 7,529 7,098 48,134 8,708 8,278 49,313
5 11,604 8,012 7,604 48,617 9,593 9,185 50,198 11,441 11,034 52,046
6 14,284 9,507 9,122 50,112 11,734 11,348 52,339 14,442 14,057 55,047
7 17,098 10,966 10,603 51,571 13,953 13,591 54,558 17,735 17,372 58,340
8 20,053 12,386 12,047 52,991 16,253 15,913 56,858 21,348 21,009 61,953
9 23,156 13,770 13,543 54,375 18,637 18,411 59,242 25,316 25,090 65,921
10 26,414 15,113 15,113 55,718 21,106 21,106 61,711 29,670 29,670 70,275
15 45,315 21,412 21,412 62,017 35,044 35,044 75,649 59,013 59,013 99,618
20 69,439 26,503 26,503 67,108 51,435 51,435 92,040 105,809 105,809 146,414
25 100,227 29,930 29,930 70,535 70,234 70,234 110,839 180,303 180,303 220,908
30 139,522 30,793 30,793 71,398 90,822 90,822 131,427 298,503 298,503 339,108
35 189,673 27,940 27,940 68,545 112,064 112,064 152,669 486,038 486,038 526,643
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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.
</FN>
</TABLE>
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.
35
<PAGE> 39
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 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 2,100 1,580 1,127 42,185 1,682 1,229 42,287 1,785 1,332 42,390
2 4,305 3,120 2,667 43,725 3,422 2,969 44,027 3,737 3,283 44,342
3 6,620 4,621 4,167 45,226 5,221 4,768 45,826 5,871 5,418 46,476
4 9,051 6,080 5,649 46,685 7,080 6,649 47,685 8,206 7,775 48,811
5 11,604 7,497 7,089 48,102 8,999 8,592 49,604 10,759 10,351 51,364
6 14,284 8,870 8,485 49,475 10,980 10,595 51,585 13,551 13,165 54,156
7 17,098 10,197 9,834 50,802 13,020 12,658 53,625 16,601 16,239 57,206
8 20,053 11,474 11,134 52,079 15,120 14,780 55,725 19,934 19,594 60,539
9 23,156 12,698 12,472 53,303 17,276 17,050 57,881 23,573 23,346 64,178
10 26,414 13,867 13,867 54,472 19,488 19,488 60,093 27,545 27,545 68,150
15 45,315 18,766 18,766 59,371 31,320 31,320 71,925 53,567 53,567 94,172
20 69,439 21,628 21,628 62,233 44,037 44,037 84,642 93,736 93,736 134,341
25 100,227 21,418 21,418 62,023 56,475 56,475 97,080 155,346 155,346 195,951
30 139,522 16,390 16,390 56,995 66,311 66,311 106,916 249,280 249,280 289,885
35 189,673 3,583 3,583 44,188 69,068 69,068 109,673 391,346 391,346 431,951
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50
PER MONTH.
(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.
</FN>
</TABLE>
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>
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED 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 5,250 4,293 3,021 114,019 4,561 3,288 114,019 4,828 3,556 114,019
2 10,763 8,513 7,241 114,019 9,313 8,041 114,019 10,146 8,873 114,019
3 16,551 12,658 11,386 114,019 14,266 12,994 114,019 16,004 14,732 114,019
4 22,628 16,733 15,524 114,019 19,430 18,221 114,019 22,462 21,254 114,019
5 29,010 20,731 19,586 114,019 24,810 23,665 114,019 29,580 28,435 114,019
6 30,460 20,015 18,934 114,019 25,500 24,418 114,019 32,232 31,150 114,019
7 31,983 19,281 18,264 114,019 26,196 25,178 114,019 35,141 34,123 114,019
8 33,582 18,527 17,572 114,019 26,896 25,942 114,019 38,334 37,380 114,019
9 35,261 17,752 17,115 114,019 27,603 26,967 114,019 41,845 41,208 114,019
10 37,024 16,948 16,948 114,019 28,309 28,309 114,019 45,702 45,702 114,019
15 47,254 12,443 12,443 114,019 31,810 31,810 114,019 71,779 71,779 114,019
20 60,309 6,547 6,547 114,019 34,848 34,848 114,019 114,729 114,729 139,970
25 76,971 (*) (*) (*) 36,354 36,354 114,019 183,892 183,892 213,315
30 98,237 (*) (*) (*) 33,866 33,866 114,019 294,989 294,989 315,639
35 125,378 (*) (*) (*) 22,476 22,476 114,019 474,843 474,843 498,585
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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.
</FN>
</TABLE>
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>
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED 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 5,250 4,161 2,889 114,019 4,424 3,152 114,019 4,687 3,415 114,019
2 10,763 8,241 6,969 114,019 9,025 7,753 114,019 9,841 8,569 114,019
3 16,551 12,241 10,969 114,019 13,812 12,540 114,019 15,512 14,240 114,019
4 22,628 16,162 14,953 114,019 18,794 17,586 114,019 21,756 20,547 114,019
5 29,010 20,004 18,859 114,019 23,981 22,836 114,019 28,635 27,490 114,019
6 30,460 19,117 18,036 114,019 24,453 23,372 114,019 31,012 29,931 114,019
7 31,983 18,195 17,177 114,019 24,905 23,887 114,019 33,605 32,587 114,019
8 33,582 17,230 16,276 114,019 25,330 24,376 114,019 36,434 35,479 114,019
9 35,261 16,215 15,579 114,019 25,719 25,083 114,019 39,521 38,884 114,019
10 37,024 15,141 15,141 114,019 26,065 26,065 114,019 42,893 42,893 114,019
15 47,254 8,579 8,579 114,019 26,825 26,825 114,019 65,311 65,311 114,019
20 60,309 (*) (*) (*) 24,571 24,571 114,019 102,226 102,226 124,715
25 76,971 (*) (*) (*) 15,540 15,540 114,019 161,729 161,729 187,606
30 98,237 (*) (*) (*) (*) (*) (*) 256,231 256,231 274,167
35 125,378 (*) (*) (*) (*) (*) (*) 408,353 408,353 428,770
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50
PER MONTH.
(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.
</FN>
</TABLE>
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>
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED 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 5,250 4,308 3,153 107,829 4,576 3,420 108,097 4,843 3,688 108,364
2 10,763 8,532 7,377 112,053 9,332 8,177 112,853 10,165 9,009 113,686
3 16,551 12,670 11,515 116,191 14,275 13,120 117,796 16,010 14,855 119,531
4 22,628 16,725 15,627 120,246 19,413 18,315 122,934 22,434 21,337 125,955
5 29,010 20,688 19,649 124,209 24,745 23,705 128,266 29,487 28,447 133,008
6 35,710 24,564 23,583 128,085 30,282 29,300 133,803 37,235 36,253 140,756
7 42,746 28,350 27,425 131,871 36,028 35,104 139,549 45,743 44,819 149,264
8 50,133 32,043 31,176 135,564 41,990 41,123 145,511 55,088 54,222 158,609
9 57,889 35,646 35,068 139,167 48,176 47,599 151,697 65,356 64,778 168,877
10 66,034 39,152 39,152 142,673 54,589 54,589 158,110 76,630 76,630 180,151
15 113,287 55,710 55,710 159,231 90,922 90,922 194,443 152,747 152,747 256,268
20 173,596 69,432 69,432 172,953 134,022 134,022 237,543 274,557 274,557 378,078
25 250,567 79,355 79,355 182,876 184,141 184,141 287,662 469,203 469,203 572,724
30 348,804 83,552 83,552 187,073 240,371 240,371 343,892 779,427 779,427 882,948
35 474,182 79,551 79,551 183,072 300,799 300,799 404,320 1,273,881 1,273,881 1,377,402
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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.
</FN>
</TABLE>
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>
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED 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 5,250 4,182 3,027 107,703 4,445 3,290 107,966 4,709 3,553 108,230
2 10,763 8,269 7,113 111,790 9,053 7,897 112,574 9,868 8,713 113,389
3 16,551 12,260 11,105 115,781 13,828 12,672 117,349 15,523 14,368 119,044
4 22,628 16,154 15,057 119,675 18,774 17,676 122,295 21,720 20,622 125,241
5 29,010 19,950 18,910 123,471 23,896 22,856 127,417 28,511 27,471 132,032
6 35,710 23,643 22,661 127,164 29,195 28,213 132,716 35,952 34,970 139,473
7 42,746 27,229 26,305 130,750 34,674 33,750 138,195 44,103 43,179 147,624
8 50,133 30,703 29,837 134,224 40,333 39,466 143,854 53,028 52,162 156,549
9 57,889 34,058 33,481 137,579 46,170 45,592 149,691 62,798 62,221 166,319
10 66,034 37,289 37,289 140,810 52,185 52,185 155,706 73,492 73,492 177,013
15 113,287 51,377 51,377 154,898 84,935 84,935 188,456 144,161 144,161 247,682
20 173,596 61,139 61,139 164,660 121,686 121,686 225,207 254,910 254,910 358,431
25 250,567 64,595 64,595 168,116 160,713 160,713 264,234 427,812 427,812 531,333
30 348,804 58,407 58,407 161,928 198,201 198,201 301,722 696,908 696,908 800,429
35 474,182 36,972 36,972 140,493 226,428 226,428 329,949 1,114,025 1,114,025 1,217,546
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50
PER MONTH.
(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.
</FN>
</TABLE>
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>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 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 21,000 17,228 12,621 301,625 18,300 13,692 301,625 19,372 14,765 301,625
2 43,050 34,166 29,559 301,625 37,380 32,772 301,625 40,722 36,115 301,625
3 66,203 50,834 46,226 301,625 57,297 52,689 301,625 64,285 59,677 301,625
4 90,513 67,231 62,854 301,625 78,091 73,714 301,625 90,300 85,923 301,625
5 116,038 83,344 79,198 301,625 99,792 95,645 301,625 119,028 114,881 301,625
6 121,840 80,575 76,659 301,625 102,734 98,818 301,625 129,942 126,026 301,625
7 127,932 77,711 74,026 301,625 105,712 102,026 301,625 141,953 138,268 301,625
8 134,329 74,723 71,267 301,625 108,706 105,251 301,625 155,177 151,721 301,625
9 141,045 71,598 69,294 301,625 111,714 109,410 301,625 169,759 167,455 301,625
10 148,097 68,341 68,341 301,625 114,748 114,748 301,625 185,877 185,877 301,625
15 189,014 48,497 48,497 301,625 129,367 129,367 301,625 296,579 296,579 344,032
20 241,235 18,045 18,045 301,625 140,748 140,748 301,625 477,065 477,065 510,460
25 307,884 (*) (*) (*) 144,237 144,237 301,625 769,507 769,507 807,982
30 392,947 (*) (*) (*) 130,130 130,130 301,625 1,235,396 1,235,396 1,297,166
35 501,511 (*) (*) (*) 69,897 69,897 301,625 1,968,588 1,968,588 2,067,018
ASSUMPTIONS:
<FN>
(1) ASSUMES NO POLICY HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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.
</FN>
</TABLE>
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
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 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 21,000 16,090 11,482 301,625 17,126 12,519 301,625 18,165 13,557 301,625
2 43,050 31,830 27,223 301,625 34,910 30,303 301,625 38,117 33,509 301,625
3 66,203 47,237 42,630 301,625 53,403 48,796 301,625 60,079 55,472 301,625
4 90,513 62,317 57,940 301,625 72,654 68,277 301,625 84,298 79,921 301,625
5 116,038 77,074 72,927 301,625 92,718 88,571 301,625 111,058 106,911 301,625
6 121,840 72,763 68,847 301,625 93,784 89,867 301,625 119,690 115,774 301,625
7 127,932 68,141 64,455 301,625 94,611 90,925 301,625 129,070 125,384 301,625
8 134,329 63,145 59,689 301,625 95,144 91,688 301,625 139,275 135,819 301,625
9 141,045 57,706 55,402 301,625 95,320 93,016 301,625 150,403 148,100 301,625
10 148,097 51,753 51,753 301,625 95,073 95,073 301,625 162,580 162,580 301,625
15 189,014 11,272 11,272 301,625 84,689 84,689 301,625 246,076 246,076 301,625
20 241,235 (*) (*) (*) 43,920 43,920 301,625 389,728 389,728 417,009
25 307,884 (*) (*) (*) (*) (*) (*) 621,406 621,406 652,476
30 392,947 (*) (*) (*) (*) (*) (*) 979,313 979,313 1,028,279
35 501,511 (*) (*) (*) (*) (*) (*) 1,514,963 1,514,963 1,590,711
ASSUMPTIONS:
<FN>
(1) ASSUMES NO POLICY HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER
MONTH.
(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.
</FN>
</TABLE>
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.
42
<PAGE> 46
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 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 21,000 17,280 13,133 288,742 18,351 14,204 289,813 19,423 15,276 290,885
2 43,050 34,194 30,047 305,656 37,400 33,253 308,862 40,733 36,587 312,195
3 66,203 50,753 46,607 322,215 57,182 53,035 328,644 64,131 59,984 335,593
4 90,513 66,948 63,008 338,410 77,713 73,774 349,175 89,813 85,874 361,275
5 116,038 82,746 79,014 354,208 98,988 95,256 370,450 117,973 114,241 389,435
6 142,840 98,160 94,636 369,622 121,044 117,520 392,506 148,871 145,346 420,333
7 170,982 113,183 109,866 384,645 143,902 140,584 415,364 182,772 179,455 454,234
8 200,531 127,788 124,678 399,250 167,561 164,452 439,023 219,950 216,840 491,412
9 231,558 141,971 139,898 413,433 192,047 189,974 463,509 260,728 258,654 532,190
10 264,136 155,748 155,748 427,210 217,404 217,404 488,866 305,483 305,483 576,945
15 453,150 219,101 219,101 490,563 359,192 359,192 630,654 605,556 605,556 877,018
20 694,385 266,818 266,818 538,280 522,020 522,020 793,482 1,079,684 1,079,684 1,351,146
25 1,002,269 293,778 293,778 565,240 703,566 703,566 975,028 1,828,689 1,828,689 2,100,151
30 1,395,216 293,109 293,109 564,571 898,479 898,479 1,169,941 3,013,781 3,013,781 3,285,243
35 1,896,726 252,804 252,804 524,266 1,093,780 1,093,780 1,365,242 4,890,156 4,890,156 5,161,618
ASSUMPTIONS:
<FN>
(1) ASSUMES NO POLICY HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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.
</FN>
</TABLE>
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.
43
<PAGE> 47
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 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 21,000 16,193 12,046 287,655 17,229 13,082 288,691 18,266 14,120 289,728
2 43,050 31,902 27,755 303,364 34,968 30,821 306,430 38,158 34,012 309,620
3 66,203 47,121 42,974 318,583 53,224 49,077 324,686 59,828 55,682 331,290
4 90,513 61,830 57,891 333,292 71,992 68,053 343,454 83,429 79,490 354,891
5 116,038 76,005 72,273 347,467 91,260 87,528 362,722 109,123 105,391 380,585
6 142,840 89,618 86,093 361,080 111,013 107,489 382,475 137,087 133,562 408,549
7 170,982 102,640 99,322 374,102 131,232 127,915 402,694 167,510 164,193 438,972
8 200,531 115,021 111,911 386,483 151,877 148,767 423,339 200,584 197,474 472,046
9 231,558 126,715 124,642 398,177 172,906 170,833 444,368 236,518 234,445 507,980
10 264,136 137,676 137,676 409,138 194,280 194,280 465,742 275,545 275,545 547,007
15 453,150 180,048 180,048 451,510 304,839 304,839 576,301 527,159 527,159 798,621
20 694,385 194,577 194,577 466,039 413,296 413,296 684,758 904,420 904,420 1,175,882
25 1,002,269 166,771 166,771 438,233 499,862 499,862 771,324 1,463,805 1,463,805 1,735,267
30 1,395,216 78,274 78,274 349,736 534,756 534,756 806,218 2,291,535 2,291,535 2,562,997
35 1,896,726 (*) (*) (*) 464,768 464,768 736,230 3,508,317 3,508,317 3,779,779
ASSUMPTIONS:
<FN>
(1) ASSUMES NO POLICY HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER
MONTH.
(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.
</FN>
</TABLE>
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.
44
<PAGE> 48
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 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 21,000 16,627 11,741 205,135 17,682 12,796 205,135 18,738 13,852 205,135
2 43,050 32,966 28,080 205,135 36,120 31,234 205,135 39,403 34,516 205,135
3 66,203 49,042 44,155 205,135 55,385 50,499 205,135 62,250 57,363 205,135
4 90,513 64,862 60,220 205,135 75,539 70,897 205,135 87,560 82,918 205,135
5 116,038 80,462 76,064 205,135 96,683 92,285 205,135 115,688 111,290 205,135
6 121,840 77,069 72,915 205,135 98,991 94,838 205,135 125,984 121,831 205,135
7 127,932 73,432 69,523 205,135 101,238 97,329 205,135 137,375 133,466 205,135
8 134,329 69,528 65,863 205,135 103,419 99,754 205,135 150,035 146,370 205,135
9 141,045 65,316 62,873 205,135 105,521 103,078 205,135 164,166 161,723 205,135
10 148,097 60,735 60,735 205,135 107,517 107,517 205,135 180,008 180,008 205,135
15 189,014 30,003 30,003 205,135 115,209 115,209 205,135 289,775 289,775 304,263
20 241,235 (*) (*) (*) 115,939 115,939 205,135 464,975 464,975 488,224
25 307,884 (*) (*) (*) 98,785 98,785 205,135 740,693 740,693 777,728
30 392,947 (*) (*) (*) 26,156 26,156 205,135 1,183,353 1,183,353 1,195,186
35 501,511 (*) (*) (*) (*) (*) (*) 1,925,400 1,925,400 1,925,400
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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.
</FN>
</TABLE>
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.
45
<PAGE> 49
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 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 21,000 14,214 9,327 205,135 15,197 10,311 205,135 16,183 11,297 205,135
2 43,050 28,097 23,210 205,135 30,979 26,093 205,135 33,987 29,100 205,135
3 66,203 41,686 36,799 205,135 47,438 42,551 205,135 53,684 48,798 205,135
4 90,513 55,014 50,372 205,135 64,676 60,034 205,135 75,604 70,962 205,135
5 116,038 68,111 63,713 205,135 82,814 78,416 205,135 100,144 95,746 205,135
6 121,840 61,803 57,650 205,135 81,644 77,490 205,135 106,295 102,142 205,135
7 127,932 54,756 50,847 205,135 79,847 75,938 205,135 112,910 109,001 205,135
8 134,329 46,792 43,127 205,135 77,269 73,604 205,135 120,052 116,387 205,135
9 141,045 37,698 35,255 205,135 73,722 71,279 205,135 127,819 125,376 205,135
10 148,097 27,236 27,236 205,135 68,994 68,994 205,135 136,356 136,356 205,135
15 189,014 (*) (*) (*) 16,457 16,457 205,135 200,805 200,805 210,845
20 241,235 (*) (*) (*) (*) (*) (*) 316,074 316,074 331,878
25 307,884 (*) (*) (*) (*) (*) (*) 488,573 488,573 513,002
30 392,947 (*) (*) (*) (*) (*) (*) 761,140 761,140 768,751
35 501,511 (*) (*) (*) (*) (*) (*) 1,238,097 1,238,097 1,238,097
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50
PER MONTH.
(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.
</FN>
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
46
<PAGE> 50
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 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 21,000 16,555 11,917 211,294 17,603 12,964 212,342 18,652 14,013 213,391
2 43,050 32,638 27,999 227,377 35,750 31,111 230,489 38,987 34,348 233,726
3 66,203 48,240 43,601 242,979 54,447 49,808 249,186 61,162 56,523 255,901
4 90,513 63,326 58,919 258,065 73,675 69,268 268,414 85,319 80,912 280,058
5 116,038 77,889 73,714 272,628 93,441 89,266 288,180 111,644 107,469 306,383
6 142,840 91,920 87,977 286,659 113,750 109,807 308,489 140,341 136,398 335,080
7 170,982 105,370 101,659 300,109 134,567 130,856 329,306 171,592 167,881 366,331
8 200,531 118,232 114,753 312,971 155,897 152,418 350,636 205,641 202,161 400,380
9 231,558 130,484 128,164 325,223 177,729 175,409 372,468 242,740 240,420 437,479
10 264,136 142,076 142,076 336,815 200,024 200,024 394,763 283,138 283,138 477,877
15 453,150 190,985 190,985 385,724 319,900 319,900 514,639 548,727 548,727 743,466
20 694,385 217,810 217,810 412,549 446,923 446,923 641,662 956,671 956,671 1,151,410
25 1,002,269 214,110 214,110 408,849 571,206 571,206 765,945 1,583,081 1,583,081 1,777,820
30 1,395,216 169,455 169,455 364,194 677,161 677,161 871,900 2,547,576 2,547,576 2,742,315
35 1,896,726 99,545 99,545 294,284 773,544 773,544 968,283 4,075,781 4,075,781 4,270,520
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(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.
</FN>
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
47
<PAGE> 51
<TABLE>
<CAPTION>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 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 21,000 14,073 9,434 208,812 15,041 10,402 209,780 16,011 11,373 210,750
2 43,050 27,456 22,818 222,195 30,250 25,611 224,989 33,164 28,525 227,903
3 66,203 40,126 35,487 234,865 45,598 40,959 240,337 51,536 46,897 246,275
4 90,513 52,048 47,641 246,787 61,046 56,639 255,785 71,206 66,799 265,945
5 116,038 63,172 58,997 257,911 76,533 72,358 271,272 92,240 88,065 286,979
6 142,840 73,431 69,488 268,170 91,978 88,034 286,717 114,693 110,750 309,432
7 170,982 82,738 79,027 277,477 107,274 103,563 302,013 138,601 134,890 333,340
8 200,531 90,981 87,502 285,720 122,287 118,808 317,026 163,981 160,502 358,720
9 231,558 98,052 95,732 292,791 136,873 134,554 331,612 190,849 188,530 385,588
10 264,136 103,860 103,860 298,599 150,903 150,903 345,642 219,241 219,241 413,980
15 453,150 111,861 111,861 306,600 208,760 208,760 403,499 386,776 386,776 581,515
20 694,385 74,182 74,182 268,921 228,548 228,548 423,287 600,159 600,159 794,898
25 1,002,269 (*) (*) (*) 171,861 171,861 366,600 853,968 853,968 1,048,707
30 1,395,216 (*) (*) (*) (*) (*) (*) 1,139,903 1,139,903 1,334,642
35 1,896,726 (*) (*) (*) (*) (*) (*) 1,445,143 1,445,143 1,639,882
<FN>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50
PER MONTH.
(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.
</FN>
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
48
<PAGE> 52
<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> 53
<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> 54
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 9 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 83 pages.
Representations and Undertakings.
Accountants' Consent.
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C> <C>
1. Power of Attorney dated April 1, 1998 Attached hereto.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2
authorizing the establishment of the Registrant, for the Nationwide VLI Separate Account (File No.
adopted 811-4399), and hereby incorporated herein by reference.
3. Distribution Contracts Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account (File No. 811-4399),
and hereby incorporated herein by reference.
4. Form of Security Filed previously with Pre-Effective Amendment No. 1
and hereby incorporated by reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account (File No. 811-4399),
and hereby incorporated herein by reference.
6. Application form of Security Filed previously with Pre-Effective Amendment No. 1
and hereby incorporated by reference.
7. Opinion of Counsel Filed previously with Pre-Effective Amendment No. 1
and hereby incorporated by reference.
</TABLE>
<PAGE> 55
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)(A) 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 (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 Commission heretofore or hereafter
duly adopted pursuant to authority conferred in that section.
(f) The fees and charges deducted under the Policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the Company.
<PAGE> 56
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of 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> 57
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 for effectiveness of this Post-Effective Amendment No. 9
and has duly caused this Post-Effective Amendment No. 9 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)
(Seal) NATIONWIDE LIFE INSURANCE COMPANY
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. 9 has been signed below by the following persons in the capacities
indicated on the 29th day of April, 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 and Chief
- ------------------------------------------------- Operating Office and Director
Joseph J. Gasper
DIMON R. McFERSON Chairman and Chief Executive Officer
- ------------------------------------------------- Nationwide Insurance Enterprise and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and Director
- -------------------------------------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- -------------------------------------------------
Yvonne L. Montgomery
C. RAY NOECKER Director
- -------------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ------------------------------------------------- --------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- -------------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -------------------------------------------------
Harold W. Weihl
</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>
