<PAGE> 1
Registration No. 33-00145
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
POST-EFFECTIVE AMENDMENT NO. 20
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)
PATRICIA R. HATLER
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 September 20, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of rule (485)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities being registered: Modified Single Premium Variable Life
Insurance Policies.
Approximate date of proposed offering: Continuously on and after September 20,
2000.
[ ] Check box if it is proposed that this filing will become effective on (date)
at (time) pursuant to Rule 487.
================================================================================
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1............................................................................Nationwide Life Insurance Company
The Variable Account
2............................................................................Nationwide Life Insurance Company
3............................................................................Custodian of Assets
4............................................................................Distribution of The Policies
5............................................................................The Variable Account
6............................................................................Not Applicable
7............................................................................Not Applicable
8............................................................................Not Applicable
9............................................................................Legal Proceedings
10...........................................................................Information About The Policies; How
The Cash Value Varies; Right to
Exchange for a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11...........................................................................Investments of The Variable Account
12...........................................................................The Variable Account
13...........................................................................Policy Charges Reinstatement
14...........................................................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for Issuance
of a Policy
15...........................................................................Investments of the Variable Account;
Premium Payments
16...........................................................................Underwriting and Issuance -
Allocation of Cash Value
17...........................................................................Surrendering The Policy for Cash
18...........................................................................Reinvestment
19...........................................................................Not Applicable
20...........................................................................Not Applicable
21...........................................................................Policy Loans
22...........................................................................Not Applicable
23...........................................................................Not Applicable
24...........................................................................Not Applicable
25...........................................................................Nationwide Life Insurance Company
26...........................................................................Not Applicable
27...........................................................................Nationwide Life Insurance Company
28...........................................................................Company Management
29...........................................................................Company Management
30...........................................................................Not Applicable
31...........................................................................Not Applicable
32...........................................................................Not Applicable
33...........................................................................Not Applicable
34...........................................................................Not Applicable
35...........................................................................Nationwide Life Insurance Company
36...........................................................................Not Applicable
37...........................................................................Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
38...........................................................................Distribution of The Policies
39...........................................................................Distribution of The Policies
40...........................................................................Not Applicable
41(a)........................................................................Distribution of The Policies
42...........................................................................Not Applicable
43...........................................................................Not Applicable
44...........................................................................How The Cash Value Varies
45...........................................................................Not Applicable
46...........................................................................How The Cash Value Varies
47...........................................................................Not Applicable
48...........................................................................Custodian of Assets
49...........................................................................Not Applicable
50...........................................................................Not Applicable
51...........................................................................Summary of The Policies;
Information About The Policies
52...........................................................................Substitution of Securities
53...........................................................................Taxation of The Company
54...........................................................................Not Applicable
55...........................................................................Not Applicable
56...........................................................................Not Applicable
57...........................................................................Not Applicable
58...........................................................................Not Applicable
59...........................................................................Financial Statements
</TABLE>
<PAGE> 4
SUPPLEMENT DATED SEPTEMBER 20, 2000, TO
PROSPECTUS DATED MAY 1, 2000, FOR
MODIFIED SINGLE PREMIUM VARIABLE
LIFE INSURANCE POLICIES
ISSUED BY
NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS
NATIONWIDE VLI SEPARATE ACCOUNT
THIS SUPPLEMENT UPDATES CERTAIN INFORMATION CONTAINED IN YOUR PROSPECTUS. PLEASE
READ IT AND KEEP IT WITH YOUR PROSPECTUS FOR FUTURE REFERENCE.
1. THE "SURRENDER (REDEMPTION)" PROVISION ON PAGE 15 OF YOUR PROSPECTUS IS
AMENDED TO INCLUDE THE FOLLOWING:
Nationwide is required by state law to reserve the right to postpone
payment of assets in the fixed account for a period of up to six
months from the date of the surrender request.
2. EFFECTIVE SEPTEMBER 25, 2000: MERGER OF VAN KAMPEN LIFE INVESTMENT TRUST -
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO INTO THE UNIVERSAL
INSTITUTIONAL FUNDS, INC. - U.S. REAL ESTATE PORTFOLIO.
Effective September 25, pursuant to shareholder vote, all shares of Van
Kampen Life Investment Trust - Morgan Stanley Real Estate Securities
Portfolio were exchanged for shares of The Universal Institutional Funds,
Inc. - U.S. Real Estate Portfolio. Any assets invested in Van Kampen Life
Investment Trust - Morgan Stanley Real Estate Securities Portfolio at the
close of business on September 22, 2000 will be exchanged for shares of The
Universal Institutional Funds, Inc. - U.S. Real Estate Portfolio. The value
of the shares received in the exchange equals the value of the shares held
in the Van Kampen Life Investment Trust - Morgan Stanley Real Estate
Securities Portfolio as of the close of business on September 22, 2000.
This exchange of shares will not otherwise affect any contract rights.
Contract owners are free to reallocate assets located in The Universal
Institutional Funds, Inc. - U.S. Real Estate Portfolio pursuant to the
terms of the contract.
Following the exchange, contract owners who had assets in the Van Kampen
Life Investment Trust - Morgan Stanley Real Estate Securities Portfolio
will have assets in The Universal Institutional Funds, Inc. - U.S. Real
Estate Portfolio and the Van Kampen Life Investment Trust - Morgan Stanley
Real Estate Securities Portfolio will be terminated in accordance with
Delaware state law.
3. EFFECTIVE SEPTEMBER 25, 2000, ALL REFERENCES IN YOUR PROSPECTUS TO VAN
KAMPEN LIFE INVESTMENT TRUST - MORGAN STANLEY REAL ESTATE SECURITIES
PORTFOLIO ARE DELETED AND PAGE 1 OF YOUR PROSPECTUS IS AMENDED TO INCLUDE
THE FOLLOWING UNDERLYING MUTUAL FUND:
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
o U.S. Real Estate Portfolio
<PAGE> 5
4. EFFECTIVE SEPTEMBER 25, 2000, THE "UNDERLYING MUTUAL FUND ANNUAL EXPENSES"
TABLE ON PAGE 7 OF YOUR PROSPECTUS IS AMENDED AS FOLLOWS:
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(as a percentage of underlying mutual fund average net assets,
after expense reimbursement)
<TABLE>
<CAPTION>
Total Underlying
Management Other 12b-1 Mutual Fund
Fees Expenses Fees Expenses
---------- -------- ----- ----------------
<S> <C> <C> <C> <C>
The Universal Institutional Funds, 0.75% 0.35% 0.00% 1.10%
Inc. -- U. S. Real Estate Portfolio
---------- -------- ----- ----------------
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before
it provides Nationwide with the daily net asset value. Nationwide then
deducts applicable variable account charges from the net asset value in
calculating the unit value of the corresponding sub-account. The management
fees and other expenses are more fully described in the prospectus for each
underlying mutual fund. Information relating to the underlying mutual funds
was provided by the underlying mutual funds and not independently verified
by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been
for such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
Total Underlying
Management Other 12b-1 Mutual Fund
Fees Expenses Fees Expenses
---------- -------- ----- ----------------
<S> <C> <C> <C> <C>
The Universal Institutional Funds, Inc. 0.80% 0.35% 0.00% 1.15%
Inc. -- U. S. Real Estate Portfolio
---------- -------- ----- ----------------
</TABLE>
5. EFFECTIVE SEPTEMBER 25, 2000, "APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL
FUNDS" ON PAGE 48 OF YOUR PROSPECTUS IS AMENDED TO READ:
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U. S. REAL ESTATE PORTFOLIO
Investment Objective: Long-term capital growth by investing principally
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 Fund'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. Morgan Stanley Asset Management,
Inc. serves as the Fund's investment adviser.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY
Modified Single Premium Variable Life Insurance Policies
Issued by Nationwide Life Insurance Company through
its Nationwide VLI Separate Account
The date of this prospectus is May 1, 2000.
--------------------------------------------------------------------------------
This prospectus contains basic information you should know about the policies
before investing.
Please read it and keep it for future reference.
THE FOLLOWING UNDERLYING MUTUAL FUNDS ARE AVAILABLE UNDER THE POLICIES:
VAN KAMPEN LIFE INVESTMENT TRUST:
o Asset Allocation Portfolio (formerly Multiple Strategy Fund)
o Domestic Income Portfolio (formerly Domestic Strategic Income Fund)
o Emerging Growth Portfolio
o Enterprise Portfolio (formerly Common Stock Fund)
o Global Equity Portfolio
o Government Portfolio
o Money Market Portfolio
o Morgan Stanley Real Estate Securities Portfolio (formerly Real Estate
Securities Fund)
For general information or to obtain FREE copies of the:
o prospectus, annual report or semi-annual report for any underlying mutual
fund; and
o any required Nationwide forms,
call:
1-800-547-7548
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182150
COLUMBUS, OHIO 43218-2150
THIS POLICY IS NOT:
o A BANK DEPOSIT;
o ENDORSED BY A BANK OR GOVERNMENT AGENCY;
o FEDERALLY INSURED; OR
o AVAILABLE IN EVERY STATE.
The life insurance policies offered by this prospectus are variable life
insurance policies. They provide life insurance coverage on the insured named in
the policy. For policies issued in New York under a group contract, references
throughout this prospectus to "policy(ies)" will mean "certificate(s)" and
"policy owner(s)" will mean "certificate owner(s)." A cash surrender value may
be offered if the policy is terminated during the lifetime of the insured.
No claim is made that the policy is in any way similar or comparable to a
systematic investment plan of a mutual fund.
The death benefit and cash value of this policy may vary to reflect the
experience of the Nationwide VLI Separate Account or the fixed account,
depending on how premium payments are invested.
Investors assume certain risks when investing in the policies, including the
risk of losing of money.
In Texas the policies are titled, "Flexible Premium Variable Life Insurance
Policies."
1
<PAGE> 7
Nationwide guarantees the death benefit will never be less than the specified
amount stated on the policy data page for as long as the policy is in force.
The cash surrender value is not guaranteed. The policy will lapse if the cash
surrender value is insufficient to cover policy charges.
Benefits described in this prospectus may not be available in every jurisdiction
- refer to your policy for specific benefit information.
This prospectus is not an offering in any jurisdiction where such offering may
not lawfully be made. No person is authorized to make any representations in
connection with this offering other than those contained in this prospectus.
It may be disadvantageous for policy owners to:
o replace existing insurance policies with the policy described in this
prospectus;
o purchase a policy to obtain additional insurance protection if another
variable life insurance policy is owned; or
o take policy loans or withdrawals from the policy prior to attaining age
59 1/2(see "Tax Matters").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 8
GLOSSARY OF SPECIAL TERMS
ATTAINED AGE - The insured's age on the policy date, plus the number of full
years since the policy date.
ACCUMULATION UNIT - An accounting unit of measure used to calculate the cash
value of the variable account.
FIXED ACCOUNT - An investment option which is funded by the general account of
Nationwide.
GENERAL ACCOUNT - All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
GUIDELINE SINGLE PREMIUM - The single premium required to mature the policy
under guaranteed mortality and expense charges with an interest rate of 6%.
SUB-ACCOUNTS - Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units are separately maintained.
MATURITY DATE - The policy anniversary on or next following the insured's 95th
birthday.
NATIONWIDE - Nationwide Life Insurance Company.
SPECIFIED AMOUNT - The dollar amount used to determine the death benefit under a
policy.
VALUATION PERIOD - Each day the New York Stock Exchange is open for business.
VARIABLE ACCOUNT - Nationwide VLI Separate Account a separate account of
Nationwide Life Insurance Company that contains variable account allocations.
The variable account is divided into sub-accounts, each of which invests in
shares of a separate underlying mutual fund.
3
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS..........................
SUMMARY OF POLICY EXPENSES.........................
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES......................................
SYNOPSIS OF THE POLICIES...........................
NATIONWIDE LIFE INSURANCE COMPANY..................
INVESTING IN THE POLICY............................
The Variable Account and Underlying
Mutual Funds
Changes of Investment Policy
Voting Rights
Substitution of Securities
Material Conflicts
The Fixed Account
INFORMATION ABOUT THE POLICIES.....................
Minimum Requirements for Policy Issuance
Premium Payments
Pricing
POLICY CHARGES.....................................
Monthly Cost of Insurance
Annual Administrative Charge
Surrender Charges
Mortality and Expense Risk Charge
Administrative Expense Charge
Premium Expense Charge
Income Tax
SURRENDERING THE POLICY FOR CASH...................
Surrender (Redemption)
Cash Surrender Value
Partial Surrenders
Income Tax Withholding
VARIATION IN CASH VALUE............................
Error in Age or Sex
POLICY PROVISIONS..................................
Policy Owner
Beneficiary
Changes in Existing Insurance Coverage
OPERATION OF THE POLICY............................
Allocation of Net Premium and Cash Value
How the Investment Experience is Determined
Net Investment Factor
Determining the Cash Value
Transfers
RIGHT TO REVOKE....................................
POLICY LOANS.......................................
Taking a Policy Loan
Effect on Investment Performance
Interest
Effect on Death Benefit and Cash Value
Repayment
ASSIGNMENT.........................................
POLICY OWNER SERVICES..............................
Dollar Cost Averaging
DEATH BENEFIT INFORMATION..........................
Calculations of the Death Benefit
Changes in the Death Benefit
Proceeds Payable on Death
Incontestability
Suicide
Maturity Proceeds
EXCHANGE RIGHTS....................................
GRACE PERIOD.......................................
Reinstatement
TAX MATTERS........................................
Policy Proceeds
Withholding
Federal Estate and Generation-Skipping
Transfers Taxes
Non-Resident Aliens
Taxation of Nationwide
Tax Changes
LEGAL CONSIDERATIONS...............................
STATE REGULATION...................................
REPORTS TO POLICY OWNERS...........................
ADVERTISING........................................
LEGAL PROCEEDINGS..................................
EXPERTS............................................
REGISTRATION STATEMENTS............................
DISTRIBUTION OF THE POLICIES.......................
</TABLE>
4
<PAGE> 10
<TABLE>
<S> <C>
ADDITIONAL INFORMATION ABOUT
NATIONWIDE....................................
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS.
</TABLE>
5
<PAGE> 11
SUMMARY OF POLICY EXPENSES
Nationwide deducts certain charges from the policy. Charges are made for
administrative and sales expenses, tax expenses, providing life insurance
protection and assuming the mortality and expense risks.
No deductions are made from premium payments - 100% of each premium payment is
applied to the cash value.
Nationwide deducts the following charges from the cash value of the policy:
o Monthly Cost of Insurance Charge;
o Annual Administrative Charge;(1) and
o Surrender Charge.(2)
(1) The amount of annual administrative charge is determined by the amount of
total net premium payments (see "Annual Administrative Charge"). The current
guaranteed maximum charges are:
o $135 ($120 in New York) for premiums of $10,000 but less than $25,000; and
o $75 for net premiums of $25,000+.
(2) Surrender charges will not exceed 8.5% of the total premiums paid (see
"Surrender Charges").
Nationwide deducts the following charges from the assets of the variable
account:
o Mortality and Expense Risk Charge;(3)
o Administrative Expense Charge;(4) and
o Premium Expense Charge.(5)
Annually, these charges are equal to:
<TABLE>
<CAPTION>
POLICY POLICY
YEARS 1-10 YEARS 11+
---------- ---------
<S> <C> <C>
CURRENT 1.30% 1.00%
---------- ---------
GUARANTEED
MAXIMUM 1.60% 1.30%
---------- ---------
</TABLE>
(3) The mortality and expense risk charge is equal to an annual effective rate
of 0.75%. It is guaranteed not to exceed 0.90% (see "Mortality and Expense Risk
Charge").
(4) The administrative expense charge is equal to an annual effective rate of
0.25%. It is guaranteed not to exceed 0.40% (see "Administrative Expense
Charge").
(5) The premium expense charge is deducted during the first ten policy years and
is equivalent to an annual effective rate of 0.30% (see "Premium Expense
Charge").
For more information about any policy charge, see "Policy Charges" in this
prospectus.
6
<PAGE> 12
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(as a percentage of average net assets after expense reimbursement)
<TABLE>
<CAPTION>
MANAGEMENT OTHER 12b-1 TOTAL MUTUAL
FEES EXPENSES FEES FUND EXPENSES
---------- -------- ----- -------------
<S> <C> <C> <C> <C>
Van Kampen Life Investment Trust: Asset Allocation 0.33% 0.27% 0.00% 0.60%
Portfolio (formerly, Van Kampen Life Investment
Trust: Multiple Strategy Fund)
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Domestic Income 0.01% 0.60% 0.00% 0.61%
Portfolio (formerly, Van Kampen Life Investment
Trust: Domestic Strategic Income Fund)(1)
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Emerging Growth 0.67% 0.18% 0.00% 0.85%
Portfolio
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Enterprise 0.48% 0.12% 0.00% 0.60%
Portfolio (formerly, Van Kampen Life Investment
Trust: Common Stock Fund)
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Global Equity 0.00% 1.20% 0.00% 1.20%
Portfolio
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Government 0.36% 0.24% 0.00% 0.60%
Portfolio(2)
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Money Market 0.19% 0.43% 0.00% 0.62%
Portfolio
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Morgan Stanley 0.97% 0.13% 0.00% 1.10%
Real Estate Securities Portfolio (formerly, Van
Kampen Life Investment Trust: Real Estate
Securities Fund)
---------- -------- ----- -------------
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value in calculating the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
(1) The ratio of expenses to average net assets do not reflect credits earned on
overnight cash balances. If these credits were reflected as a reduction of
expenses, the ratio would decrease by 0.01% for the year-ended December 31,
1999.
(2) The ratio of expenses to average net assets do not reflect credits earned on
overnight cash balances. If these credits were reflected as a reduction of
expenses, the ratio would decrease by 0.02% for the year-ended December 31,
1999.
7
<PAGE> 13
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
MANAGEMENT OTHER 12b-1 TOTAL MUTUAL
FEES EXPENSES FEES FUND EXPENSES
---------- -------- ----- -------------
<S> <C> <C> <C> <C>
Van Kampen Life Investment Trust: Asset Allocation 0.50% 0.27% 0.00% 0.77%
Portfolio (formerly, Van Kampen Life Investment Trust:
Multiple Strategy Fund)
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Domestic Income 0.50% 0.60% 0.00% 1.10%
Portfolio (formerly Van Kampen Life Investment Trust:
Domestic Strategic Income Fund)(1)
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Emerging Growth 0.70% 0.18% 0.00% 0.88%
Portfolio
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Enterprise Portfolio 0.50% 0.12% 0.00% 0.62%
(formerly, Van Kampen Life Investment Trust: Common
Stock Fund)
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Global Equity 1.00% 3.84% 0.00% 4.84%
Portfolio
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Government Portfolio 0.50% 0.24% 0.00% 0.74%
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Money Market 0.50% 0.43% 0.00% 0.93%
Portfolio(2)
---------- -------- ----- -------------
Van Kampen Life Investment Trust: Morgan Stanley Real 1.00% 0.13% 0.00% 1.13%
Estate Securities Portfolio (formerly, Van Kampen Life
Investment Trust: Real Estate Securities Fund)
---------- -------- ----- -------------
</TABLE>
(1) The ratio of expenses to average net assets do not reflect credits earned on
overnight cash balances. If these credits were reflected as a reduction of
expenses, the ratio would decrease by 0.01% for the year-ended December 31,
1999.
(2) The ratio of expenses to average net assets do not reflect credits earned on
overnight cash balances. If these credits were reflected as a reduction of
expenses, the ratio would decrease by 0.02% for the year-ended December 31,
1999.
8
<PAGE> 14
SYNOPSIS OF THE POLICIES
The policies offered by this prospectus provide for life insurance coverage on
the insured. The death benefit and cash value of the policy may increase or
decrease to reflect the performance of the investment options chosen by the
policy owner (see "Death Benefit Information").
CASH SURRENDER VALUE
If the policy is terminated during the insured's lifetime, a cash surrender
value may be payable under the policy. However, there is no guaranteed cash
surrender value (see "Variation in Cash Value "). The policy will lapse without
value if the cash surrender value falls below what is needed to cover policy
charges.
PREMIUMS
The minimum initial premium for which a policy may be issued is $10,000 for
issue ages 75 or younger and $50,000 for issue ages 76 through 80.
Additional premium payments of $1,000 are permitted any time while the policy is
in force, subject to certain restrictions (see "Premium Payments").
TAXATION
The policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code. Nationwide will
monitor compliance with the tests provided by Section 7702 to insure the
policies continue to receive this favored tax treatment (see "Tax Matters").
NONPARTICIPATING POLICIES
The policies are nonparticipating policies on which no dividends are payable.
The policies do not share in the profits or surplus earnings of Nationwide.
POLICY CANCELLATION
Policy owners may return the policy for any reason within certain time periods
and Nationwide will refund the policy value or the amount required by law (see
"Right to Revoke").
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in March 1929, with its home office at One Nationwide Plaza,
Columbus, Ohio 43215. Nationwide is a provider of life insurance, annuities and
retirement products. It is admitted to do business in all states, the District
of Columbia and Puerto Rico.
GENERAL DISTRIBUTOR
The policies are distributed by the general distributor, Van Kampen Funds, Inc.
CUSTODIAN OF ASSETS
Nationwide serves as the custodian of the assets of the variable account.
OTHER CONTRACTS ISSUED BY NATIONWIDE
Nationwide does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of Nationwide.
INVESTING IN THE POLICY
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide VLI Separate Account is a separate account that invests in the
underlying mutual fund options listed in Appendix A. Nationwide established the
separate account on August 8, 1984, pursuant to Ohio law. Although the separate
account is registered with the SEC as a unit investment trust pursuant to the
Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the
management of Nationwide or the variable account.
9
<PAGE> 15
Income, gains, and losses credited to, or charged against the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to policy owners under the policies.
The variable account is divided into sub-accounts. Policy owners elect to have
net premiums allocated among the sub-accounts and the fixed account at the time
of application.
Nationwide uses the assets of each sub-account to buy shares of the underlying
mutual funds based on policy owner instructions. A policy's investment
performance depends upon the performance of the underlying mutual fund options
chosen by the policy owner.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. The underlying mutual fund options are available as investment options in
variable life insurance policies or variable annuity contracts issued by life
insurance companies or, in some cases, through participation in certain
qualified pension or retirement plans.
However the underlying mutual funds are NOT directly related to any publicly
traded mutual fund. Policy owners should not compare the performance of a
publicly traded fund with the performance of underlying mutual funds
participating in the variable account. The performance of the underlying mutual
funds could differ substantially from that of any publicly traded funds.
Changes of Investment Policy
Nationwide may materially change the investment policy of the variable account.
Nationwide must inform policy owners of any changes and obtain all necessary
regulatory approvals. Any change must be submitted to the various state
insurance departments which may disapprove it if deemed detrimental to the
interests of the policy owners or if it renders Nationwide's operations
hazardous to the public. If a policy owner objects, the policy may be converted
to a substantially comparable general account life insurance policy offered by
Nationwide. The policy owner has the later of 60 days (6 months in Pennsylvania)
from the date of the investment policy change or 60 days (6 months in
Pennsylvania) from being informed of the change to make the conversion.
Nationwide will not require evidence of insurability for this conversion.
The new policy will not be affected by the investment experience of any separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the policy converted on the date of the conversion.
Voting Rights
Policy owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote policy owner shares at
special shareholder meetings based on policy owner instructions. However, if the
law changes allowing Nationwide to vote in its own right, it may elect to do so.
Policy owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholder's vote as soon as possible before
the shareholder meeting. Notification will contain proxy materials, and a form
to return to Nationwide with voting instructions.
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<PAGE> 16
Nationwide will vote shares for which no instructions are received in the same
proportion as those that are received.
The number of shares which a policy owner may vote is determined by dividing the
cash value of the amount they have allocated to an underlying mutual fund by the
net asset value of that underlying mutual fund. Nationwide will designate a date
for this determination not more than 90 days before the shareholder meeting.
Substitution of Securities
Nationwide may substitute, eliminate and/or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occur:
1. shares of a current underlying mutual fund option are no longer available
for investment; or
2. further investment in an underlying mutual fund option is inappropriate.
No substitution, elimination, and/or combination of shares may take place
without the prior approval of the SEC.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the policy owners and those of other companies. If
a material conflict occurs, Nationwide will take whatever steps are necessary to
protect policy owners, including withdrawal of the variable account from
participation in the underlying mutual fund(s) involved in the conflict.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks.
Premiums will be allocated to the fixed account by election of the policy owner.
The investment income earned by the fixed account will be allocated to the
polices at varying rate(s) set by Nationwide.
Under exemptive and exclusionary provisions, Nationwide's general account has
not been registered under the Securities Act of 1933 and has not been registered
as an investment company under the Investment Company Act of 1940. Accordingly,
neither the general account nor any interest therein is subject to the
provisions of these Acts. Nationwide has been advised that the staff of the SEC
has not reviewed the disclosures in this prospectus relating to the fixed
account. Disclosures regarding the general account may, however, be subject to
certain general applicable provisions of the federal securities law concerning
the accuracy and completeness of statements made in prospectuses.
The investment income earned by the fixed account will be allocated to the
contracts at varying rate(s) set by Nationwide. The guaranteed rate for any
premiums will be effective for not less than twelve months. Nationwide
guarantees that the rate will not be less than 4.0% per year.
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<PAGE> 17
Any interest in excess of 4.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The policy owner assumes the risk that interest
credited to fixed account allocations may not exceed the minimum guarantee of
4.0% for any given year.
New premiums deposited to the contract and allocated to the fixed account may
receive a different rate of interest than amounts transferred from the
sub-accounts to the fixed account and amounts maturing in the fixed account.
INFORMATION ABOUT THE POLICIES
MINIMUM REQUIREMENTS FOR ISSUANCE OF A POLICY
This policy provides life insurance coverage on the insured. Minimum
requirements for policy issuance include:
o the insured must be age 80 or younger;
o Nationwide may require satisfactory evidence of insurability (including a
medical exam); and
o the minimum initial premium of $10,000 for issue ages 75 and younger, and
$50,000 for issue ages 76 through 80.
Premium Payments
Each premium payment must be at least $10,000 for issue ages 75 and younger or
$50,000 for issue ages 76-80. The initial premium is payable in full at
Nationwide's home office or to an authorized agent of Nationwide.
The specified amount is determined by treating the initial premium as equal to
100% of the Guideline Single Premium.
Upon payment of the initial premium, temporary insurance may be provided.
Issuance of the continuing insurance coverage is dependent upon completion of
all underwriting requirements, payment of initial premium, and delivery of the
policy while the insured is still living.
Additional premium payments may be made at any time while the policy is in
force, subject to the following conditions:
o Nationwide may require satisfactory evidence of insurability before accepting
any additional premium payment which results in an increase in the net amount
at risk.
o Additional premium payments must be $1,000 (except in Virginia).
o Premium payments in excess of the premium limit established by the IRS to
qualify the policy as a contract for life insurance will be refunded.
o Nationwide may require policy indebtedness be repaid prior to accepting any
additional premium payments.
Additional premium payments or other changes to the policy may jeopardize the
policy's non-modified endowment status. Nationwide will monitor premiums paid
and other policy transactions and will notify the policy owner when non-modified
endowment contract status is in jeopardy.
PRICING
Premiums will not be priced when the New York Stock Exchange is closed or on the
following nationally recognized holidays:
o New Year's Day o Independence Day
o Martin Luther King, Jr. Day o Labor Day
o Presidents' Day o Thanksgiving
o Good Friday o Christmas
o Memorial Day
Nationwide also will not price premium payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities held in the
variable account impracticable; or
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<PAGE> 18
(3) the SEC, by order, permits a suspension or postponement for the protection
of security holders.
Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist.
If Nationwide is closed on days when the New York Stock Exchange is open,
contract value nay be affected since the contract owner would not have access to
their account.
POLICY CHARGES
No deduction is made from premium payments - 100% of each premium payment is
applied to the cash value.
MONTHLY COST OF INSURANCE
The 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.
This deduction is charged proportionately to the cash value in each sub-account
and the fixed account.
The current cost of insurance charge will not exceed the cost based on the
guaranteed cost of insurance rate and the policy's net amount at risk.
Guaranteed cost of insurance rates for standard simplified issues are based on
the 1980 Commissioner's Extended Term Mortality Table, Age Last Birthday (1980
CET). Guaranteed cost of insurance rates for standard preferred issues are based
on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last Birthday
(1980 CSO). Guaranteed cost of insurance rates for substandard issues are based
on appropriate percentage multiples of the 1980 CSO.
These mortality tables are sex distinct. In addition, separate mortality tables
will be used for standard and non-tobacco.
For policies issued in Texas, guaranteed cost of insurance rates for standard
simplified issues ("Special Class-Simplified" in Texas) are based on 130% of the
1980 Commissioner's Standard Ordinary Mortality Table, Age Last Birthday (1980
CSO).
The rate class of an insured may affect the cost of insurance rate. Nationwide
currently places insureds into both standard rate classes and substandard rate
classes that involve a higher mortality risk. In an otherwise identical policy,
an insured in the standard rate class will have a lower cost of insurance than
an insured in a rate class with higher mortality risks. Nationwide may also
issue certain policies on a "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.
ANNUAL ADMINISTRATIVE CHARGE
After the first policy year, Nationwide deducts an Annual Administrative Charge.
It is charged proportionately to the cash values in each sub-account and the
fixed account. The annual charge is determined by the total net premium payments
(premium payments less any previous partial surrenders):
<TABLE>
<CAPTION>
GUARANTEED
CURRENT MAXIMUM
TOTAL NET ADMINISTRATIVE ADMINISTRATIVE
PREMIUMS CHARGE CHARGE
----------------- ----------------- -----------------
<S> <C> <C>
$10,000 but $90* $135*
less than
$25,000
----------------- ----------------- -----------------
----------------- ----------------- -----------------
$25,000 $50 $75
----------------- ----------------- -----------------
</TABLE>
* For policies issued in New York, the current charge is $65 and the guaranteed
maximum is $120.
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<PAGE> 19
SURRENDER CHARGES
Nationwide incurs certain expenses related to the sale of the policies. These
expenses include commissions paid to sales personnel, the cost of sales
literature and other promotional activity. Nationwide deducts a surrender charge
to cover these expenses. Unrecovered expenses are borne by Nationwide's general
assets which may include profits, if any, from the mortality and expense risk
charge.
Upon surrender, the initial premium payments and any subsequent premium payments
resulting in an increased net amount at risk will incur surrender charges. The
charge is less than or equal to 8.5% of that premium payment surrendered, as set
forth in the following chart:
<TABLE>
<CAPTION>
COMPLETED YEAR(S) CHARGES ON SURRENDER AS A
SINCE THE PAYMENT PERCENTAGE OF THE PAYMENT
----------------- -------------------------
<S> <C>
0 8.5%
----------------- -------------------------
1 8.5%
----------------- -------------------------
2 8.0%
----------------- -------------------------
3 8.0%
----------------- -------------------------
4 7.5%
----------------- -------------------------
5 7.0%
----------------- -------------------------
6 6.0%
----------------- -------------------------
7 5.0%
----------------- -------------------------
8 4.0%
----------------- -------------------------
9 0.0%
----------------- -------------------------
</TABLE>
Surrender charges apply for nine years after the effective date of each premium
payment. Certain surrenders may result in adverse tax consequences.
The surrender charge deducted upon surrender will never exceed 8.5% of the total
premiums paid. Surrender Charges are deducted from the cash value in each
sub-account and the fixed account. Surrender charges may be eliminated for
policies that are issued to an officer, director, former director, partner,
employee, or retired employee of Nationwide; or an employee of the general
distributor, Van Kampen Funds, Inc. or an employee of an affiliate of Nationwide
or Van Kampen Funds, Inc. or, a duly appointed representative of Nationwide who
receives no commission as a result of the purchase.
Surrender charges are eliminated only when Nationwide does not incur sales or
administrative expenses normally incurred on the sale of a policy. In no event
will reduction of the surrender charge be permitted if a reduction would be
unfairly discriminatory to any person.
Nationwide deducts the following charges from the assets of the variable
account:
o mortality and expense risk charge;
o administrative expense charge; and
o premium expense charge.
Annually, these charges are equal to:
<TABLE>
<CAPTION>
POLICY POLICY
YEARS YEARS
------ ------
<S> <C> <C>
1-10 11+
------ ------
CURRENT 1.30% 1.00%
------ ------
GUARANTEED
MAXIMUM
1.60% 1.30%
------ ------
</TABLE>
MORTALITY AND EXPENSE RISK CHARGE
The mortality risk assumed under the policies is that the insured may not live
as long as expected. The expense risk assumed is that the actual expenses
incurred in issuing and administering the policies may be greater than expected.
In addition, Nationwide assumes risks associated with the non-recovery of policy
issue, underwriting and other administrative expenses due to policies that lapse
or are surrendered in the early policy years. To compensate Nationwide for
assuming these risks, Nationwide deducts the morality and expense risk charge
from the variable account on a daily basis. It is deducted proportionally from
the cash value in each sub-account. The charge is equivalent to an annual
effective rate of 0.75% of the average net assets of the variable account. It is
guaranteed not to exceed 0.90%. Policy owners receive quarterly and annual
statements, advising policy owners of the
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<PAGE> 20
cancellation of accumulation units for mortality and expense risk charges.
ADMINISTRATIVE EXPENSE CHARGE
Nationwide deducts a daily administrative expense charge from the assets of the
sub-accounts. This charge reimburses Nationwide for certain administrative
expenses related to the issuance and maintenance of the policies including
underwriting, record keeping, accounting and periodic reporting to policy
owners. Nationwide does not expect to recover any amount in excess of aggregate
maintenance expenses from this charge. Currently this charge is equivalent to an
annual effective rate of 0.25%. This charge is guaranteed not to exceed 0.40%.
PREMIUM EXPENSE CHARGE
Nationwide pays any state premium taxes attributable to a particular policy when
incurred by Nationwide. Nationwide expects to pay an average state premium tax
rate of approximately 2.50% of premiums for all states, although tax rates
generally can range from 0% to 4%.
During the first ten policy years Nationwide deducts a daily charge equivalent
to an annual effective rate of 0.30% of the assets of the variable account, and
0% thereafter. This charge reimburses Nationwide for administrative expenses on
an aggregate basis including premium taxes imposed by various state and local
jurisdictions. This charge is deducted proportionally from the cash value in
each sub-account and the fixed account. This charge may be more or less than the
amount actually assessed by the state in which a particular policy owner lives.
Nationwide does not expect to make a profit from this charge.
INCOME TAX
No charge is assessed to policy owners for income taxes incurred by Nationwide
as a result of the operations of the sub-accounts. However, Nationwide reserves
the right to assess a charge for income taxes against the variable account if
income taxes are incurred.
SURRENDERING THE POLICY FOR CASH
SURRENDER (REDEMPTION)
Policies may be surrendered for the cash surrender value any time while the
insured is living. The cancellation will be effective as of the date Nationwide
receives the policy accompanied by a signed, written request for cancellation.
Nationwide may require the policy owner's signature to be guaranteed by a member
firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock
Exchanges, or by a commercial bank or a savings and loan, which is a member of
the Federal Deposit Insurance Corporation. In some cases, Nationwide may require
additional documentation of a customary nature.
Cash Surrender Value
The cash surrender value increases or decreases daily to reflect the investment
experience of the variable account and the daily crediting of interest in the
fixed account and the policy loan account.
The cash surrender value equals the policy's cash value, next computed after the
date Nationwide receives a proper written request for surrender and the policy,
minus any charges, indebtedness or other deductions due on that date, which may
also include a surrender charge.
Partial Surrenders
After the policy has been in force for five years, the policy owner may request
a partial surrender.
Partial surrenders are permitted if they satisfy the following requirements:
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<PAGE> 21
1) the minimum partial surrender in any policy year is limited to 10% of total
premium payments;
2) after a partial surrender, the cash surrender value is greater than $10,000;
and
3) after the partial surrender, the policy continues to qualify as life
insurance.
When a partial surrender is made, the cash value will be 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 (see "Death Benefit
Information"). In that case, a partial surrender will decrease the specified
amount by the amount the partial surrender exceeds the difference between the
death benefit and specified amount. Partial surrenders are first deducted from
the values in the sub-accounts, then from the fixed account if there are
insufficient amounts in the sub-accounts.
Surrenders charges are waived for partial surrenders that satisfy the above
conditions. Certain partial surrenders may result in currently taxable income
and tax penalties.
INCOME TAX WITHHOLDING
Federal law requires Nationwide to withhold income tax from any portion of
surrender proceeds subject to tax. Nationwide will withhold income tax unless
the policy owner advises Nationwide, in writing, of his or her request not to
withhold. If a policy owner requests that taxes not be withheld, or if the taxes
withheld are insufficient, the policy owner may be liable for payment of an
estimated tax. Policy owners should consult a tax adviser.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(1) the value each year of the life insurance protection provided;
(2) an amount equal to any employer-paid premiums; or
(3) some or all of the amount by which the current value exceeds the employer's
interest in the policy.
Participants should consult with the sponsor or the administrator of the plan,
and/or with their personal tax or legal adviser, to determine the tax
consequences, if any, of their employer-sponsored life insurance arrangements.
VARIATION IN CASH VALUE
On any date during the policy year, the cash value equals the cash value on the
preceding valuation date plus any net premium applied since the previous
valuation date, minus any partial surrenders, plus or minus any investment
results, minus any surrender charge for decreases in specified amount, and less
any policy charges.
There is no guaranteed cash value. The cash value will vary with the investment
experience of the variable account and/or the daily crediting of interest in the
fixed account and policy loan account depending on the allocation of cash value
by the policy owner.
ERROR IN AGE OR SEX
If the age or sex of the insured has been misstated, the affected benefits will
be adjusted to reflect the correct age and sex.
POLICY PROVISIONS
POLICY OWNER
While the insured is living, all rights in this policy are vested in the policy
owner named in the application or as subsequently changed, subject to
assignment, if any.
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<PAGE> 22
The policy owner may name a contingent policy owner or a new policy owner while
the insured is living. Any change must be in a written form satisfactory to
Nationwide and recorded at Nationwide's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
actions taken by Nationwide before it was recorded. Nationwide may require that
the policy be submitted for endorsement before making a change.
If the policy owner is other than the insured 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.
BENEFICIARY
The beneficiary(ies) will be as named in the application or as subsequently
changed, subject to assignment, if any.
The policy owner may name a new beneficiary while the insured is living. Any
change must be in a written form satisfactory to Nationwide and recorded at
Nationwide's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by
Nationwide before it was recorded.
If any beneficiary predeceases the insured, that beneficiary's interest passes
to any surviving beneficiary(ies), unless otherwise provided. Multiple
beneficiaries will be paid in equal shares, unless otherwise provided. If no
named beneficiary survives the insured, the death proceeds will be paid to the
policy owner or the policy owner's estate.
CHANGES IN EXISTING INSURANCE COVERAGE
The policy owner may request certain changes in the insurance coverage under the
policy. Requests must be in writing and received by Nationwide. No change will
take effect unless the cash surrender value after the change is sufficient to
keep the policy in force for at least 3 months.
Specified Amount Increases
After the first policy year, the policy owner may request an increase to the
specified amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the rate class, rate class multiple, and rate type for the increase must
be identical to those on the policy date; and
5. Nationwide reserves the right to limit the number of increases to one per
policy year.
Any approved increase will have an effective date of the monthly anniversary day
on or next following the date Nationwide approves the supplemental application.
The specified amount cannot be decreased if the decrease would result in the
policy failing to meet the definition of life insurance under Section 7702 of
the Internal Revenue Code.
OPERATION OF THE POLICY
ALLOCATION OF NET PREMIUM AND CASH VALUE
Nationwide allocates premium payments to sub-accounts or the fixed account, as
instructed by policy owners. Shares of the underlying mutual funds allocated to
the sub-accounts are purchased at net asset value, then converted in
accumulation units. All percentage allocations must be in whole numbers, and
must be at least 1%. The sum of allocations must equal 100%. Future
17
<PAGE> 23
premium allocations may be changed by giving written notice to Nationwide.
Premiums allocated to sub-accounts on the application will be allocated to the
Van Kampen Life Investment Trust - Money Market Portfolio ("Money Market
Portfolio") during the period that a policy owner can cancel the policy, unless
specific states require premiums to be allocated to the fixed account. At the
expiration of this cancellation period, these premiums are used to purchase
shares of the underlying mutual funds specified by the policy owner at net asset
value for the respective sub-account(s).
The policy owner may change the allocation of net premiums or may transfer cash
value from one sub-account to another. Changes are subject to the terms and
conditions imposed by each underlying mutual fund and those found in this
prospectus. Net premiums allocated to the fixed account at the time of
application may not be transferred from the fixed account prior to the first
policy anniversary (see "Transfers").
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The accumulation unit value for a valuation period is determined by multiplying
the accumulation unit value for each sub-account for the immediately preceding
valuation period by the net investment factor for the sub-account for the
subsequent valuation period. Though the number of accumulation units will not
change as a result of investment experience, the value of an accumulation unit
may increase or decrease from valuation period to valuation period.
NET INVESTMENT FACTOR
Net investment factor is determined by dividing (a) by (b) and subtracting (c)
from the result where:
(a) is:
(1) the net asset value per share of the underlying mutual fund held in
the sub-account as of the end of the current valuation period; and
(2) the per share amount of any dividend or income distributions made
by the underlying mutual fund (if the "ex-dividend" date occurs
during the current valuation period).
(b) is the net asset value per share of the underlying mutual fund determined
as of the end of the immediately preceding valuation period.
(c) is a factor representing the daily mortality and expense risk charge,
administration expense charge and premium tax charge. This factor is
equal to an annual rate of 1.30% of the daily net assets of the variable
account for the first ten policy years and 1.00% thereafter.
The net investment factor may be greater or less than one; therefore, the value
of an accumulation unit may increase or decrease. It should be noted that
changes in the net investment factor may not be directly proportional to changes
in the net asset value of underlying mutual fund shares because of the deduction
for mortality and expense risk charge, administrative expense charge and premium
expense charge, and any charge or credit for tax reserves.
DETERMINING THE CASH VALUE
The cash value is the sum of the value of all variable account accumulation
units attributable to the policy plus amounts
18
<PAGE> 24
credited to the fixed account and the policy loan account.
The number of accumulation units credited to each sub-account is determined by
dividing the net amount allocated to the sub-account by the accumulation unit
value for the sub-account for the valuation period during which the premium is
received by Nationwide. In the event that part or all of the cash value is
surrendered or charges or deductions are made against the cash value, an
appropriate number of accumulation units from the variable account and an
appropriate amount from the fixed account will be deducted in the same
proportion that the policy owner's interest in the variable account and the
fixed account bears to the total cash value.
The cash value in the fixed account and the policy loan account is credited with
interest daily at an effective annual rate which Nationwide periodically
declares. The annual effective rate will never be less than 4% (for a
description of the annual effective credited rates, see "The Fixed Account" and
"Policy Loans"). Upon request, Nationwide will inform the policy owner of the
then applicable rates for each account.
TRANSFERS
Policy owners can transfer 100% of allocations without penalty or adjustment
subject to the following conditions:
o Nationwide reserves the right to restrict transfers between the fixed account
and the sub-accounts to one per policy year;
o transfers made to the fixed account may not be made in the first policy year;
o Nationwide reserves the right to restrict transfers from the fixed account to
25% of the cash value attributable to the fixed account; and
o Nationwide reserves the right to restrict transfers to the fixed account to
25% of cash value.
Transfer Requests
Nationwide will accept transfer requests in writing or over the telephone.
Nationwide will use reasonable procedures to confirm that telephone instructions
are genuine and will not be liable for following instructions it reasonably
determined to be genuine. Nationwide may withdraw the telephone exchange
privilege upon 30 days written notice to policy owners.
RIGHT TO REVOKE
A policy owner may cancel the policy by returning it by the latest of:
o 10 days after receiving the policy;
o 45 days after signing the application; or
o 10 days after Nationwide delivers a Notice of Right of Withdrawal.
The policy can be mailed to the registered representative who sold it, or
directly to Nationwide.
Returned policies are deemed void from the beginning. Nationwide will refund the
amount prescribed by the state in which the policy was issued within seven days
after it receives the policy. This right varies by state.
POLICY LOANS
TAKING A POLICY LOAN
The policy owner may take a policy loan at any time after the first policy year
using the policy as security. During the first year, maximum policy indebtedness
is limited to 50% of the cash surrender value, less interest due on the next
policy anniversary. After the first year, maximum policy indebtedness is limited
to 90% of the cash surrender value, less interest due on the next policy
anniversary.
Nationwide will not grant a loan for an amount less than $1,000 ($500 in New
York and $200 in Connecticut). Policy indebtedness will be deducted from the
19
<PAGE> 25
death benefit, cash surrender value upon surrender, or the maturity proceeds.
Any request for a policy loan must be in written form. The request must be
signed and, where permitted, the signature guaranteed by a member firm of the
New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or
by a commercial bank or a savings and loan which is a member of the Federal
Deposit Insurance Corporation. Certain policy loans may result in currently
taxable income and tax penalties.
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the variable account to the policy loan account. If the assets relating to
a policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each sub-account at the time of the
loan. Policy loans will be transferred from the fixed account only when
sufficient amounts are not available in the sub-accounts.
The amount taken out of the variable account will not be affected by the
variable account's investment experience while the loan is outstanding.
INTEREST
Currently, policy loans are credited with an annual effective rate of 5.0%.
Nationwide guarantees the rate will never be lower than 4%. Nationwide may
change the current interest crediting rate on policy loans at any time at its
sole discretion. The loan interest rate is 6% per year for all policy loans.
Amounts transferred to the policy loan account will earn interest daily from the
date of transfer. The earned interest is transferred from the policy loan
account to a variable account or the fixed account on each policy anniversary,
at the time a new loan is requested. It will be allocated according to the fund
allocation factors in effect at the time of the transfer.
Interest is charged daily and is payable at the end of each policy year. 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 plus accrued interest exceeds the cash
value less any surrender charges, Nationwide will send a notice to the policy
owner and the assignee, if any. The policy will terminate without value 61 days
after the mailing of the notice unless a sufficient repayment is made during
that period. A repayment is sufficient if it is large enough to reduce the total
policy indebtedness to an amount equal to the total cash value less any
surrender charges plus an amount sufficient to continue the policy in force for
3 years.
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 sub-accounts and the fixed account in proportion to the
policy owner's underlying mutual fund allocation factors in effect at the time
of the repayment. Each repayment may not be less than $1,000 ($50 in New York
and Connecticut). Nationwide
20
<PAGE> 26
reserves the right to require that any loan repayments resulting from policy
loans transferred from the fixed account must be first allocated to the fixed
account.
ASSIGNMENT
While the insured is living, the policy owner may assign his or her rights in
the policy. The assignment must be in writing, signed by the policy owner and
recorded at Nationwide's home office. Prior to being recorded, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted for recording, nor is Nationwide
responsible for the sufficiency or validity of any assignment. Assignments are
subject to any indebtedness owed to Nationwide before being recorded.
POLICY OWNER SERVICES
DOLLAR COST AVERAGING
Dollar cost averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from certain sub-accounts and the fixed account into other
sub-accounts. Nationwide does not guarantee that this program will result in
profit or protect policy owners from loss.
Policy owners direct Nationwide to automatically transfer specified amounts from
the fixed account and the Money Market Portfolio.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the policy owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new dollar cost averaging
programs. Nationwide reserves the right to assess a processing fee for this
service.
DEATH BENEFIT INFORMATION
CALCULATION OF THE DEATH BENEFIT
At issue, the specified amount is determined by treating the initial premium as
equal to 100% of the guideline single premium. Additional premium payments, if
accepted, may increase the specified amount. Guideline single premiums vary by
attained age, sex, smoking classification, underwriting classification and total
premium payments. The following table illustrates representative initial
specified amounts, under death benefit Option 1, for non-tobacco:
21
<PAGE> 27
<TABLE>
<CAPTION>
ISSUE $25,000 SINGLE PREMIUM $50,000 SINGLE PREMIUM
AGE MALE FEMALE MALE FEMALE
<S> <C> <C> <C> <C>
35 $179,733 $208,354 $364,774 $423,008
40 143,373 166,704 290,792 338,264
45 114,856 134,300 232,769 272,332
50 92,583 108,739 187,452 220,323
55 75,306 88,601 152,298 179,349
60 62,112 72,636 125,453 146,866
65 52,094 59,930 105,070 121,014
</TABLE>
Generally, for a given premium payment, the initial specified amount is greater
for non-tobacco than standard, 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:
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 the death benefit may increase. To see how and when investment
performance will begin to affect death benefits, please see the illustrations.
OPTION 2: The death benefit will be the greater of the specified amount plus the
cash value, or the applicable percentage of cash value and will vary directly
with the investment performance.
Policy owners who are satisfied with the amount of their current insurance
coverage and prefer to have favorable investment performance and any future
premium payments reflected in increased policy cash value should choose death
benefit Option 1. Policy owners who prefer to have favorable investment
performance and any future premium payments increase death benefits should
choose death benefit Option 2.
The monthly cost of insurance for Option 1 will always be less than or equal to
the monthly cost of insurance for the same specified amount under Option 2.
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<PAGE> 28
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<TABLE>
<CAPTION>
ATTAINED PERCENTAGE OF ATTAINED PERCENTAGE OF ATTAINED PERCENTAGE OF
AGE CASH VALUE AGE CASH VALUE AGE CASH VALUE
-------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
-------- ------------- -------- ------------- -------- -------------
41 243% 61 128% 81 105%
-------- ------------- -------- ------------- -------- -------------
42 236% 62 126% 82 105%
-------- ------------- -------- ------------- -------- -------------
43 229% 63 124% 83 105%
-------- ------------- -------- ------------- -------- -------------
44 222% 64 122% 84 105%
-------- ------------- -------- ------------- -------- -------------
-------- ------------- -------- ------------- -------- -------------
45 215% 65 120% 85 105%
-------- ------------- -------- ------------- -------- -------------
46 209% 66 119% 86 105%
-------- ------------- -------- ------------- -------- -------------
47 203% 67 118% 87 105%
-------- ------------- -------- ------------- -------- -------------
48 197% 68 117% 88 105%
-------- ------------- -------- ------------- -------- -------------
49 191% 69 116% 89 105%
-------- ------------- -------- ------------- -------- -------------
50 185% 70 115% 90 105%
-------- ------------- -------- ------------- -------- -------------
51 178% 71 113% 91 104%
-------- ------------- -------- ------------- -------- -------------
52 171% 72 111% 92 103%
-------- ------------- -------- ------------- -------- -------------
53 164% 73 109% 93 102%
-------- ------------- -------- ------------- -------- -------------
54 157% 74 107% 94 101%
-------- ------------- -------- ------------- -------- -------------
-------- ------------- -------- ------------- -------- -------------
55 150% 75 105% 95 100%
-------- ------------- -------- ------------- -------- -------------
56 146% 76 105%
-------- ------------- -------- ------------- -------- -------------
57 142% 77 105%
-------- ------------- -------- ------------- -------- -------------
58 138% 78 105%
-------- ------------- -------- ------------- -------- -------------
59 134% 79 105%
-------- ------------- -------- ------------- -------- -------------
</TABLE>
CHANGES IN THE DEATH BENEFIT OPTION
After the first policy year, the policy owner may elect to change the death
benefit option under the policy from either Option 1 to Option 2, or from Option
2 to Option 1. Only one change of death benefit option is permitted per policy
year. The effective date of a change will be the monthly anniversary day
following the date the change is approved by Nationwide.
If the change is from Option 1 to Option 2, the specified amount will be
decreased by the amount of the cash value. Nationwide may require evidence of
insurability for a change from Option 1 to Option 2. If the change is from
Option 2 to Option 1, the specified amount will be increased by the amount of
the cash value.
A change in death benefit option will not be permitted if it results in the
total premiums paid exceeding the current maximum premium limitations under
Section 7702 of the Internal Revenue Code.
PROCEEDS PAYABLE ON DEATH
The actual death proceeds payable on the insured's death will be the death
benefit as described above, less any policy indebtedness and less any unpaid
policy charges. Under certain circumstances, the death proceeds may be adjusted
(see "Incontestability," "Error in Age or Sex," and "Suicide").
INCONTESTABILITY
Nationwide will not contest payment of the death proceeds based on
representations in any written application after the policy has been in force
during the insured's lifetime for 2 years from the policy date.
SUICIDE
If the insured dies by suicide, while sane or insane, within two years from the
policy date, Nationwide will pay no more than the sum of the premiums paid, less
any unpaid loan. 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,
23
<PAGE> 29
Nationwide will pay no more than the amount paid for the additional benefit.
MATURITY PROCEEDS
The maturity date is the policy anniversary on or next following the insured's
95th birthday. If the policy is still in force, maturity proceeds are payable to
the policy owner on the maturity. Maturity proceeds are equal to the amount of
the policy's cash value, less any indebtedness.
EXCHANGE RIGHTS
The policy owner may exchange the policy for a premium life insurance policy
offered by Nationwide on the policy date. If not available, the new policy may
be a flexible premium adjustable life insurance policy offered by Nationwide on
the policy date. The benefits for the new policy will not vary with the
investment experience of a separate account. The exchange must be elected within
24 months from the policy date. No evidence of insurability will be required.
The policy owner and beneficiary(ies) under the new policy will be the same as
those under the exchanged policy on the effective date of the exchange. The new
policy will have a death benefit on the exchange date not more than the death
benefit of the original policy immediately prior to the exchange date. The new
policy will have the same policy date and issue age as the original policy. The
initial specified amount and any increases in specified amount will have the
same rate class as those of the original policy. Any indebtedness may be
transferred to the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two policies.
After adjustment, if any excess is owed the policy owner, Nationwide will pay
the excess to the policy owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
GRACE PERIOD
If the cash surrender value is insufficient to pay monthly policy charges or
policy loan interest, a grace period of 61 days is allowed for payment.
Nationwide will notify the policy owner of the amount needed to keep the policy
in force. If this amount is not received by Nationwide within 61 days of the
notice, the policy will lapse without value. If the insured dies during the
grace period, Nationwide will pay the death proceeds.
REINSTATEMENT
If the grace period ends and the policy owner has neither paid the required
premium nor surrendered the policy for its cash surrender value, the policy
owner may reinstate the policy by:
1. submitting a written request at any time within 3 years after the end of
the grace period and prior to the maturity date;
2. providing evidence of insurability satisfactory to Nationwide;
3. paying sufficient premium to cover all policy charges that were due and
upaid during the grace period if the policy terminated in the fourth or
later policy year;
4. paying sufficient premium to keep the policy in force for 3 months from
the date of reinstatement; and
5. paying or reinstating any indebtedness against the policy which existed at
the end of the grace period.
The effective date of a reinstated policy will be the monthly anniversary day on
or next following the date the application for reinstatement is approved by
Nationwide. If the policy is reinstated, the cash value on the date of
reinstatement, but prior to
24
<PAGE> 30
applying any premiums or loan repayments received, will be set equal to the
appropriate surrender charge.
Amounts allocated to underlying mutual funds at the start of the grace period
will be reinstated, unless the policy owner provides otherwise.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Internal Revenue Code provides that if certain tests are
met, a policy will be treated as a life insurance policy for federal tax
purposes. Nationwide will monitor compliance with these tests. The policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the death proceeds payable under a policy are excludable
from gross income of the beneficiary under Section 101 of the Internal Revenue
Code.
Section 7702A of the Internal Revenue Code defines modified endowment contracts
as those policies issued or materially changed on or after June 21, 1988 on
which the total premiums paid during the first seven years exceed the amount
that would have been paid if the policy provided for paid up benefits after
seven level annual premiums. The Internal Revenue Code states that taxation of
surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts (other than certain
distributions to terminally ill individuals) are subject to federal income taxes
in a manner similar to the way annuities are taxed. Modified endowment contract
distributions are defined by the Internal Revenue Code as amounts not received
as an annuity and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into the policy. A 10%
tax penalty generally applies to the taxable portion of such distributions
unless the policy owner is over age 59 1/2 or disabled, or the distribution is
part of an annuity to the policy owner as defined in the Internal Revenue Code.
Under certain circumstances, certain distributions made under a policy on the
life of a "terminally ill individual", as that term is defined in the Internal
Revenue Code, are excludable from gross income.
Even though exchanges under Section 1035 of the Internal Revenue Code qualify as
material changes, certain exchange of pre-June 22, 1988 policies may retain
their non-modified endowment status. Therefore, the policies offered by this
prospectus may or may not be issued as modified endowment contracts. Nationwide
will monitor premiums paid and will notify the policy owner when the policy's
non-modified endowment status is in jeopardy. If a policy is not a modified
endowment contract, a cash distribution during the first 15 years after a policy
is issued which causes a reduction in death benefits may still become fully or
partially taxable to the policy owner pursuant to Section 7702(f)(7) of the
Internal Revenue Code. The policy owner should carefully consider this potential
effect and seek further information before initiating any changes in the terms
of the policy. Under certain conditions, a policy may become a modified
endowment as a result of a material change or a reduction in benefits as defined
by Section 7702A(c) of the Internal Revenue Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Internal Revenue Code requires that the investments of separate accounts
such as the variable account be adequately diversified. Regulations under 817(h)
provide that a variable life policy that fails to satisfy the diversification
standards will not be treated as life insurance unless such failure was
inadvertent, is corrected, and the policy owner or Nationwide pays an amount to
the IRS. The amount will be based on the tax that would have been paid by the
policy
25
<PAGE> 31
owner if the income, for the period the policy was not diversified, had been
received by the policy owner.
If the failure to diversify is not corrected in this manner, the policy owner
will be deemed the owner of the underlying securities and taxed on the earnings
of his or her account.
Representatives of the IRS have suggested, from time to time, that the number of
underlying mutual funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of underlying mutual funds, transfers between
underlying mutual funds, exchanges of underlying mutual funds or changes in
investment objectives of underlying mutual funds such that the policy would no
longer qualify as life insurance under Section 7702 of the Internal Revenue
Code, Nationwide will take whatever steps are available to remain in compliance.
Nationwide will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the Sub-Account investments
to remain in compliance.
A total surrender or cancellation of the policy by lapse may have adverse tax
consequences. If the amount received by the policy owner plus total policy
indebtedness exceeds the premiums paid into the policy, the excess generally
will be treated as taxable income, regardless of whether or not the policy is a
modified endowment contract.
WITHHOLDING
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
(which cannot be waived). The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise if no Taxpayer Identification Number
is provided to Nationwide, or if the IRS notifies Nationwide that back-up
withholding is required.
FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 2000, an estate of less than $625,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.
When the insured dies, the death benefit will generally be included in the
insured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the insured's estate; or (2) the insured held any "incident of
ownership" in the policy at death or at any time within three years of death. An
incident of ownership is, in general, any right that may be exercised by the
policy owner, such as the right to borrow on the policy, or the right to name a
new beneficiary.
If the policy owner (whether or not he or she is the insured) transfers
ownership of the policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such policy owner transfers the policy to
someone two or more generations younger than the policy owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the policy.
Similarly, if the beneficiary is two or more
26
<PAGE> 32
generations younger than the insured, the payment of the death proceeds at the
death of the insured may be subject to the GSTT. Pursuant to regulations
recently promulgated by the U.S. Treasury Department, Nationwide may be required
to withhold a portion of the death proceeds and pay them directly to the IRS as
the GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to the
complexity of these rules, the policy owner should consult with counsel and
other competent advisers regarding these taxes.
NON-RESIDENT ALIENS
Pre-death distributions from modified endowment contracts to nonresident aliens
("NRAs") are generally subject to federal income tax and tax withholding, at a
statutory rate of 30% of the amount of income that is distributed. Nationwide is
required to withhold such amount from the distribution and remit it to the IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to Nationwide sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. In
addition, the NRA must obtain an individual Taxpayer Identification Number from
the IRS, and furnish that number to Nationwide prior to the distribution. If
Nationwide does not have the proper proof of citizenship or residency and a
proper individual Taxpayer Identification Number prior to any distribution,
Nationwide will be required to withhold 30% of the income, regardless of any
treaty provision.
A pre-death distribution may not be subject to withholding where the recipient
sufficiently establishes to Nationwide that such payment is effectively
connected to the recipient's conduct of a trade or business in the United States
and that such payment is includible in the recipient's gross income for United
States federal income tax purposes, Any such distributions may be subject to
back-up withholding at the statutory rate (currently 31%) if no Taxpayer
Identification Number, or an incorrect Taxpayer Identification Number, is
provided.
State and local estate, inheritance, income and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
policy owner or beneficiary.
TAXATION OF NATIONWIDE
Nationwide is taxed as a life insurance company under the Internal Revenue Code.
Since the variable account is not a separate entity from Nationwide and its
operations form a part of Nationwide, it will not be taxed separately as a
"regulated investment company" under Sub-chapter M of the Internal Revenue Code.
Investment income and realized capital gains on the assets of the variable
account are reinvested and taken into account in determining the value of
accumulation units. As a result, such investment income and realized capital
gains are automatically applied to increase reserves under the policies.
Nationwide does not initially expect to incur any federal income tax liability
that would be chargeable to the variable account. Based upon these expectations,
no charge is currently being made against the variable account for federal
income taxes. If, however, Nationwide determines that on a separate company
basis such taxes may be incurred, it reserves the right to assess a charge for
such taxes against the variable account.
27
<PAGE> 33
Nationwide may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
TAX CHANGES
The foregoing discussion, which is based on Nationwide's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.
The Internal Revenue Code has been subjected to numerous amendments and changes,
and it is reasonable to believe that it will continue to be revised. The United
States Congress has, in the past, considered numerous legislative proposals
that, if enacted, could change the tax treatment of the policies. It is
reasonable to believe that such proposals, and future proposals, may be enacted
into law. In addition, the U.S. Treasury Department may amend existing
regulations, issue new regulations, or adopt new interpretations of existing law
that may be at variance with its current positions on these matters. In
addition, current state law (which is not discussed herein), and future
amendments to state law, may affect the tax consequences of the policy.
If the policy owner, insured, or beneficiary or other person receiving any
benefit or interest in or from the policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the policy, the
death proceeds, or other distributions and/or ownership of the policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a policy may be changed retroactively. There
is no way of predicting if, when, or to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
The foregoing is a general explanation as to certain tax matters pertaining to
insurance policies. It is not intended to be legal or tax advise, and should not
take the place of your independent legal, tax and/or financial adviser.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women. Thus the policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this policy.
STATE REGULATION
Nationwide is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
Nationwide for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine Nationwide's contract liabilities and reserves so that the
Insurance Department may certify the items are
28
<PAGE> 34
correct. Nationwide's books and accounts are subject to review by the Insurance
Department at all times and a full examination of its operations is conducted
periodically by the National Association of Insurance Commissioners. Such
regulation does not, however, involve any supervision of management or
investment practices or policies. In addition, Nationwide is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
REPORTS TO POLICY OWNERS
Nationwide will mail to the policy owner at the last known address of record:
o an annual statement containing: the amount of the current death benefit,
cash value, cash surrender value, premiums paid, monthly charges deducted,
amounts invested in the fixed account and the sub-accounts, and policy
indebtedness;
o annual and semi-annual reports containing all applicable information and
financial statements or their equivalent, which must be sent to the
underlying mutual fund beneficial shareholders as required by the rules
under the Investment Company Act of 1940 for the variable account; and
o statements of significant transactions, such as changes in specified
amount, changes in death benefit options, changes in future premium
allocations, transfers among sub-accounts, premium payments, loans, loan
repayments, reinstatement and termination.
ADVERTISING
Nationwide is ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of
Nationwide. The ratings are not intended to reflect the investment experience or
financial strength of the variable account. Nationwide may advertise these
ratings from time to time. In addition, Nationwide may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend Nationwide or the policies. Furthermore,
Nationwide may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits relating to life insurance and annuity
pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced a lawsuit in a federal court in Texas against Nationwide and
the American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs sought to
represent a class of variable life insurance contract owners and variable
annuity contract owners whom they claim were allegedly misled when purchasing
these variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century,
29
<PAGE> 35
whose shares are publicly traded. The amended complaint seeks unspecified
compensatory and punitive damages. On April 27, 1998, the District Court denied,
in part, and granted, in part, motions to dismiss the complaint filed by
Nationwide and American Century. The remaining claims against Nationwide allege
securities fraud, common law fraud, civil conspiracy, and breach of contract.
The District Court, on December 2, 1998, issued an order denying plaintiffs'
motion for class certification and the appeals court declined to review the
order denying class certification upon interlocutory appeal. On June 11, 1999,
the District Court denied the plaintiffs' motion to amend their complaint and
reconsider class certification. In January 2000 Nationwide and American Century
settled this lawsuit now limited to the claims of the two named plaintiffs. On
February 9, 2000 the court dismissed this lawsuit with prejudice.
On October 29, 1998, Nationwide was named in a lawsuit filed in Ohio state court
related to the sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide
Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The amended
complaint is brought as a class action on behalf of all persons who purchased
individual deferred annuity contracts or participated in group annuity contracts
sold by Nationwide and the other named Nationwide affiliates which were used to
fund certain tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. No class has been certified. On
June 11, 1999, Nationwide and the other named defendants filed a motion to
dismiss the amended complaint. On March 8, 2000, the court denied the motion to
dismiss the amended complaint filed by Nationwide and other named defendants.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
The general distributor, Van Kampen, Inc., is not engaged in any litigation of
any material nature.
EXPERTS
The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the variable account, Nationwide, and the policies
offered hereby. Statements contained in this prospectus as to the content of
policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
DISTRIBUTION OF THE POLICIES
The policies will be sold by licensed insurance agents in those states where the
policies may lawfully be sold. Agents are registered representatives of broker
dealers registered under the Securities Exchange Act of 1934 who are member
firms of the
30
<PAGE> 36
National Association of Securities Dealers, Inc. ("NASD").
The policies will be distributed by the General Distributor, Van Kampen Funds,
Inc.
Gross commissions paid by Nationwide on the sale of these policies plus fees for
marketing service provided by the general distributor are not more than 7.50% of
the premiums paid.
31
<PAGE> 37
OFFICERS
VAN KAMPEN FUNDS INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel, and Secretary Oakbrook Terrace, IL
Steven M. Massoni Executive Vice President Oakbrook Terrace, IL
William R. Rybak Executive Vice President, Chief
Financial Officer & Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President, Chief
Operations & Technology Officer Oakbrook Terrace, IL
Colette M. Saucedo Executive Vice President & Chief
Administrative Officer Houston, TX
David Michael Swanson Executive Vice President & Chief
Marketing Officer Oakbrook Terrace, IL
Laurence J. Althoff Senior Vice President & Controller Oakbrook Terrace, IL
Don J. Andrews Senior Vice President & Chief
Compliance Officer Oakbrook Terrace, IL
Sara Louise Badler Senior Vice President, Deputy General
Counsel & Assistant Secretary Oakbrook Terrace, IL
James J. Boyne Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Glenn M. Cackovit Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Eric J. Hargens Sr. Vice President Oakbrook Terrace, IL
Dominic C. Martellaro Sr. Vice President Oakbrook Terrace, IL
Carl E. Mayfield Sr. Vice President Lakewood, CO
Mark R. McClure Sr. Vice President Oakbrook Terrace, IL
</TABLE>
32
<PAGE> 38
<TABLE>
<S> <C> <C>
Robert F. Muller, Jr. Sr. Vice President Houston, TX
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Frederick Shepherd Sr. Vice President Houston, TX
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Weston B. Wetherell Sr. Vice President & Asst. Secretary Oakbrook Terrace, IL
Patrick J. Woelfel Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President & Chief Operating Officer Oakbrook Terrace, IL
James Robert Yount Sr. Vice President Coto De Caza, CA
Patricia A. Bettlach 1st Vice President Chesterfield, MO
Gregory Heffington 1st Vice President Ft. Collins, CO
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Maura A. McGrath 1st Vice President New York, NY
Thomas Rowley 1st Vice President Oakbrook Terrace, IL
Andrew J. Scherer 1st Vice President Oakbrook Terrace, IL
James D. Stevens 1st Vice President North Andover, MA
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Timothy R. Armstrong Vice President Wellington, FL
Matthew T. Baker Vice President Oakbrook Terrace, IL
Shakeel Anwar Barkat Vice President Annapolis, MD
Scott C. Bemstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
William Edward Bond Vice President New York, NY
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
Michael Winston Brown Vice President Colleyville, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Juanita E. Buss Vice President Kennesaw, GA
Christine Cleary Byrum Vice President Tampa, FL
Richard J. Charlino Vice President Houston, TX
</TABLE>
33
<PAGE> 39
<TABLE>
<S> <C> <C>
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Kevin J. Connors Vice President Oakbrook Terrace, IL
Gina M. Costello Vice President & Asst. Secretary Oakbrook Terrace, IL
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Michael D. Hibsch Vice President Oakbrook Terrace, IL
Susan J. Hill Vice President & Senior Attorney Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michelle Huber Vice President Oakbrook Terrace, IL
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Laurie L. Jones Vice President Houston, TX
Robert Daniel Kendall Vice President Oakbrook Terrace, IL
Michael C. Kinney Vice President Oakbrook Terrace, IL
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Houston, TX
S. William Lehew III Vice President Charlotte, NC
Ivan R. Lowe Vice President Houston, TX
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Linda S. MacAyeal Vice President & Senior Attorney Oakbrook Terrace, IL
</TABLE>
34
<PAGE> 40
<TABLE>
<S> <C> <C>
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Issaquah, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Carin Elizabeth Morgan Vice President Oakbrook Terrace, IL
Ted Morrow Vice President Plano, TX
Lance O'Brian Murphy Vice President Houston, TX
Peter Nicholas Vice President Beverly, MA
James A. O'Brien Vice President New York, NY
Allyn Maureen O'Connor Vice President & Assc. General Counsel Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Dowington
Ronald E. Pratt Vice President Marietta, GA
Theresa Marie Renn Vice President Oakbrook Terrace, IL
Kevin Wayne Reszel Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace. IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Thomas J. Sauerborn Vice President New York, NY
Diane Saxon Vice President & Assistant Treasurer Oakbrook Terrace, IL
Stephanie Scarlata Vice President Bedford Corners, NY
Timothy M. Scholten Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Jeffrey M. Scott Vice President Oakbrook Terrace, IL
Gwen L. Shaneyfalt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angles, CA
</TABLE>
35
<PAGE> 41
<TABLE>
<S> <C> <C>
William C. Strafford Vice President Granger, IN
Charles S. Thompson Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Brett Alan VanBortel Vice President Oakbrook Terrace, IL
Larry Brian Vickrey Vice President Houston, TX
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson Vice President Oakbrook Terrace, IL
Sharon M. Wells Coicou Vice President New York, NY
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel John Wilczewski Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
David M. Wynn Vice President Phoenix, AZ
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Lynn Chadderton Asst. Vice President Valnco, FL
Phillip C. Ciulla Asst. Vice President Oakbrook Terrace, IL
Amy Cooper Asst. Vice President Oakbrook Terrace, IL
Paula M. Duerr Asst. Vice President Oakbrook Terrace, IL
Tammy Echevarria-Davis Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Houston, TX
Nancy Johannsen Asst. Vice President Oakbrook Terrace, IL
Thomas G. Johnson Asst. Vice President New York, NY
Tara Gay Jones Asst. Vice President Oakbrook Terrace, IL
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Holly Kay Lieberman Asst. Vice President Oakbrook Terrace, IL
Gregory Todd Mino Asst. Vice President Oakbrook Terrace, IL
Barbara Novak Asst. Vice President Oakbrook Terrace, IL
Christopher Perozek Asst. Vice President Oakbrook Terrace, IL
</TABLE>
36
<PAGE> 42
<TABLE>
<S> <C> <C>
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Leah Richardson Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Katherine P. Scherer Asst. Vice President Oakbrook Terrace, IL
Heather K. Schmitt Asst. Vice President Oakbrook Terrace, IL
Lisa Schultz Asst. Vice President Oakbrook Terrace, IL
Laurel H. Shipes Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
Damienne C. Trippiedi Asst. Vice President Oakbrook Terrace, IL
Michael Trizil Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Judy W. Woolley Asst. Vice President Houston, TX
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
37
<PAGE> 43
DIRECTORS
VAN KAMPEN FUNDS INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
<S> <C> <C>
Richard F. Powers III Chairman & Chief 1 Parkview Plaza
Executive Officer P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
A. Thomas Smith III Executive Vice President, 1 Parkview Plaza
General Counsel & P.O. Box 5555
Secretary Oakbrook Terrace, IL 60181-5555
William R. Rybak Executive Vice President, 1 Parkview Plaza
Chief Financial Officer P.O. Box 5555
& Treasurer Oakbrook Terrace, IL 60181-5555
John H. Zimmerman III President 1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
</TABLE>
38
<PAGE> 44
ADDITIONAL INFORMATION ABOUT NATIONWIDE
The life insurance business, including annuities, is the only business in which
Nationwide is engaged.
Nationwide markets its policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
Nationwide serves as depositor for the following separate accounts, each of
which is a registered investment company:
o Nationwide Variable Account,
o Nationwide Variable Account-II,
o Nationwide Variable Account-3,
o Nationwide Variable Account-4,
o Nationwide Variable Account-5,
o Nationwide Variable Account-6,
o Nationwide Fidelity Advisor Variable Account,
o Nationwide Variable Account-9,
o Nationwide Variable Account-10,
o Nationwide Variable Account-11,
o MFS Variable Account,
o Nationwide Multi-Flex Variable Account,
o Nationwide VLI Separate Account,
o Nationwide VLI Separate Account-2,
o Nationwide VLI Separate Account-3,
o Nationwide VLI Separate Account-4,
o Nationwide VLI Separate Account-5,
o NACo Variable Account,
o Nationwide DC Variable Account; and
o Nationwide DCVA II.
Nationwide, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
Nationwide operates in the highly competitive field of life insurance. There are
approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
Nationwide shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
Nationwide does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. Nationwide shares its home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
Company Management
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual
Fire Insurance Company, Nationwide Property and Casualty Insurance Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide Insurance Enterprise. The companies listed above have substantially
common boards of directors and officers.
Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of
Nationwide Life Insurance Company. NFS serves as a holding company for other
financial institutions. Nationwide Life Insurance Company is the sole owner of
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<PAGE> 45
Nationwide Life and Annuity Insurance Company.
Each of the directors and officers listed below is a director or officer
respectively of at least one or more of the other major insurance affiliates of
Nationwide. Messrs. McFerson, Gasper, Woodward and Ms. Thomas are also trustees
of one or more of the registered investment companies distributed by NISC, a
registered broker-dealer affiliated with Nationwide.
<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
----------------------------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES
ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION
------------------------------------- --------------------------- ----------------------------------------------------
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator, Bell Farms (1)
519 Bethel Church Road
Mount Olive, NC 28365-6107
------------------------------------- --------------------------- ----------------------------------------------------
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
------------------------------------- --------------------------- ----------------------------------------------------
Kenneth D. Davis Director Farm Owner and Operator (1)
7229 Woodmansee Road
Leesburg, OH 45135
------------------------------------- --------------------------- ----------------------------------------------------
Keith W. Eckel Director Partner, Fred W. Eckel Sons; President, Eckel
1647 Falls Road Farms, Inc. (1)
Clarks Summit, PA 18411
------------------------------------- --------------------------- ----------------------------------------------------
Willard J. Engel Director Retired General Manager, Lyon County Co-operative
301 East Marshall Street Oil Company (1)
Marshall, MN 56258
------------------------------------- --------------------------- ----------------------------------------------------
Fred C. Finney Director Owner and Operator, Moreland Fruit Farm; Operator,
1558 West Moreland Road Melrose Orchard (1)
Wooster, OH 44691
------------------------------------- --------------------------- ----------------------------------------------------
Joseph J. Gasper President and Chief President and Chief Operating Officer, Nationwide
One Nationwide Plaza Operating Officer and Life Insurance Company and Nationwide Life and
Columbus, OH 43215 Director Annuity Insurance Company (2)
------------------------------------- --------------------------- ----------------------------------------------------
Dimon R. McFerson Chairman and Chief Chairman and Chief Executive Officer- (2)
One Nationwide Plaza Executive Officer and
Columbus, OH 43215 Director
------------------------------------- --------------------------- ----------------------------------------------------
David O. Miller Chairman of the Board and President, Owen Potato Farm, Inc.; Partner, M&M
115 Sprague Drive Director Enterprises (1)
Hebron, OH 43025
------------------------------------- --------------------------- ----------------------------------------------------
Yvonne L. Montgomery Director Senior Vice President and General Manager, Public
Xerox Corporation Sector Worldwide/Document Solutions Group
Suite 200 Xerox Corporation (2)
1401 H Street NW
Washington, DC 20007
------------------------------------- --------------------------- ----------------------------------------------------
Ralph M. Paige Director Executive Director Federation of Southern
Federation of Southern Cooperatives/Land Assistance Fund
Cooperatives/Land Assistance Fund
2769 Church Street
East Point, GA 30344
------------------------------------- --------------------------- ----------------------------------------------------
James F. Patterson Director Vice President, Pattersons, Inc.; President,
8765 Mulberry Road Patterson Farms, Inc. (1)
Chesterland, OH 44026
------------------------------------- --------------------------- ----------------------------------------------------
</TABLE>
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<PAGE> 46
<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
----------------------------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES
ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION
------------------------------------- --------------------------- ----------------------------------------------------
<S> <C> <C>
Arden L. Shisler Director President and Chief Executive Officer, K&B
1356 North Wenger Road Transport, Inc.(1)
Dalton, OH 44618
------------------------------------- --------------------------- ----------------------------------------------------
Robert L. Stewart Director Owner and Operator Sunnydale Farms and Mining(1)
88740 Fairview Road
Jewett, OH 43986
------------------------------------- --------------------------- ----------------------------------------------------
Nancy C. Thomas Director Co-owner, Thomas Farms(2)
1767D Westwood Avenue
Alliance, OH 44601
------------------------------------- --------------------------- ----------------------------------------------------
</TABLE>
(1) Principal occupation for last 5 years.
(2) Prior to assuming this current position, held other executive management
positions with the same or affiliated companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide group of companies except Mr. Gasper who is a director only of
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company. Messrs. McFerson and Gasper are directors of NISC, a registered
broker-dealer.
Messrs. McFerson, Miller, Patterson, and Shisler are directors of Nationwide
Financial Services, Inc. Mr. McFerson and Ms. Thomas are trustees of Nationwide
Mutual Funds, a registered investment company. Messrs. McFerson, Gasper and
Woodward are trustees of Nationwide Separate Account Trust and Nationwide Asset
Allocation Trust, registered investment companies. Mr. McFerson is trustee of
Financial Horizons Investment Trust and Nationwide Mutual Funds, registered
investment companies.
EXECUTIVE OFFICERS OF NATIONWIDE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard D. Headley Executive Vice President - Chief Information Technology Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Robert A. Oakley Executive Vice President - Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
James E. Brock Senior Vice President - Corporate Development
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Charles A. Bryan Senior Vice President - Chief Actuary - Property and Casualty
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
John R. Cook, Jr. Senior Vice President - Chief Communications Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 47
EXECUTIVE OFFICERS OF NATIONWIDE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
-------------------------------------------------------------------------------------------------------------------
<S> <C>
David A. Diamond Senior Vice President - Corporate Controller
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Philip C. Gath Senior Vice President - Chief Actuary - Nationwide Financial
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Patricia R. Hatler Senior Vice President, General Counsel and Secretary
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
David K. Hollingsworth Senior Vice President
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
David R. Jahn Senior Vice President - Commercial Insurance
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Donna A. James Senior Vice President - Chief Human Resources Officer
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Richard A. Karas Senior Vice President - Sales - Financial Services
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Gregory S. Lashutka Senior Vice President - Corporate Relations
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Edwin P. McCausland, Jr. Senior Vice President - Fixed Income Securities
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Mark D. Phelan Senior Vice President - Technology Services
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Douglas C. Robinette Senior Vice President - Claims and Financial Services
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Mark R. Thresher Senior Vice President - Finance - Nationwide Financial
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Richard M. Waggoner Senior Vice President - Operations
One Nationwide Plaza
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
Susan A. Wolken Senior Vice President - Product Management and Nationwide
One Nationwide Plaza Financial Marketing
Columbus, OH 43215
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DIMON R. MCFERSON has been a Director since April 1988 and Chairman and Chief
Executive Officer since April 1996. He was elected Chief Executive Officer in
December 1992, and President and Chief Executive Officer in December 1993. He
was President and General Manager of Nationwide Mutual Insurance Company from
April 1988 to April 1991; President and Chief Operating Officer of Nationwide
Mutual Insurance Company from April 1991 to December 1992; and President and
Chief Executive Officer of Nationwide
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<PAGE> 48
Mutual Insurance Company from April 1991 to December 1992; and President and
Chief Executive Officer of Nationwide Mutual Insurance Company from December
1992 to April 1996. Mr. McFerson has been with Nationwide for 20 years.
JOSEPH J. GASPER has been President and Chief Operating Officer and Director of
Nationwide since April 1996. Previously, he was Executive Vice President -
Property/Casualty Operations of Nationwide Mutual Insurance Company from April
1995 to April 1996. He was Senior Vice President - Property/Casualty Operations
of Nationwide Mutual Insurance Company from September 1993 to April 1995. Prior
to that time, Mr. Gasper held numerous positions within Nationwide. Mr. Gasper
has been with Nationwide for 33 years.
LEWIS J. ALPHIN has been a Director of Nationwide since 1993. Mr. Alphin owns
and operates an 800-acre farm in Mt. Olive, NC. He taught agriculture business
at James Sprunt Community Collegy in Kenansville, NC for more than 22 years
before retiring in 1994. He is the former board chairman of the Cape Fear Farm
Credit Association, a member and former vice president, secretary/treasurer, and
director of the Duplin County Agribusiness Council, and a former board member of
the Southern States Cooperative (1986 to 1993). Mr. Alphin is a member of the
Duplin County Farm Bureau, the North Carolina Farm Bureau, ad the Farm Credit
Council. He is a member and former director of the Oak Wolfe Fire Department.
A. I. BELL has been a Director of Nationwide since April, 1998. Mr. Bell has
served as a state trustee of the Ohio Farm Bureau Federation from 1991 to 1998
and as president that last four years. He oversees the Bell family farm in
Zanesville, Ohio. The farm is the hub of a multi-family swine network, in
addition to grain and beef operations. Mr. Bell has represented the Ohio Farm
Bureau at state and national level activities, and has traveled internationally
representing Ohio agriculture. In 1995, he was introduced into The Ohio State
University Department of Animal Sciences Hall of Fame.
JAMES E. BROCK has been Senior Vice President - Corporate Development since July
1997. Previously, he was Senior Vice President - Company Operations from
December 1996 to July 1997 and was also Senior Vice President - Life Company
Operations from April 1996 to July 1997. Mr. Brock was Senior Vice President -
Investment Products Operations from November 1990 to April 1996. Prior to that
time, Mr. Brock held several positions within Nationwide. Mr. Brock has been
with Nationwide for 30 years.
CHARLES A. BRYAN has been a Senior Vice President - Chief Actuary - Property and
Casualty since 1998. Prior to joining Nationwide, Mr. Bryan was president, Chief
Operating Officer of Direct Response Corporation from 1996 to 1998. Prior to
that time, Mr. Bryan was a partner with Ernst & Young.
JOHN R. COOK, JR. has been Senior Vice President - Chief Communications Officer
since May 1997. Previously, Mr. Cook was Senior Vice President - Chief
Communications Officer of USAA from July 1989 to May 1997. Mr. Cook has been
with Nationwide for 2 years.
KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis
is the immediate past president of the Ohio Farm Bureau Federation. He served as
a member of the Ohio Farm Bureau Federation's board of trustees from 1989 until
1999. He served as first vice president of the board from 1994 until 1998. Mr.
Davis serves on the board of directors of his local rural electric cooperatives
and is a member of many agriculture organizations including the Ohio Corn
Growers, Ohio Cattlemen's and Ohio Soybean associations.
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<PAGE> 49
DAVID A. DIAMOND has been Senior Vice President - Corporate Controller since
August 1999. He was Vice President-Controller from August 1996 to August 1999.
Previously, he was Vice President - Controller from October 1993 to August 1996.
Prior to that time, Mr. Diamond held several positions within Nationwide. Mr.
Diamond has been with Nationwide for 11 years.
KEITH W. ECKEL has been a Director of Nationwide since April 1996. Mr. Eckel is
a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc. in northeast
Pennsylvania. He received the Master Farmer award from Penn State University in
1982. Mr. Eckel is a member of the Pennsylvania Agricultural Land Preservation
Board. He is a former president of the Pennsylvania Farm Bureau, a position he
held for 15 years, and the Lackawanna County Cooperative Extension Association.
He has served as a board member and executive committee member of the American
Farm Bureau Federation. He is a former vice president of the Pennsylvania
Council of Cooperative Extension Associations and former board member of the
Pennsylvania Vegetable Growers Association.
WILLARD J. ENGEL has been a Director of Nationwide since 1994. Mr. Engel served
as general manager of Lyon County Co-Operative Oil Co. in Marshall, MN from 1975
to 1997, and occasionally serves on a consulting basis. He previously was a
division manager of the Truman Farmers Elevator. He is a former director of the
Western Co-op Transport in Montevideo, MN, a former director and legislative
committee chairman of the Northwest Petroleum Association in St. Paul, and a
former director of Farmland Industries in Kansas City.
FRED C. FINNEY has been a Director of Nationwide since 1992. Mr. Finney is the
owner and operator of the Moreland Fruit Farm and operator of Melrose Orchard in
Wooster, OH. He is past president of the Ohio Farm Bureau Federation, the Ohio
Fruit Growers Society, Wayne County Farm Bureau, and the Westwood Ruritan Club.
He is a member of the American Berry Cooperative.
PHILIP C. GATH has been Senior Vice President - Chief Actuary - Nationwide
Financial since May 1998. Previously, Mr. Gath was Vice President - Product
Manager - Individual Variable Annuity from July 1997 to May 1998. Mr. Gath was
Vice President - Individual Life Actuary from August 1989 to July 1997. Prior to
that time, Mr. Gath held several positions within Nationwide. Mr. Gath has been
with Nationwide for 31 years.
PATRICIA R. HATLER has been Senior Vice President, General Counsel and Secretary
since April 2000. Previously, she was Senior Vice President and General Counsel
from July 1999 to April 2000. Prior to that time, she was General Counsel and
Corporate Secretary of Independence Blue Cross from 1983 to July 1999.
DAVID K. HOLLINGSWORTH has been Senior Vice President - Multi Channel and
Sponsor Relations since August 1999. Previously, he was Senior Vice President -
Marketing from June 1999 to August 1999. Prior to that time, has held numerous
positions within the Nationwide group of companies. Mr. Hollingsworth has been
with Nationwide for 25 years.
DAVID R. JAHN has been Senior Vice President - Commercial Insurance since March
1998. Previously, he was Vice President - Property/Casualty Operations and Vice
President - Resource Management from March 1996 to January 1998. Prior to that
time, Mr. Jahn has held numerous positions within the Nationwide group of
companies. Mr. Jahn has been with Nationwide for 28 years.
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<PAGE> 50
DONNA A. JAMES has been Senior Vice President - Chief Human Resources Officer
since May 1999. She was Senior Vice President - Human Resources from December
1997 to May 1999. Previously she was Vice President - Human Resources from July
1996 to December 1997. Prior to that time, Ms. James was Vice President -
Assistant to the CEO of Nationwide from March 1996 to July 1996. From May 1994
to March 1996 she was Associate Vice President - Assistant to the CEO for
Nationwide. Previously Ms. James held several positions within Nationwide. Ms.
James has been with Nationwide for 18 years.
RICHARD D. HEADLEY has been Executive Vice President - Chief Information
Technology Officer since May 1999. He was Senior Vice President - Chief
Information Technology Officer from October 1997 to May 1999. Previously, Mr.
Headley was Chairman and Chief Executive Officer of Banc One Services
Corporation from 1992 to October 1997. From January 1975 until 1992 Mr. Headley
held several positions with Banc One Corporation. Mr. Headly has been with
Nationwide for 2 years.
RICHARD A. KARAS has been Senior Vice President - Sales - Financial Services
since March 1993. Previously, he was Vice President - Sales - Financial Services
from February 1989 to March 1993. Prior to that time, Mr. Karas held several
positions within Nationwide. Mr. Karas has been with Nationwide for 35 years.
GREGORY S. LASHUTKA has been Senior Vice President - Corporate Relations since
January 2000. Previously, he was the Mayor of the City of Columbus (Ohio) from
January 1992 to December 1999. From January 1986 to December 1991, Mr. Lashutka
was a Partner with Squire, Sanders & Dempsey. From January 1978 to December
1985, he was City Attorney for the City of Columbus (Ohio).
EDWIN P. MCCAUSLAND, JR. has been Senior Vice President - Fixed Income
Securities since 1999. Mr. McCausland has 29 years of experience in insurance
investments beginning his career in 1970 with Connecticut Mutual Life Insurance
Company. He joined Phoenix Mutual Life Insurance Company in 1981 as second Vice
President of Bond Investments and rising to Vice President of Pension
Operations. He was Vice President and Managing Director of Mass Mutual Life
Insurance Company prior to joining Nationwide.
DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr.
Miller has been Chairman of the Board since 1998. Mr. Miller is president of
Owen Potato Farm, Inc. and a partner of M&M Enterprises in Licking County, OH.
He is a director and board chairman of the National Cooperative Business
Association, director of Cooperative Business International and the
International Cooperative Alliance, and serves on the educational executive
committee of the National Council of Farmer Cooperatives. He was president of
the Ohio Farm Bureau Federation from 1981 to 1985 and was vice president for six
years. Mr. Miller served a two year term on the board of the American Farm
Bureau Association. He is past president of the Ohio Vegetable and Potato
Growers Association, and was a director of Landmark, Inc., a farm supply
cooperative which is now part of Indianapolis-based Countrymark.
YVONNE L. MONTGOMERY has been a Director of Nationwide since April, 1998. Ms.
Montgomery is senior vice president/general manager - Public Sector
Worldwide/Document Solutions Group for Xerox Corporation. A resident of
Washington, DC, Ms. Montgomery is in charge of providing an integrated,
industry-focused portfolio of document solutions and services to the public
sector worldwide. Ms. Montgomery joined Xerox in 1976 as a sales representative
and progressed through
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<PAGE> 51
management positions, including vice president-field operations and executive
assistant to the chairman and CEO.
ROBERT A. OAKLEY has been Executive Vice President - Chief Financial Officer
since April 1995. Previously, he was Senior Vice President - Chief Financial
Officer from October 1993 to April 1995. Prior to that time, Mr. Oakley held
several positions within Nationwide. Mr. Oakley has been with Nationwide for 24
years.
RALPH M. PAIGE has been a Director of Nationwide since April 1999. Mr. Paige has
been the Executive Director of the Federation of Southern Cooperatives/Land
Assistance Fund since 1969. Mr. Paige also served as the National Field
Director/Georgia State Director from 1981 to 1984.
JAMES F. PATTERSON has been a Director of Nationwide since April 1989. Mr.
Patterson is president of Patterson Farms, Inc. and has operated Patterson Fruit
Farm in Chesterland, OH since 1964. Mr. Patterson is on the boards of The Ohio
State University Hospitals Health System in Cleveland, Geauga Hospital, Inc. and
the National Cooperative Business Association. He is past president of the Ohio
Farm Bureau Federation and former member of Cleveland Foundation's Lake and
Geauga Advisory Committees.
MARK D. PHELAN has been Senior Vice President - Technology Services since 1998.
His previous management experience includes five years (1977-1982) with the data
processing division's sales group at IBM Corporation. From 1982 through 1990,
Mr. Phelan served as director of AT&T's Consumer Communications Services Group
and he was subsequently promoted to sales vice president for the Eastern Region
of the Business Communications Services Division. In 1992, he became executive
vice president-sales and marketing for the Electronic Commerce Division of
Checkfree Corporation, a position he held for five years. From 1997 until 1998,
he was in private consulting.
DOUGLAS C. ROBINETTE has been Senior Vice President - Claims and Financial
Services since 1999. Previously, he was Senior Vice President - Marketing and
Product Management from May 1998 to 1999. Previously, Mr. Robinette was
Executive Vice President, Customer Services of Employers Insurance of Wausau
(Wausau), a member of the Nationwide group until December 1998, from September
1996 to May 1998. Prior to that time he was Executive Vice President, Finance
and Insurance Services of Wausau from May 1995 to September 1996. From November
1994 to May 1995 Mr. Robinette was Senior Vice President, Finance and Insurance
Services of Wausau. From May 1993 to November 1994 he was Senior Vice President,
Finance of Wausau. Prior to that time, Mr. Robinette held several positions
within the Nationwide group. Mr. Robinette has been with the Nationwide group
for 13 years.
ARDEN L. SHISLER has been a Director of Nationwide since 1984. Mr. Shisler is
president and chief executive officer of K&B Transport, Inc., a trucking firm in
Dalton, OH. He is a director of the National Cooperative Business Association in
Washington, DC. He is a former board member and vice president of the Ohio Farm
Bureau Federation and past president of the Ohio Agricultural Marketing
Association, an Ohio Farm Bureau Federation subsidiary. He is a member of the
Ohio Trucking Association, the Ohio Trucking Safety Council, the Wayne County
Farm Bureau, Cornerstone Community Church, the Advisory Committee of The Ohio
State University Agriculture Technical Institute and a board member of the
Wilderness Center.
ROBERT L. STEWART has been a Director of Nationwide since 1989. Mr. Stewart is
the
46
<PAGE> 52
owner and operator of Sunnydale Farms and Mining in Jewett, OH. He served on the
board of the Ohio Farm Bureau Federation and as president of the Ohio Holstein
Association board. Mr. Stewart was a director of the Ohio Agricultural
Stabilization and Conservation Service board and Landmark, Inc. a farm supply
cooperative which is now part of Indianapolis-based Countrymark.
NANCY C. THOMAS has been a Director of Nationwide since 1986. Mrs. Thomas is a
board member of Farm Credit Services' 4th District and serves on the advisory
board of Walsh University in North Canton, OH. She is a past president and
former director of the Ohio Agricultural Marketing Association and served on the
boards of the Ohio Farm Bureau Federation and Landmark, Inc., a farm supply
cooperative which is now part of Indianapolis-based Countrymark, and as the
Midwest regional representative on the American Farm Bureau women's committee.
MARK R. THRESHER has been Senior Vice President - Finance - Nationwide Financial
since May 1999. He was Vice President - Controller from August 1996 to May 1999.
He was Vice President and Treasurer from November 1996 to February 1997.
Previously, he was Vice President and Treasurer from June 1996 to November 1996.
Prior to joining Nationwide, Mr. Thresher served as a partner with KPMG LLP from
July 1988 to June 1996.
RICHARD M. WAGGONER has been Senior Vice President - Operations since May 1999.
Previously, he was President of Nationwide Services from May 1997 to May 1999.
Prior to that time, Mr. Waggoner has held numerous positions within the
Nationwide group of companies. Mr. Waggoner has been with Nationwide for 23
years.
SUSAN A. WOLKEN has been Senior Vice President - Product Management and
Nationwide Financial Marketing since May 1999. Previously, Ms. Wolken was Senior
Vice President - Life Company Operations from June 1997 to May 1999. She was
Senior Vice President - Enterprise Administration from July 1996 to June 1997.
Prior to that time, she was Senior Vice President - Human Resources from April
1995 to July 1996. From September 1993 to April 1995, Ms. Wolken was Vice
President - Human Resources. From October 1989 to September 1993 she was Vice
President - Individual Life and Health Operations. Ms. Wolken has been with
Nationwide for 25 years.
ROBERT J. WOODWARD, JR. has been Executive Vice President - Chief Investment
Officer since August 1995. Previously, he was Senior Vice President - Fixed
Income Investments from March 1991 to August 1995. Prior to that time, Mr.
Woodward held several positions within Nationwide. Mr. Woodward has been with
Nationwide for 35 years.
47
<PAGE> 53
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
VAN KAMPEN LIFE INVESTMENT TRUST
The Van Kampen 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 Asset Management, Inc. serves as the Portfolio's
investment adviser.
ASSET ALLOCATION PORTFOLIO (FORMERLY, MULTIPLE STRATEGY FUND)
The investment objective of this Portfolio is to seek a high total investment
return consistent with prudent risk through a fully managed investment policy
utilizing equity, intermediate and long-term debt and money market securities.
Total investment return consists of current income, including dividends,
interest, and discount accruals, and capital appreciation. The Advisor may vary
the composition of the Portfolio from time to time based upon an evaluation of
economic and market trends and the anticipated relative total return available
from a particular type of security.
DOMESTIC INCOME PORTFOLIO (FORMERLY, DOMESTIC STRATEGIC INCOME FUND)
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 (FORMERLY, COMMON STOCK FUND)
The investment objective of this Portfolio is to seek capital appreciation by
investing securities believed by the Advisor to have above average appreciation.
Any income received on such securities is incidental to the objective of capital
appreciation.
GLOBAL EQUITY PORTFOLIO
The investment objective of this Portfolio is to seek long term capital growth
through investments in an internationally diversified portfolio of equity
securities of companies of any nation including the United States. The Portfolio
intends to be invested in equity securities of companies of at least three
countries including the United States. Under normal market conditions, at least
65% of the Portfolio's total assets are so invested. Equity securities include
common stocks, preferred stocks and warrants or options to acquire such
securities.
GOVERNMENT PORTFOLIO
The investment objective of this Portfolio is to provide investors with a high
current return consistent with preservation of capital. The Portfolio invests
primarily in debt securities
48
<PAGE> 54
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
In order to hedge against changes in interest rates, the Portfolio may also
purchase or sell options and engage in transactions involving interest rate
futures contracts and options on such contracts.
MONEY MARKET PORTFOLIO
The investment objective of this Portfolio is to seek a high level of current
income as is considered consistent with the preservation of capital and
liquidity by investing primarily in money market instruments.
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO (FORMERLY, REAL ESTATE
SECURITIES FUND)
The investment objective of this Portfolio is to seek long-term capital growth
by investing in a portfolio of securities of companies operating in the real
estate industry ("Real Estate Securities"). Current income is a secondary
consideration. Real Estate Securities include equity securities, including
common stocks and convertible securities, as well as non-convertible preferred
stocks and debt securities of real estate industry companies. A "real estate
industry company" is a company that derives at least 50% of its assets (marked
to market), gross income or net profits from the ownership, construction,
management or sale of residential, commercial or industrial real estate. Under
normal market conditions, at least 65% of the Portfolio's total assets will be
invested in Real Estate Securities, primarily equity securities of real estate
investment trusts. The Portfolio may invest up to 25% of its total assets in
securities issued by foreign issuers, some or all of which may also be Real
Estate Securities. There can be no assurance that the Portfolio will achieve its
investment objective.
49
<PAGE> 55
APPENDIX B: ILLUSTRATIONS OF WHEN ADDITIONAL PREMIUM PAYMENTS ARE PERMITTED
Example 1: A male non-tobacco, age 35, purchases a policy with an initial
premium of $25,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a specified
amount of $179,733. In the 12th and subsequent policy years, annual premiums of
$2,177 may be paid without violating the premium limitations prescribed by the
IRS to qualify the policy as a life insurance contract. Additional premiums
which increase the specified amount may be made at any time, subject to the
$1,000 minimum. Nationwide reserves the right to require satisfactory evidence
of insurability with any premium payment which increases the net amount at risk.
In addition, premium payments may be made at any time if they are required to
continue the policy in force.
Example 2: A male non-tobacco, age 55, purchases a policy with an initial
premium of $100,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a specified
amount of $306,283. In the 11th and subsequent policy years, annual premiums of
$9,591 may be paid without violating the premium limitations prescribed by the
IRS to qualify the policy as a life insurance contract. Additional premiums
which increase the specified amount may be made at any time, subject to the
$1,000 minimum. Nationwide reserves the right to require satisfactory evidence
of insurability with any premium payment which increases the net amount at risk.
In addition, premium payments may be made at any time if they are required to
continue the policy in force.
50
<PAGE> 56
APPENDIX C: ILLUSTRATIONS OF CASH VALUES CASH SURRENDER VALUES AND DEATH
BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the policies change with investment performance. The illustrations
illustrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the policies would go into default, at which time additional
premium payments would be required to continue the policy in force. The
illustrations also assume there is no policy indebtedness, no additional premium
payments are made, no cash values are allocated to the fixed account, and there
are no changes in the specified amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks, recovering premium taxes and providing for
administrative expenses. On a current basis, these charges are equivalent to an
annual effective rate of 1.30% in the first 10 policy years and 1.00%
thereafter. On a guaranteed basis, these charges are equivalent to an annual
maximum effective rate of 1.60% in the first 10 policy years and 1.30%
thereafter. In addition, the net investment returns also reflect the deduction
of underlying mutual fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.80%. Some underlying mutual fund
expenses are subject to expense reimbursements and fee waivers. Absent expense
reimbursements and fee waivers, the annual effective rate would have been 0.61%.
Nationwide anticipates that the expense reimbursement and fee waiver
arrangements will continue past the current year. Should there be an increase or
decrease in the expense reimbursements and fee waivers of these underlying
mutual funds, such change will be reflected in the net asset value of the
corresponding underlying mutual fund.
Taking account of the current charges for mortality and expense risks,
recovering premium taxes and providing for administrative and underlying mutual
fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net
investment experience at constant annual rates of -2.1%, 3.9%, and 9.9%
respectively, in policy years 1 through ten, and -1.8%, 4.2%, and 10.2%
thereafter. Taking account of guaranteed charges, gross annual rates of return
of 0%, 6% and 12% correspond to net investment experience at constant annual
rates of -2.4%, 3.6%, and 9.6% respectively, in policy years 1 through 10, and
-2.1%, 3.9% and 9.9% thereafter.
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard (including non-tobacco). Policies issued on a substandard
basis would result in lower cash values and death benefits than those
illustrated. Death Benefit Option 1 has been assumed in all the illustrations.
In addition, the illustrations reflect the fact that Nationwide deducts an
Annual Administrative Charge at the beginning of each policy year after the
first. The illustrations also reflect the fact that no charges for federal or
state income taxes are currently made against the variable account. If such a
charge is made in the future,
46
<PAGE> 57
it will require a higher gross investment return than illustrated in order to
produce the net after-tax returns shown in the illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
47
<PAGE> 58
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,657 8,807 43,190 10,242 9,392 43,190 10,826 9,976 43,190
2 11,025 9,246 8,396 43,190 10,415 9,565 43,190 11,654 10,804 43,190
3 11,576 8,830 8,030 43,190 10,585 9,785 43,190 12,555 11,755 43,190
4 12,155 8,408 7,608 43,190 10,750 9,950 43,190 13,536 12,736 43,190
5 12,763 7,978 7,228 43,190 10,908 10,158 43,190 14,605 13,855 43,190
6 13,401 7,539 6,839 43,190 11,059 10,359 43,190 15,771 15,071 43,190
7 14,071 7,088 6,488 43,190 11,199 10,599 43,190 17,043 16,443 43,190
8 14,775 6,622 6,122 43,190 11,325 10,825 43,190 18,430 17,930 43,190
9 15,513 6,136 5,736 43,190 11,435 11,035 43,190 19,946 19,546 43,190
10 16,289 5,629 5,629 43,190 11,525 11,525 43,190 21,603 21,603 43,190
11 17,103 5,112 5,112 43,190 11,627 11,627 43,190 23,488 23,488 43,190
12 17,959 4,571 4,571 43,190 11,710 11,710 43,190 25,566 25,566 43,190
13 18,856 4,004 4,004 43,190 11,772 11,772 43,190 27,862 27,862 43,190
14 19,799 3,408 3,408 43,190 11,811 11,811 43,190 30,403 30,403 43,190
15 20,789 2,780 2,780 43,190 11,822 11,822 43,190 33,219 33,219 44,513
16 21,829 2,114 2,114 43,190 11,801 11,801 43,190 36,323 36,323 47,220
17 22,920 1,407 1,407 43,190 11,745 11,745 43,190 39,724 39,724 50,846
18 24,066 651 651 43,190 11,646 11,646 43,190 43,448 43,448 54,745
19 25,270 (*) (*) (*) 11,497 11,497 43,190 47,528 47,528 58,935
20 26,533 (*) (*) (*) 11,292 11,292 43,190 52,000 52,000 63,440
21 27,860 (*) (*) (*) 11,023 11,023 43,190 56,902 56,902 68,283
22 29,253 (*) (*) (*) 10,659 10,659 43,190 62,259 62,259 74,088
23 30,715 (*) (*) (*) 10,186 10,186 43,190 68,110 68,110 80,370
24 32,251 (*) (*) (*) 9,583 9,583 43,190 74,502 74,502 87,167
25 33,864 (*) (*) (*) 8,829 8,829 43,190 81,482 81,482 94,520
26 35,557 (*) (*) (*) 7,891 7,891 43,190 89,104 89,104 102,469
27 37,335 (*) (*) (*) 6,728 6,728 43,190 97,461 97,461 110,130
28 39,201 (*) (*) (*) 5,286 5,286 43,190 106,635 106,635 118,365
29 41,161 (*) (*) (*) 3,501 3,501 43,190 116,725 116,725 127,230
30 43,219 (*) (*) (*) 1,296 1,296 43,190 127,847 127,847 136,797
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) current values reflect current cost of insurance charges and an annual $50
administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by nationwide life or the trust that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
48
<PAGE> 59
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,616 8,766 43,190 10,199 9,349 43,190 10,781 9,931 43,190
2 11,025 9,110 8,260 43,190 10,268 9,418 43,190 11,495 10,645 43,190
3 11,576 8,600 7,800 43,190 10,327 9,527 43,190 12,267 11,467 43,190
4 12,155 8,084 7,284 43,190 10,374 9,574 43,190 13,101 12,301 43,190
5 12,763 7,561 6,811 43,190 10,407 9,657 43,190 14,004 13,254 43,190
6 13,401 7,029 6,329 43,190 10,424 9,724 43,190 14,981 14,281 43,190
7 14,071 6,483 5,883 43,190 10,420 9,820 43,190 16,039 15,439 43,190
8 14,775 5,920 5,420 43,190 10,393 9,893 43,190 17,185 16,685 43,190
9 15,513 5,336 4,936 43,190 10,337 9,937 43,190 18,426 18,026 43,190
10 16,289 4,726 4,726 43,190 10,248 10,248 43,190 19,772 19,772 43,190
11 17,103 4,098 4,098 43,190 10,151 10,151 43,190 21,298 21,298 43,190
12 17,959 3,434 3,434 43,190 10,013 10,013 43,190 22,965 22,965 43,190
13 18,856 2,729 2,729 43,190 9,827 9,827 43,190 24,791 24,791 43,190
14 19,799 1,976 1,976 43,190 9,587 9,587 43,190 26,796 26,796 43,190
15 20,789 1,168 1,168 43,190 9,283 9,283 43,190 29,002 29,002 43,190
16 21,829 294 294 43,190 8,905 8,905 43,190 31,438 31,438 43,190
17 22,920 (*) (*) (*) 8,441 8,441 43,190 34,137 34,137 43,695
18 24,066 (*) (*) (*) 7,874 7,874 43,190 37,104 37,104 46,751
19 25,270 (*) (*) (*) 7,185 7,185 43,190 40,336 40,336 50,016
20 26,533 (*) (*) (*) 6,352 6,352 43,190 43,856 43,856 53,504
21 27,860 (*) (*) (*) 5,352 5,352 43,190 47,691 47,691 57,229
22 29,253 (*) (*) (*) 4,156 4,156 43,190 51,858 51,858 61,711
23 30,715 (*) (*) (*) 2,735 2,735 43,190 56,383 56,383 66,532
24 32,251 (*) (*) (*) 1,045 1,045 43,190 61,298 61,298 71,719
25 33,864 (*) (*) (*) (*) (*) (*) 66,636 66,636 77,298
26 35,557 (*) (*) (*) (*) (*) (*) 72,430 72,430 83,295
27 37,335 (*) (*) (*) (*) (*) (*) 78,761 78,761 89,000
28 39,201 (*) (*) (*) (*) (*) (*) 85,690 85,690 95,116
29 41,161 (*) (*) (*) (*) (*) (*) 93,292 93,292 101,689
30 43,219 (*) (*) (*) (*) (*) (*) 101,661 101,661 108,778
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) guaranteed values reflect guaranteed cost of insurance charges and an
annual $135 administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
49
<PAGE> 60
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,672 8,822 41,661 10,256 9,406 41,661 10,841 9,991 41,661
2 11,025 9,252 8,402 41,661 10,421 9,571 41,661 11,660 10,810 41,661
3 11,576 8,829 8,029 41,661 10,583 9,783 41,661 12,552 11,752 41,661
4 12,155 8,402 7,602 41,661 10,741 9,941 41,661 13,524 12,724 41,661
5 12,763 7,970 7,220 41,661 10,895 10,145 41,661 14,586 13,836 41,661
6 13,401 7,532 6,832 41,661 11,043 10,343 41,661 15,745 15,045 41,661
7 14,071 7,084 6,484 41,661 11,184 10,584 41,661 17,012 16,412 41,661
8 14,775 6,625 6,125 41,661 11,314 10,814 41,661 18,396 17,896 41,661
9 15,513 6,152 5,752 41,661 11,431 11,031 41,661 19,909 19,509 41,661
10 16,289 5,661 5,661 41,661 11,532 11,532 41,661 21,566 21,566 41,661
11 17,103 5,165 5,165 41,661 11,651 11,651 41,661 23,453 23,453 41,661
12 17,959 4,649 4,649 41,661 11,754 11,754 41,661 25,533 25,533 41,661
13 18,856 4,112 4,112 41,661 11,841 11,841 41,661 27,832 27,832 41,661
14 19,799 3,549 3,549 41,661 11,909 11,909 41,661 30,376 30,376 41,918
15 20,789 2,958 2,958 41,661 11,954 11,954 41,661 33,184 33,184 44,467
16 21,829 2,335 2,335 41,661 11,973 11,973 41,661 36,272 36,272 47,153
17 22,920 1,675 1,675 41,661 11,962 11,962 41,661 39,654 39,654 50,757
18 24,066 971 971 41,661 11,915 11,915 41,661 43,359 43,359 54,633
19 25,270 218 218 41,661 11,826 11,826 41,661 47,420 47,420 58,800
20 26,533 (*) (*) (*) 11,690 11,690 41,661 51,870 51,870 63,282
21 27,860 (*) (*) (*) 11,499 11,499 41,661 56,751 56,751 68,101
22 29,253 (*) (*) (*) 11,229 11,229 41,661 62,085 62,085 73,881
23 30,715 (*) (*) (*) 10,866 10,866 41,661 67,916 67,916 80,141
24 32,251 (*) (*) (*) 10,396 10,396 41,661 74,288 74,288 86,917
25 33,864 (*) (*) (*) 9,799 9,799 41,661 81,250 81,250 94,250
26 35,557 (*) (*) (*) 9,048 9,048 41,661 88,856 88,856 102,184
27 37,335 (*) (*) (*) 8,111 8,111 41,661 97,197 97,197 109,832
28 39,201 (*) (*) (*) 6,943 6,943 41,661 106,355 106,355 118,054
29 41,161 (*) (*) (*) 5,491 5,491 41,661 116,427 116,427 126,905
30 43,219 (*) (*) (*) 3,694 3,694 41,661 127,528 127,528 136,455
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) current values reflect current cost of insurance charges and an annual $50
administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
50
<PAGE> 61
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,623 8,773 41,661 10,206 9,356 41,661 10,788 9,938 41,661
2 11,025 9,109 8,259 41,661 10,267 9,417 41,661 11,494 10,644 41,661
3 11,576 8,592 7,792 41,661 10,319 9,519 41,661 12,258 11,458 41,661
4 12,155 8,071 7,271 41,661 10,359 9,559 41,661 13,084 12,284 41,661
5 12,763 7,543 6,793 41,661 10,385 9,635 41,661 13,979 13,229 41,661
6 13,401 7,006 6,306 41,661 10,396 9,696 41,661 14,948 14,248 41,661
7 14,071 6,457 5,857 41,661 10,387 9,787 41,661 15,997 15,397 41,661
8 14,775 5,892 5,392 41,661 10,355 9,855 41,661 17,135 16,635 41,661
9 15,513 5,306 4,906 41,661 10,295 9,895 41,661 18,369 17,969 41,661
10 16,289 4,697 4,697 41,661 10,204 10,204 41,661 19,708 19,708 41,661
11 17,103 4,071 4,071 41,661 10,107 10,107 41,661 21,228 21,228 41,661
12 17,959 3,410 3,410 41,661 9,968 9,968 41,661 22,889 22,889 41,661
13 18,856 2,710 2,710 41,661 9,785 9,785 41,661 24,711 24,711 41,661
14 19,799 1,964 1,964 41,661 9,549 9,549 41,661 26,714 26,714 41,661
15 20,789 1,165 1,165 41,661 9,252 9,252 41,661 28,920 28,920 41,661
16 21,829 303 303 41,661 8,884 8,884 41,661 31,358 31,358 41,661
17 22,920 (*) (*) (*) 8,434 8,434 41,661 34,053 34,053 43,588
18 24,066 (*) (*) (*) 7,884 7,884 41,661 36,997 36,997 46,617
19 25,270 (*) (*) (*) 7,217 7,217 41,661 40,203 40,203 49,852
20 26,533 (*) (*) (*) 6,412 6,412 41,661 43,694 43,694 53,307
21 27,860 (*) (*) (*) 5,446 5,446 41,661 47,499 47,499 56,999
22 29,253 (*) (*) (*) 4,293 4,293 41,661 51,632 51,632 61,442
23 30,715 (*) (*) (*) 2,922 2,922 41,661 56,121 56,121 66,223
24 32,251 (*) (*) (*) 1,295 1,295 41,661 60,996 60,996 71,366
25 33,864 (*) (*) (*) (*) (*) (*) 66,291 66,291 76,897
26 35,557 (*) (*) (*) (*) (*) (*) 72,038 72,038 82,843
27 37,335 (*) (*) (*) (*) (*) (*) 78,317 78,317 88,498
28 39,201 (*) (*) (*) (*) (*) (*) 85,190 85,190 94,561
29 41,161 (*) (*) (*) (*) (*) (*) 92,731 92,731 101,076
30 43,219 (*) (*) (*) (*) (*) (*) 101,032 101,032 108,104
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) guaranteed values reflect guaranteed cost of insurance charges and an
annual $135 administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
51
<PAGE> 62
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,174 22,049 114,856 25,636 23,511 114,856 27,097 24,972 114,856
2 27,563 23,291 21,166 114,856 26,223 24,098 114,856 29,328 27,203 114,856
3 28,941 22,397 20,397 114,856 26,810 24,810 114,856 31,759 29,759 114,856
4 30,388 21,492 19,492 114,856 27,396 25,396 114,856 34,411 32,411 114,856
5 31,907 20,572 18,697 114,856 27,978 26,103 114,856 37,306 35,431 114,856
6 33,502 19,633 17,883 114,856 28,553 26,803 114,856 40,467 38,717 114,856
7 35,178 18,669 17,169 114,856 29,116 27,616 114,856 43,920 42,420 114,856
8 36,936 17,675 16,425 114,856 29,663 28,413 114,856 47,693 46,443 114,856
9 38,783 16,643 15,643 114,856 30,186 29,186 114,856 51,817 50,817 114,856
10 40,722 15,567 15,567 114,856 30,681 30,681 114,856 56,332 56,332 114,856
11 42,758 14,484 14,484 114,856 31,235 31,235 114,856 61,462 61,462 114,856
12 44,896 13,349 13,349 114,856 31,762 31,762 114,856 67,116 67,116 114,856
13 47,141 12,159 12,159 114,856 32,260 32,260 114,856 73,356 73,356 114,856
14 49,498 10,907 10,907 114,856 32,724 32,724 114,856 80,254 80,254 114,856
15 51,973 9,584 9,584 114,856 33,146 33,146 114,856 87,888 87,888 117,770
16 54,572 8,182 8,182 114,856 33,518 33,518 114,856 96,305 96,305 125,196
17 57,300 6,689 6,689 114,856 33,833 33,833 114,856 105,530 105,530 135,078
18 60,165 5,089 5,089 114,856 34,076 34,076 114,856 115,640 115,640 145,707
19 63,174 3,368 3,368 114,856 34,235 34,235 114,856 126,722 126,722 157,136
20 66,332 1,510 1,510 114,856 34,297 34,297 114,856 138,873 138,873 169,425
21 69,649 (*) (*) (*) 34,250 34,250 114,856 152,200 152,200 182,641
22 73,132 (*) (*) (*) 34,034 34,034 114,856 166,778 166,778 198,465
23 76,788 (*) (*) (*) 33,625 33,625 114,856 182,720 182,720 215,609
24 80,627 (*) (*) (*) 32,991 32,991 114,856 200,153 200,153 234,179
25 84,659 (*) (*) (*) 32,091 32,091 114,856 219,214 219,214 254,289
26 88,892 (*) (*) (*) 30,868 30,868 114,856 240,050 240,050 276,058
27 93,336 (*) (*) (*) 29,254 29,254 114,856 262,908 262,908 297,086
28 98,003 (*) (*) (*) 27,158 27,158 114,856 288,008 288,008 319,689
29 102,903 (*) (*) (*) 24,470 24,470 114,856 315,612 315,612 344,017
30 108,049 (*) (*) (*) 21,069 21,069 114,856 346,029 346,029 370,251
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) current values reflect current cost of insurance charges and an annual $50
administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
52
<PAGE> 63
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,010 21,885 114,856 25,465 23,340 114,856 26,920 24,795 114,856
2 27,563 22,932 20,807 114,856 25,837 23,712 114,856 28,914 26,789 114,856
3 28,941 21,839 19,839 114,856 26,189 24,189 114,856 31,070 29,070 114,856
4 30,388 20,726 18,726 114,856 26,515 24,515 114,856 33,402 31,402 114,856
5 31,907 19,589 17,714 114,856 26,813 24,938 114,856 35,927 34,052 114,856
6 33,502 18,421 16,671 114,856 27,075 25,325 114,856 38,663 36,913 114,856
7 35,178 17,214 15,714 114,856 27,293 25,793 114,856 41,626 40,126 114,856
8 36,936 15,959 14,709 114,856 27,457 26,207 114,856 44,836 43,586 114,856
9 38,783 14,642 13,642 114,856 27,555 26,555 114,856 48,317 47,317 114,856
10 40,722 13,254 13,254 114,856 27,577 27,577 114,856 52,095 52,095 114,856
11 42,758 11,820 11,820 114,856 27,592 27,592 114,856 56,370 56,370 114,856
12 44,896 10,287 10,287 114,856 27,510 27,510 114,856 61,045 61,045 114,856
13 47,141 8,645 8,645 114,856 27,318 27,318 114,856 66,169 66,169 114,856
14 49,498 6,877 6,877 114,856 26,999 26,999 114,856 71,799 71,799 114,856
15 51,973 4,962 4,962 114,856 26,531 26,531 114,856 78,001 78,001 114,856
16 54,572 2,876 2,876 114,856 25,887 25,887 114,856 84,854 84,854 114,856
17 57,300 592 592 114,856 25,041 25,041 114,856 92,441 92,441 118,325
18 60,165 (*) (*) (*) 23,949 23,949 114,856 100,752 100,752 126,948
19 63,174 (*) (*) (*) 22,565 22,565 114,856 109,801 109,801 136,153
20 66,332 (*) (*) (*) 20,838 20,838 114,856 119,657 119,657 145,981
21 69,649 (*) (*) (*) 18,711 18,711 114,856 130,397 130,397 156,477
22 73,132 (*) (*) (*) 16,118 16,118 114,856 142,065 142,065 169,057
23 76,788 (*) (*) (*) 12,984 12,984 114,856 154,740 154,740 182,593
24 80,627 (*) (*) (*) 9,213 9,213 114,856 168,506 168,506 197,152
25 84,659 (*) (*) (*) 4,678 4,678 114,856 183,456 183,456 212,810
26 88,892 (*) (*) (*) (*) (*) (*) 199,687 199,687 229,640
27 93,336 (*) (*) (*) (*) (*) (*) 217,419 217,419 245,684
28 98,003 (*) (*) (*) (*) (*) (*) 236,825 236,825 262,876
29 102,903 (*) (*) (*) (*) (*) (*) 258,116 258,116 281,347
30 108,049 (*) (*) (*) (*) (*) (*) 281,551 281,551 301,260
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) guaranteed values reflect guaranteed cost of insurance charges and an
annual $135 administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
53
<PAGE> 64
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,836 88,336 306,283 102,691 94,191 306,283 108,548 100,048 306,283
2 110,250 93,571 85,071 306,283 105,349 96,849 306,283 117,822 109,322 306,283
3 115,763 90,250 82,250 306,283 108,023 100,023 306,283 127,957 119,957 306,283
4 121,551 86,860 78,860 306,283 110,707 102,707 306,283 139,044 131,044 306,283
5 127,628 83,384 75,884 306,283 113,391 105,891 306,283 151,185 143,685 306,283
6 134,010 79,805 72,805 306,283 116,067 109,067 306,283 164,497 157,497 306,283
7 140,710 76,105 70,105 306,283 118,726 112,726 306,283 179,113 173,113 306,283
8 147,746 72,256 67,256 306,283 121,349 116,349 306,283 195,180 190,180 306,283
9 155,133 68,229 64,229 306,283 123,922 119,922 306,283 212,872 208,872 306,283
10 162,889 63,997 63,997 306,283 126,430 126,430 306,283 232,394 232,394 306,283
11 171,034 59,715 59,715 306,283 129,248 129,248 306,283 254,742 254,742 306,283
12 179,586 55,153 55,153 306,283 131,999 131,999 306,283 279,440 279,440 332,534
13 188,565 50,283 50,283 306,283 134,674 134,674 306,283 306,515 306,515 361,688
14 197,993 45,069 45,069 306,283 137,258 137,258 306,283 336,192 336,192 393,344
15 207,893 39,461 39,461 306,283 139,732 139,732 306,283 368,719 368,719 427,714
16 218,287 33,394 33,394 306,283 142,065 142,065 306,283 404,368 404,368 465,023
17 229,202 26,782 26,782 306,283 144,217 144,217 306,283 443,535 443,535 501,195
18 240,662 19,519 19,519 306,283 146,139 146,139 306,283 486,596 486,596 540,121
19 252,695 11,491 11,491 306,283 147,781 147,781 306,283 533,980 533,980 582,038
20 265,330 2,589 2,589 306,283 149,098 149,098 306,283 586,184 586,184 627,217
21 278,596 (*) (*) (*) 150,051 150,051 306,283 643,783 643,783 675,972
22 292,526 (*) (*) (*) 150,385 150,385 306,283 706,896 706,896 742,241
23 307,152 (*) (*) (*) 150,001 150,001 306,283 776,024 776,024 814,825
24 322,510 (*) (*) (*) 148,772 148,772 306,283 851,706 851,706 894,291
25 338,635 (*) (*) (*) 146,527 146,527 306,283 934,517 934,517 981,243
26 355,567 (*) (*) (*) 143,025 143,025 306,283 1,025,070 1,025,070 1,076,324
27 373,346 (*) (*) (*) 137,948 137,948 306,283 1,124,009 1,124,009 1,180,210
28 392,013 (*) (*) (*) 130,863 130,863 306,283 1,232,009 1,232,009 1,293,610
29 411,614 (*) (*) (*) 121,216 121,216 306,283 1,349,781 1,349,781 1,417,270
30 432,194 (*) (*) (*) 108,302 108,302 306,283 1,478,079 1,478,079 1,551,983
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) current values reflect current cost of insurance charges and an annual $50
administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
54
<PAGE> 65
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,948 87,448 306,283 101,775 93,275 306,283 107,604 99,104 306,283
2 110,250 91,708 83,208 306,283 103,374 94,874 306,283 115,732 107,232 306,283
3 115,763 87,336 79,336 306,283 104,857 96,857 306,283 124,525 116,525 306,283
4 121,551 82,805 74,805 306,283 106,202 98,202 306,283 134,051 126,051 306,283
5 127,628 78,081 70,581 306,283 107,381 99,881 306,283 144,385 136,885 306,283
6 134,010 73,125 66,125 306,283 108,360 101,360 306,283 155,616 148,616 306,283
7 140,710 67,894 61,894 306,283 109,104 103,104 306,283 167,850 161,850 306,283
8 147,746 62,323 57,323 306,283 109,560 104,560 306,283 181,201 176,201 306,283
9 155,133 56,345 52,345 306,283 109,670 105,670 306,283 195,814 191,814 306,283
10 162,889 49,889 49,889 306,283 109,374 109,374 306,283 211,865 211,865 306,283
11 171,034 43,014 43,014 306,283 108,940 108,940 306,283 230,263 230,263 306,283
12 179,586 35,483 35,483 306,283 107,985 107,985 306,283 250,728 250,728 306,283
13 188,565 27,207 27,207 306,283 106,434 106,434 306,283 273,495 273,495 322,725
14 197,993 18,072 18,072 306,283 104,191 104,191 306,283 298,360 298,360 349,082
15 207,893 7,926 7,926 306,283 101,127 101,127 306,283 325,428 325,428 377,496
16 218,287 (*) (*) (*) 97,072 97,072 306,283 354,887 354,887 408,120
17 229,202 (*) (*) (*) 91,803 91,803 306,283 387,101 387,101 437,424
18 240,662 (*) (*) (*) 85,031 85,031 306,283 422,374 422,374 468,835
19 252,695 (*) (*) (*) 76,405 76,405 306,283 461,068 461,068 502,564
20 265,330 (*) (*) (*) 65,518 65,518 306,283 503,621 503,621 538,875
21 278,596 (*) (*) (*) 51,895 51,895 306,283 550,563 550,563 578,091
22 292,526 (*) (*) (*) 34,952 34,952 306,283 601,683 601,683 631,768
23 307,152 (*) (*) (*) 13,965 13,965 306,283 657,322 657,322 690,188
24 322,510 (*) (*) (*) (*) (*) (*) 717,842 717,842 753,734
25 338,635 (*) (*) (*) (*) (*) (*) 783,619 783,619 822,800
26 355,567 (*) (*) (*) (*) (*) (*) 855,039 855,039 897,791
27 373,346 (*) (*) (*) (*) (*) (*) 932,494 932,494 979,119
28 392,013 (*) (*) (*) (*) (*) (*) 1,016,372 1,016,372 1,067,191
29 411,614 (*) (*) (*) (*) (*) (*) 1,107,070 1,107,070 1,162,424
30 432,194 (*) (*) (*) (*) (*) (*) 1,204,998 1,204,998 1,265,248
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) guaranteed values reflect guaranteed cost of insurance charges and an
annual $135 administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
55
<PAGE> 66
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,508 88,008 211,021 102,374 93,874 211,021 108,241 99,741 211,021
2 110,250 92,854 84,354 211,021 104,682 96,182 211,021 117,213 108,713 211,021
3 115,763 89,070 81,070 211,021 106,972 98,972 211,021 127,070 119,070 211,021
4 121,551 85,137 77,137 211,021 109,240 101,240 211,021 137,933 129,933 211,021
5 127,628 81,027 73,527 211,021 111,476 103,976 211,021 149,940 142,440 211,021
6 134,010 76,704 69,704 211,021 113,668 106,668 211,021 163,251 156,251 211,021
7 140,710 72,123 66,123 211,021 115,796 109,796 211,021 178,060 172,060 211,021
8 147,746 67,225 62,225 211,021 117,840 112,840 211,021 194,591 189,591 215,996
9 155,133 61,951 57,951 211,021 119,777 115,777 211,021 212,875 208,875 232,034
10 162,889 56,238 56,238 211,021 121,591 121,591 211,021 232,962 232,962 249,269
11 171,034 50,190 50,190 211,021 123,647 123,647 211,021 255,820 255,820 268,611
12 179,586 43,354 43,354 211,021 125,474 125,474 211,021 280,866 280,866 294,909
13 188,565 35,600 35,600 211,021 127,041 127,041 211,021 308,299 308,299 323,714
14 197,993 26,767 26,767 211,021 128,308 128,308 211,021 338,333 338,333 355,249
15 207,893 16,637 16,637 211,021 129,219 129,219 211,021 371,196 371,196 389,756
16 218,287 4,918 4,918 211,021 129,691 129,691 211,021 407,131 407,131 427,488
17 229,202 (*) (*) (*) 129,613 129,613 211,021 446,394 446,394 468,714
18 240,662 (*) (*) (*) 128,837 128,837 211,021 489,252 489,252 513,715
19 252,695 (*) (*) (*) 127,175 127,175 211,021 535,989 535,989 562,788
20 265,330 (*) (*) (*) 124,397 124,397 211,021 586,902 586,902 616,247
21 278,596 (*) (*) (*) 120,215 120,215 211,021 642,311 642,311 674,426
22 292,526 (*) (*) (*) 114,104 114,104 211,021 702,504 702,504 737,629
23 307,152 (*) (*) (*) 105,486 105,486 211,021 767,818 767,818 806,209
24 322,510 (*) (*) (*) 93,550 93,550 211,021 838,603 838,603 880,533
25 338,635 (*) (*) (*) 77,123 77,123 211,021 915,212 915,212 960,973
26 355,567 (*) (*) (*) 54,481 54,481 211,021 997,997 997,997 1,047,897
27 373,346 (*) (*) (*) 23,024 23,024 211,021 1,089,398 1,089,398 1,132,973
28 392,013 (*) (*) (*) (*) (*) (*) 1,190,757 1,190,757 1,226,479
29 411,614 (*) (*) (*) (*) (*) (*) 1,303,713 1,303,713 1,329,788
30 432,194 (*) (*) (*) (*) (*) (*) 1,430,336 1,430,336 1,444,639
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) current values reflect current cost of insurance charges and an annual $50
administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
56
<PAGE> 67
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,130 86,630 211,021 100,970 92,470 211,021 106,812 98,312 211,021
2 110,250 89,907 81,407 211,021 101,644 93,144 211,021 114,088 105,588 211,021
3 115,763 84,356 76,356 211,021 102,066 94,066 211,021 121,987 113,987 211,021
4 121,551 78,419 70,419 211,021 102,196 94,196 211,021 130,609 122,609 211,021
5 127,628 72,016 64,516 211,021 101,980 94,480 211,021 140,072 132,572 211,021
6 134,010 65,041 58,041 211,021 101,345 94,345 211,021 150,520 143,520 211,021
7 140,710 57,359 51,359 211,021 100,195 94,195 211,021 162,134 156,134 211,021
8 147,746 48,791 43,791 211,021 98,404 93,404 211,021 175,149 170,149 211,021
9 155,133 39,127 35,127 211,021 95,825 91,825 211,021 189,879 185,879 211,021
10 162,889 28,128 28,128 211,021 92,288 92,288 211,021 206,608 206,608 221,071
11 171,034 15,598 15,598 211,021 87,881 87,881 211,021 225,818 225,818 237,109
12 179,586 1,122 1,122 211,021 82,107 82,107 211,021 246,737 246,737 259,074
13 188,565 (*) (*) (*) 74,678 74,678 211,021 269,505 269,505 282,980
14 197,993 (*) (*) (*) 65,220 65,220 211,021 294,270 294,270 308,983
15 207,893 (*) (*) (*) 53,215 53,215 211,021 321,186 321,186 337,245
16 218,287 (*) (*) (*) 37,932 37,932 211,021 350,411 350,411 367,931
17 229,202 (*) (*) (*) 18,350 18,350 211,021 382,105 382,105 401,210
18 240,662 (*) (*) (*) (*) (*) (*) 416,427 416,427 437,249
19 252,695 (*) (*) (*) (*) (*) (*) 453,540 453,540 476,217
20 265,330 (*) (*) (*) (*) (*) (*) 493,610 493,610 518,290
21 278,596 (*) (*) (*) (*) (*) (*) 536,814 536,814 563,655
22 292,526 (*) (*) (*) (*) (*) (*) 583,336 583,336 612,502
23 307,152 (*) (*) (*) (*) (*) (*) 633,366 633,366 665,035
24 322,510 (*) (*) (*) (*) (*) (*) 687,104 687,104 721,459
25 338,635 (*) (*) (*) (*) (*) (*) 744,737 744,737 781,974
26 355,567 (*) (*) (*) (*) (*) (*) 806,444 806,444 846,766
27 373,346 (*) (*) (*) (*) (*) (*) 874,778 874,778 909,769
28 392,013 (*) (*) (*) (*) (*) (*) 950,870 950,870 979,396
29 411,614 (*) (*) (*) (*) (*) (*) 1,036,099 1,036,099 1,056,821
30 432,194 (*) (*) (*) (*) (*) (*) 1,132,229 1,132,229 1,143,552
</TABLE>
Assumptions:
(1) no policy loans and no partial withdrawals have been made.
(2) guaranteed values reflect guaranteed cost of insurance charges and an
annual $135 administrative expense charge.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will not stay in force.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different
from those shown if the actual rates of return averaged 0%, 6%, and 12% over a
period of years but also fluctuated above or below those averages for
individual policy years. No representation can be made by nationwide life or
the trust that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
57
<PAGE> 68
<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 (comprised of the
sub-accounts listed in note 1(b)) (collectively, "the Account") as of December
31, 1999, and the related statements of operations and changes in contract
owners' equity for each of the years in the three year period then ended. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1999, 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 referred to above present fairly,
in all material respects, the financial position of the Account as of December
31, 1999, and the results of its operations and its changes in contract owners'
equity for each of the years in the three year period then ended in conformity
with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 18, 2000
--------------------------------------------------------------------------------
<PAGE> 2
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in Van Kampen Life Investment Trust, at market value:
Asset Allocation Fund
2,191,816 shares (cost $25,175,578) ...................... $ 26,630,569
Domestic Income Fund
161,246 shares (cost $1,337,889) ......................... 1,296,420
Emerging Growth Fund
150,833 shares (cost $4,265,371) ......................... 6,972,993
Enterprise Fund
1,649,183 shares (cost $27,518,734) ...................... 43,060,176
Global Equity Fund
106,894 shares (cost $1,446,648) ......................... 1,810,791
Government Fund
4,526,628 shares (cost $40,250,236) ...................... 39,924,859
Money Market Fund
6,714,710 shares (cost $6,714,710) ....................... 6,714,710
Morgan Stanley Real Estate Securities Portfolio
28,034 shares (cost $399,505) ............................ 346,782
------------
Total investments ..................................... 126,757,300
Accounts receivable ............................................ 137,112
------------
Total assets .......................................... 126,894,412
ACCOUNTS PAYABLE .................................................. -
------------
CONTRACT OWNERS' EQUITY (NOTE 7) .................................. $126,894,412
============
</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):
Emerging Growth Fund ............................... 61 $ 44.315060 $ 2,703 102%
Government Fund .................................... 181 21.448313 3,882 (4)%
Single Premium contracts issued prior to
April 16, 1990 (policy years 11 and thereafter):
Asset Allocation Fund .............................. 739,841 35.463700 26,237,499 4%
Domestic Income Fund ............................... 59,529 21.081008 1,254,931 (2)%
Emerging Growth Fund ............................... 154,492 45.052150 6,960,197 102%
Enterprise Fund .................................... 759,568 56.478127 42,898,978 25%
Global Equity Fund ................................. 84,026 21.480044 1,804,882 29%
Government Fund .................................... 1,829,463 21.806759 39,894,659 (4)%
Money Market Fund .................................. 358,251 18.606015 6,665,623 4%
Morgan Stanley Real Estate
Securities Portfolio ............................ 22,446 15.386733 345,371 (4)%
Single Premium contracts issued
on or after April 16, 1990:
Asset Allocation Fund .............................. 8,868 29.663447 263,055 4%
Domestic Income Fund ............................... 2,038 20.286172 41,343 (3)%
Emerging Growth Fund ............................... 223 43.623938 9,728 102%
Enterprise Fund .................................... 2,231 51.757655 115,471 24%
Global Equity Fund ................................. 278 20.798972 5,782 28%
Government Fund .................................... 1,452 16.037897 23,287 (5)%
Money Market Fund .................................. 3,607 13.394302 48,313 3%
Morgan Stanley Real Estate
Securities Portfolio ............................ 92 14.898574 1,371 (5)%
Multiple Payment and
Flexible Premium contracts:
Asset Allocation Fund .............................. 4,721 27.127166 128,067 4%
Enterprise Fund .................................... 4,201 45.053542 189,270 25%
========== ============ -------------
$ 126,894,412
=============
</TABLE>
* The annual return does not include contract charges satisfied by surrendering
units.
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
<PAGE> 4
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL ASSET ALLOCATION FUND
---------------------------------------------- -------------------------------
1999 1998 1997 1999 1998
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ........................ $ 3,642,989 897,565 4,695,756 935,397 28,407
Mortality and expense charges (note 3) ...... (605,987) (629,010) (719,195) (135,844) (142,872)
-------------- -------------- -------------- -------------- -------------
Net investment activity.................... 3,037,002 268,555 3,976,561 799,553 (114,465)
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ....... 23,486,753 28,593,475 31,042,460 4,191,225 3,626,797
Cost of mutual fund shares sold ............. (20,473,513) (25,877,789) (28,311,120) (4,139,582) (3,417,335)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on investments ....... 3,013,240 2,715,686 2,731,340 51,643 209,462
Change in unrealized gain (loss)
on investments............................. 497,947 12,059,082 3,917,689 (2,538,143) 2,953,327
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments ............ 3,511,187 14,774,768 6,649,029 (2,486,500) 3,162,789
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains..................... 5,493,564 1,152,786 7,592,712 2,818,636 767,858
-------------- -------------- -------------- -------------- -------------
Net change in contract owners'
equity resulting from operations ....... 12,041,753 16,196,109 18,218,302 1,131,689 3,816,182
-------------- -------------- -------------- -------------- -------------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners............................ 79,010 100,670 20,253 10,703 16,920
Transfers between funds...................... - - - (277,168) (295,985)
Surrenders................................... (7,988,610) (8,181,440) (15,789,351) (1,923,278) (1,209,391)
Death benefits (note 4)...................... (2,258,865) (2,362,574) (2,575,326) (218,348) (300,509)
Policy loans (net of repayments) (note 5) ... 1,291,031 844,295 2,317,220 (355,822) 37,023
Deductions for surrender charges
(note 2d).................................. (10,061) (1,495) (6,591) (2,422) (221)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c).......................... (1,126,113) (984,029) (1,430,627) (189,256) (141,477)
-------------- -------------- -------------- -------------- -------------
Net equity transactions.................. (10,013,608) (10,584,573) (17,464,422) (2,955,591) (1,893,640)
-------------- -------------- -------------- -------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 2,028,145 5,611,536 753,880 (1,823,902) 1,922,542
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD.................................... 124,866,267 119,254,731 118,500,851 28,452,523 26,529,981
-------------- -------------- -------------- -------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 126,894,412 124,866,267 119,254,731 26,628,621 28,452,523
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
ASSET
ALLOCATION
FUND DOMESTIC INCOME FUND
-------------- ----------------------------------------------
1997 1999 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ........................ $ 1,019,770 104,790 5,786 161,393
Mortality and expense charges (note 3) ...... (163,786) (7,808) (11,965) (14,107)
-------------- -------------- -------------- --------------
Net investment activity.................... 855,984 96,982 (6,179) 147,286
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ....... 3,844,540 543,800 679,224 1,322,378
Cost of mutual fund shares sold ............. (3,541,593) (536,110) (669,892) (1,253,657)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ....... 302,947 7,690 9,332 68,721
Change in unrealized gain (loss)
on investments............................. 1,002,579 (148,856) 120,718 6,090
-------------- -------------- -------------- --------------
Net gain (loss) on investments ............ 1,305,526 (141,166) 130,050 74,811
-------------- -------------- -------------- --------------
Reinvested capital gains..................... 2,657,199 - - -
-------------- -------------- -------------- --------------
Net change in contract owners'
equity resulting from operations ....... 4,818,709 (44,184) 123,871 222,097
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners............ ............... 9,408 35 192 -
Transfers between funds...... ............... (21,271) (84,044) 186,196 (27,385)
Surrenders................... ............... (2,261,349) (225,604) (438,920) (883,951)
Death benefits (note 4)...... ............... (238,628) (124,349) - (103,618)
Policy loans (net of repayments) (note 5) ... (21,513) (8,370) 908 127,843
Deductions for surrender charges
(note 2d).................. ............... (972) (284) (80) (364)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c).......... ............... (209,159) (34,455) (23,714) (32,804)
-------------- -------------- -------------- --------------
Net equity transactions.. ............... (2,743,484) (477,071) (275,418) (920,279)
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 2,075,225 (521,255) (151,547) (698,182)
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD.................... ............... 24,454,756 1,817,529 1,969,076 2,667,258
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 26,529,981 1,296,274 1,817,529 1,969,076
============== ============== ============== ==============
</TABLE>
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
STATEMENTS OF OPERATIONS, CONTINUED
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
EMERGING GROWTH FUND ENTERPRISE FUND
---------------------------------------------- -------------------------------
1999 1998 1997 1999 1998
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ....................... $ - 870 - 112,795 30,666
Mortality and expense charges (note 3) ..... (18,439) (12,082) (11,006) (187,593) (177,854)
-------------- -------------- -------------- -------------- -------------
Net investment activity................... (18,439) (11,212) (11,006) (74,798) (147,188)
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold ...... 3,555,112 3,294,533 2,545,651 4,465,163 6,594,364
Cost of mutual fund shares sold ............ (2,458,567) (2,978,369) (2,360,427) (2,771,060) (4,852,264)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on investments ...... 1,096,545 316,164 185,224 1,694,103 1,742,100
Change in unrealized gain (loss)
on investments............................ 2,140,406 447,416 98,252 4,488,118 5,583,645
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments ........... 3,236,951 763,580 283,476 6,182,221 7,325,745
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains.................... - - - 2,657,133 376,105
-------------- -------------- -------------- -------------- -------------
Net change in contract owners'
equity resulting from operations .... 3,218,512 752,368 272,470 8,764,556 7,554,662
-------------- -------------- -------------- -------------- -------------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners........................... 117 13,566 - 59,346 42,210
Transfers between funds..................... 1,095,938 411,356 363,039 (85,385) (471,779)
Surrenders.................................. (29,316) (38,594) (97,105) (2,021,593) (2,526,694)
Death benefits (note 4)..................... (20,214) (78,748) (68,157) (328,352) (691,661)
Policy loans (net of repayments) (note 5) .. (295,503) (49,579) (38,507) (305,536) 155,121
Deductions for surrender charges
(note 2d)................................. (37) (7) (42) (2,546) (462)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c)......................... (33,083) (18,375) (21,822) (275,356) (226,356)
-------------- -------------- -------------- -------------- -------------
Net equity transactions................. 717,902 239,619 137,406 (2,959,422) (3,719,621)
-------------- -------------- -------------- -------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........ 3,936,414 991,987 409,876 5,805,134 3,835,041
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD................................... 3,036,214 2,044,227 1,634,351 37,398,585 33,563,544
-------------- -------------- -------------- -------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........ $ 6,972,628 3,036,214 2,044,227 43,203,719 37,398,585
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
ENTERPRISE FUND GLOBAL EQUITY FUND
-------------- ----------------------------------------------
1997 1999 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ....................... $ 156,354 3,293 13,847 9,630
Mortality and expense charges (note 3) ..... (189,128) (6,178) (5,996) (5,726)
-------------- -------------- -------------- --------------
Net investment activity................... (32,774) (2,885) 7,851 3,904
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold ...... 6,775,251 421,804 607,261 740,054
Cost of mutual fund shares sold ............ (4,652,996) (400,661) (594,475) (619,704)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments ...... 2,122,255 21,143 12,786 120,350
Change in unrealized gain (loss)
on investments............................ 1,561,213 308,547 203,001 (191,773)
-------------- -------------- -------------- --------------
Net gain (loss) on investments ........... 3,683,468 329,690 215,787 (71,423)
-------------- -------------- -------------- --------------
Reinvested capital gains.................... 4,664,918 17,795 - 213,420
-------------- -------------- -------------- --------------
Net change in contract owners'
equity resulting from operations .... 8,315,612 344,600 223,638 145,901
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners........................... 10,432 4,864 3,500 -
Transfers between funds..................... 449,001 327,061 135,066 354,759
Surrenders.................................. (3,085,585) - (270,112) (170,802)
Death benefits (note 4)..................... (840,448) (31,633) (45,481) (54,190)
Policy loans (net of repayments) (note 5) .. (411,649) (50,837) (19,615) (49,035)
Deductions for surrender charges
(note 2d)................................. (1,310) - (49) (71)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c)......................... (397,149) (13,865) (12,593) (16,552)
-------------- -------------- -------------- --------------
Net equity transactions................. (4,276,708) 235,590 (209,284) 64,109
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........ 4,038,904 580,190 14,354 210,010
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD................................... 29,524,640 1,230,474 1,216,120 1,006,110
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........ $ 33,563,544 1,810,664 1,230,474 1,216,120
============== ============== ============== ==============
(Continued)
</TABLE>
<PAGE> 6
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
STATEMENTS OF OPERATIONS, CONTINUED
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
GOVERNMENT FUND MONEY MARKET FUND
---------------------------------------------- -------------------------------
1999 1998 1997 1999 1998
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ..................... $ 2,097,895 462,730 2,932,295 363,868 354,362
Mortality and expense charges (note 3) ... (208,262) (238,350) (281,579) (40,003) (37,684)
-------------- -------------- -------------- -------------- -------------
Net investment activity................. 1,889,633 224,380 2,650,716 323,865 316,678
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund shares sold .... 4,009,993 6,495,585 8,542,298 6,199,614 6,735,285
Cost of mutual fund shares sold .......... (3,850,500) (6,048,314) (8,651,252) (6,199,614) (6,735,285)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on investments .... 159,493 447,271 (108,954) - -
Change in unrealized gain (loss)
on investments.......................... (3,730,011) 2,807,612 1,444,456 - -
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments ......... (3,570,518) 3,254,883 1,335,502 - -
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains.................. - - - - -
-------------- -------------- -------------- -------------- -------------
Net change in contract owners'
equity resulting from operations ... (1,680,885) 3,479,263 3,986,218 323,865 316,678
-------------- -------------- -------------- -------------- -------------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners............ 2,587 4,858 341 1,358 19,417
Transfers between funds...... (817,042) (1,210,358) (1,240,286) (150,507) 1,442,677
Surrenders................... (2,570,772) (2,842,711) (7,702,772) (1,218,047) (830,932)
Death benefits (note 4)...... (862,741) (1,246,175) (862,940) (673,228) -
Policy loans (net of repayments) (note 5) 1,421,104 788,677 2,807,538 886,814 (80,573)
Deductions for surrender charges
(note 2d).................. (3,238) (520) (3,174) (1,534) (152)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c).......... (437,216) (423,865) (551,486) (137,745) (133,134)
-------------- -------------- -------------- -------------- -------------
Net equity transactions.. (3,267,318) (4,930,094) (7,552,779) (1,292,889) 417,303
-------------- -------------- -------------- -------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY (4,948,203) (1,450,831) (3,566,561) (969,024) 733,981
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD.................... 44,870,031 46,320,862 49,887,423 7,682,960 6,948,979
-------------- -------------- -------------- -------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD $ 39,921,828 44,870,031 46,320,862 6,713,936 7,682,960
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
MONEY
MARKET MONEY MARKET MORGAN STANLEY
FUND REAL ESTATE SECURITIES PORTFOLIO
-------------- ----------------------------------------------
1997 1999 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ..................... $ 399,015 24,951 897 17,299
Mortality and expense charges (note 3) ... (51,809) (1,860) (2,207) (2,054)
-------------- -------------- -------------- --------------
Net investment activity................. 347,206 23,091 (1,310) 15,245
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold .... 7,096,782 100,042 560,426 175,506
Cost of mutual fund shares sold .......... (7,096,782) (117,419) (581,855) (134,709)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments .... - (17,377) (21,429) 40,797
Change in unrealized gain (loss)
on investments.......................... - (22,114) (56,637) (3,128)
-------------- -------------- -------------- --------------
Net gain (loss) on investments ......... - (39,491) (78,066) 37,669
-------------- -------------- -------------- --------------
Reinvested capital gains.................. - - 8,823 57,175
-------------- -------------- -------------- --------------
Net change in contract owners'
equity resulting from operations ... 347,206 (16,400) (70,553) 110,089
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners............ 72 - 7 -
Transfers between funds...... (260,875) (8,853) (197,173) 383,018
Surrenders................... (1,580,839) - (24,086) (6,948)
Death benefits (note 4)...... (407,345) - - -
Policy loans (net of repayments) (note 5) (83,572) (819) 12,333 (13,885)
Deductions for surrender charges
(note 2d).................. (655) - (4) (3)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c).......... (194,010) (5,137) (4,515) (7,645)
-------------- -------------- -------------- --------------
Net equity transactions.. (2,527,224) (14,809) (213,438) 354,537
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY (2,180,018) (31,209) (283,991) 464,626
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD.................... 9,128,997 377,951 661,942 197,316
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD $ 6,948,979 346,742 377,951 661,942
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
<PAGE> 7
NATIONWIDE VLI SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(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 Life Investment Trust (Van Kampen LIT)
(formerly Van Kampen American Capital Life Investment Trust);
Van Kampen LIT - Asset Allocation Fund
Van Kampen LIT - Domestic Income Fund
Van Kampen LIT - Emerging Growth Fund
Van Kampen LIT - Enterprise Fund
Van Kampen LIT - Global Equity Fund
Van Kampen LIT - Government Fund
Van Kampen LIT - Money Market Fund
Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio
At December 31, 1999, 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.
A contract owner may choose from among a number of different underlying
mutual fund options. 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, 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.
(Continued)
<PAGE> 8
NATIONWIDE VLI SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(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, 1999. 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.
(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.
(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. For multiple and flexible premium contracts, 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.
<PAGE> 9
(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.
(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.
The following table provides mortality and expense risk charges by contract
type for the period ended December 31, 1999:
<TABLE>
<CAPTION>
ASSET DOMESTIC EMERGING
ALLOCATION INCOME GROWTH ENTERPRISE
TOTAL FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 108 - - 44 -
Single Premium contracts issued
on or after April 16, 1990.... 6,983 3,613 568 134 1,586
Multiple Payment and Flexible
Premium contracts............. 2,271 917 - - 1,354
Reduced Fee on Single
Premium contracts issued
prior to April 16, 1999....... 596,625 131,314 7,240 18,261 184,653
------------ ------------ ------------ ------------ ------------
Total....................... $ 605,987 135,844 7,808 18,439 187,593
============ ============ ============ ============ ============
(Continued)
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
GLOBAL MONEY REAL ESTATE
EQUITY GOVERNMENT MARKET SECURITIES
FUND FUND FUND PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ - 64 - -
Single Premium contracts issued
on or after April 16, 1990.... 79 320 664 19
Multiple Payment and Flexible
Premium contracts............. - - - -
Reduced Fee on Single
Premium contracts issued
prior to April 16, 1999....... 6,099 207,878 39,339 1,841
------------ ------------ ------------ ------------
Total....................... $ 6,178 208,262 40,003 1,860
============ ============ ============ ============
</TABLE>
The following table provides mortality and expense risk charges by contract
type for the period ended December 31, 1998:
<TABLE>
<CAPTION>
ASSET DOMESTIC EMERGING
ALLOCATION INCOME GROWTH ENTERPRISE
TOTAL FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 58,812 46,484 8 545 3,926
Single Premium contracts issued
on or after April 16, 1990.... 9,184 3,414 2,251 103 2,102
Multiple Payment and Flexible
Premium contracts............. 1,950 862 - - 1,088
Reduced Fee on Single
Premium contracts issued
prior to April 16, 1999....... 559,064 92,112 9,706 11,434 170,738
------------ ------------ ------------ ------------ ------------
Total....................... $ 629,010 142,872 11,965 12,082 177,854
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
GLOBAL MONEY REAL ESTATE
EQUITY GOVERNMENT MARKET SECURITIES
FUND FUND FUND PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ - 7,640 209 -
Single Premium contracts issued
on or after April 16, 1990.... 99 313 884 18
Multiple Payment and Flexible
Premium contracts............. - - - -
Reduced Fee on Single
Premium contracts issued
prior to April 16, 1999....... 5,897 230,397 36,591 2,189
------------ ------------ ------------ ------------
Total....................... $ 5,996 238,350 37,684 2,207
============ ============ ============ ============
</TABLE>
<PAGE> 11
The following table provides mortality and expense risk charges by contract
type for the period ended December 31, 1997:
<TABLE>
<CAPTION>
ASSET DOMESTIC EMERGING
ALLOCATION INCOME GROWTH ENTERPRISE
TOTAL FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 245,990 56,021 4,825 3,765 64,688
Single Premium contracts issued
on or after April 16, 1990.... 4,007 912 79 61 1,054
Multiple Payment and Flexible
Premium contracts............. 1,712 390 33 26 451
Reduced Fee on Single
Premium contracts issued
prior to April 16, 1999....... 467,486 106,463 9,170 7,154 122,935
------------ ------------ ------------ ------------ ------------
Total....................... $ 719,195 163,786 14,107 11,006 189,128
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
GLOBAL MONEY REAL ESTATE
EQUITY GOVERNMENT MARKET SECURITIES
FUND FUND FUND PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 1,958 96,310 17,720 703
Single Premium contracts issued
on or after April 16, 1990.... 32 1,569 289 11
Multiple Payment and Flexible
Premium contracts............. 14 670 123 5
Reduced Fee on Single
Premium contracts issued
prior to April 16, 1999....... 3,722 183,030 33,677 1,335
------------ ------------ ------------ ------------
Total....................... $ 5,726 281,579 51,809 2,054
============ ============ ============ ============
</TABLE>
(4) DEATH BENEFITS
Death benefit proceeds result in a redemption of the contract value from
the Account and payment of those proceeds, less any outstanding policy
loans (and policy charges), to the legal beneficiary. For last survivor
flexible premium contracts, the proceeds are payable on the death of the
last surviving insured. In the event that the guaranteed death benefit
exceeds the contract value on the date of death, the excess 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.
--------------------------------------------------------------------------------
<PAGE> 69
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1999 and
1998, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Columbus, Ohio
January 28, 2000
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions, except per share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------------
Assets 1999 1998
------ --------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $15,294.0 $14,245.1
Equity securities 92.9 127.2
Mortgage loans on real estate, net 5,786.3 5,328.4
Real estate, net 254.8 243.6
Policy loans 519.6 464.3
Other long-term investments 73.8 44.0
Short-term investments 416.0 289.1
--------- ---------
22,437.4 20,741.7
--------- ---------
Cash 4.8 3.4
Accrued investment income 238.6 218.7
Deferred policy acquisition costs 2,554.1 2,022.2
Other assets 305.9 420.3
Assets held in separate accounts 67,135.1 50,935.8
--------- ---------
$92,675.9 $74,342.1
========= =========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $21,861.6 $19,767.1
Other liabilities 914.2 866.1
Liabilities related to separate accounts 67,135.1 50,935.8
--------- ---------
89,910.9 71,569.0
--------- ---------
Commitments and contingencies (notes 8 and 13)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 766.1 914.7
Retained earnings 2,011.0 1,579.0
Accumulated other comprehensive income (15.9) 275.6
--------- ---------
2,765.0 2,773.1
--------- ---------
$92,675.9 $74,342.1
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Policy charges $ 895.5 $ 698.9 $ 545.2
Life insurance premiums 220.8 200.0 205.4
Net investment income 1,520.8 1,481.6 1,409.2
Realized (losses) gains on investments (11.6) 28.4 11.1
Other 66.1 66.8 46.5
-------- -------- --------
2,691.6 2,475.7 2,217.4
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 1,096.3 1,069.0 1,016.6
Other benefits and claims 210.4 175.8 178.2
Policyholder dividends on participating policies 42.4 39.6 40.6
Amortization of deferred policy acquisition costs 272.6 214.5 167.2
Other operating expenses 463.4 419.7 384.9
-------- -------- --------
2,085.1 1,918.6 1,787.5
-------- -------- --------
Income before federal income tax expense 606.5 557.1 429.9
Federal income tax expense 201.4 190.4 150.2
-------- -------- --------
Net income $ 405.1 $ 366.7 $ 279.7
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1999, 1998 and 1997
(in millions)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholder's
stock capital earnings income equity
-------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1996 $ 3.8 $ 527.9 $1,432.6 $173.6 $2,137.9
Comprehensive income:
Net income -- -- 279.7 -- 279.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 73.5 73.5
--------
Total comprehensive income 353.2
--------
Capital contribution -- 836.8 -- -- 836.8
--------
Dividend to shareholder -- (450.0) (400.0) -- (850.0)
------ -------- -------- ------ --------
December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9
Comprehensive income:
Net income -- -- 366.7 -- 366.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 28.5 28.5
--------
Total comprehensive income 395.2
--------
Dividend to shareholder -- -- (100.0) -- (100.0)
------ -------- -------- ------ --------
December 31, 1998 3.8 914.7 1,579.0 275.6 2,773.1
Comprehensive income:
Net income -- -- 405.1 -- 405.1
Net unrealized losses on securities
available-for-sale arising during
the year -- -- -- (315.0) (315.0)
--------
Total comprehensive income 90.1
--------
Capital contribution -- 26.4 87.9 23.5 137.8
--------
Dividends to shareholder -- (175.0) (61.0) -- (236.0)
------ -------- -------- ------ --------
December 31, 1999 $ 3.8 $ 766.1 $2,011.0 $(15.9) $2,765.0
====== ======== ======== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 405.1 $ 366.7 $ 279.7
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,096.3 1,069.0 1,016.6
Capitalization of deferred policy acquisition costs (637.0) (584.2) (487.9)
Amortization of deferred policy acquisition costs 272.6 214.5 167.2
Amortization and depreciation 2.4 (8.5) (2.0)
Realized (gains) losses on invested assets, net 11.6 (28.4) (11.1)
Increase in accrued investment income (7.9) (8.2) (0.3)
Decrease (increase) in other assets 122.9 16.4 (12.7)
Decrease in policy liabilities (20.9) (8.3) (23.1)
Increase (decrease) in other liabilities 149.7 (34.8) 230.6
Other, net (8.6) (11.3) (10.9)
--------- --------- ---------
Net cash provided by operating activities 1,386.2 982.9 1,146.1
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 2,307.9 1,557.0 993.4
Proceeds from sale of securities available-for-sale 513.1 610.5 574.5
Proceeds from repayments of mortgage loans on real estate 696.7 678.2 437.3
Proceeds from sale of real estate 5.7 103.8 34.8
Proceeds from repayments of policy loans and sale of other invested assets 40.9 23.6 22.7
Cost of securities available-for-sale acquired (3,724.9) (3,182.8) (2,828.1)
Cost of mortgage loans on real estate acquired (971.4) (829.1) (752.2)
Cost of real estate acquired (14.2) (0.8) (24.9)
Short-term investments, net (27.5) 69.3 (354.8)
Other, net (110.9) (88.4) (62.5)
--------- --------- ---------
Net cash used in investing activities (1,284.6) (1,058.7) (1,959.8)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions -- -- 836.8
Cash dividends paid (188.5) (100.0) --
Increase in investment product and universal life insurance
product account balances 3,799.4 2,682.1 2,488.5
Decrease in investment product and universal life insurance
product account balances (3,711.1) (2,678.5) (2,379.8)
--------- --------- ---------
Net cash used in financing activities (100.2) (96.4) 945.5
--------- --------- ---------
Net increase (decrease) in cash 1.4 (172.2) 131.8
Cash, beginning of year 3.4 175.6 43.8
--------- --------- ---------
Cash, end of year $ 4.8 $ 3.4 $ 175.6
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Organization and Description of Business
Nationwide Life Insurance Company (NLIC) is a leading provider of
long-term savings and retirement products in the United States and is a
wholly owned subsidiary of Nationwide Financial Services, Inc. (NFS).
The Company develops and sells a diverse range of products including
variable annuities, fixed annuities and life insurance as well as
investment management and administrative services. NLIC markets its
products through a broad network of distribution channels, including
independent broker/dealers, national and regional brokerage firms,
financial institutions, pension plan administrators, life insurance
specialists, Nationwide Retirement Solutions sales representatives, and
Nationwide agents.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc., and
Nationwide Investment Services Corporation. NLIC and its subsidiaries
are collectively referred to as "the Company."
(2) Summary of Significant Accounting Policies
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Consolidation Policy
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(b) Valuation of Investments and Related Gains and Losses
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of accumulated other comprehensive income in
shareholder's equity. The adjustment to deferred policy
acquisition costs represents the change in amortization of
deferred policy acquisition costs that would have been required as
a charge or credit to operations had such unrealized amounts been
realized. The Company has no fixed maturity securities classified
as held-to-maturity or trading as of December 31, 1999 or 1998.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
(c) Revenues and Benefits
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual and group
variable and fixed deferred annuities. Universal life insurance
products include universal life insurance, variable universal life
insurance, corporate owned life insurance and other
interest-sensitive life insurance policies. Revenues for
investment products and universal life insurance products consist
of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and
assessed against policy account balances during the period. Policy
benefits and claims that are charged to expense include interest
credited to policy account balances and benefits and claims
incurred in the period in excess of related policy account
balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(d) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses
on fixed maturity securities available-for-sale as described in
note 2(b). For traditional life insurance products, these deferred
policy acquisition costs are predominantly being amortized with
interest over the premium paying period of the related policies in
proportion to the ratio of actual annual premium revenue to the
anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for
computing liabilities for future policy benefits.
(e) Separate Accounts
Separate account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $915.4 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the separate accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges. The average interest rate credited on investment product
policy reserves was 5.6%, 6.0% and 6.1% for the years ended
December 31, 1999, 1998 and 1997, respectively.
Future policy benefits for traditional life insurance policies
have been calculated by the net level premium method using
interest rates varying from 6.0% to 10.5% and estimates of
mortality, morbidity, investment yields and withdrawals which were
used or which were being experienced at the time the policies were
issued, rather than the assumptions prescribed by state regulatory
authorities.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
Participating business represents approximately 29% in 1999 (40%
in 1998 and 50% in 1997) of the Company's life insurance in force,
69% in 1999 (74% in 1998 and 77% in 1997) of the number of life
insurance policies in force, and 13% in 1999 (14% in 1998 and 27%
in 1997) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) Federal Income Tax
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) Reinsurance Ceded
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis.
(j) Recently Issued Accounting Pronouncements
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The
SOP, which has been adopted prospectively as of January 1, 1999,
requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software.
Prior to the adoption of SOP 98-1, the Company expensed internal
use software related costs as incurred. The effect of adopting the
SOP was to increase net income for 1999 by $8.3 million.
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging
activities. Contracts that contain embedded derivatives, such as
certain investment and insurance contracts, are also addressed by
the Statement. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In
July 1999 the FASB issued Statement No. 137 which delayed the
effective date of FAS 133 to fiscal years beginning after June 15,
2000. The Company plans to adopt this Statement in first quarter
2001 and is currently evaluating the impact on results of
operations and financial condition.
(k) Reclassification
Certain items in the 1998 and 1997 consolidated financial
statements have been reclassified to conform to the 1999
presentation.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) Investments
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1999 and
1998 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions) cost gains losses fair value
--------- ------ ------- ---------
<S> <C> <C> <C> <C>
December 31, 1999:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 428.4 $ 23.4 $ (2.4) $ 449.4
Obligations of states and political subdivisions 0.8 -- -- 0.8
Debt securities issued by foreign governments 110.6 0.6 (0.8) 110.4
Corporate securities 11,414.7 118.9 (218.6) 11,315.0
Mortgage-backed securities 3,422.8 25.8 (30.2) 3,418.4
--------- ------ ------- ---------
Total fixed maturity securities 15,377.3 168.7 (252.0) 15,294.0
Equity securities 84.9 12.4 (4.4) 92.9
--------- ------ ------- ---------
$15,462.2 $181.1 $(256.4) $15,386.9
========= ====== ======= =========
December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 106.5 4.5 -- 111.0
Corporate securities 9,899.6 423.2 (18.7) 10,304.1
Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5
--------- ------ ------- ---------
Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1
Equity securities 110.4 18.3 (1.5) 127.2
--------- ------ ------- ---------
$13,831.7 $563.2 $ (22.6) $14,372.3
========= ====== ======= =========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1999, by expected
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions) cost fair value
--------- ---------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 847.0 $ 847.0
Due after one year through five years 5,240.5 5,205.7
Due after five years through ten years 5,046.9 5,005.2
Due after ten years 4,242.9 4,236.1
--------- ---------
$15,377.3 $15,294.0
========= =========
</TABLE>
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The components of unrealized (losses) gains on securities
available-for-sale, net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998
------ -------
<S> <C> <C>
Gross unrealized (losses) gains $(75.3) $ 540.6
Adjustment to deferred policy acquisition costs 50.9 (116.6)
Deferred federal income tax 8.5 (148.4)
------ -------
$(15.9) $ 275.6
====== =======
</TABLE>
An analysis of the change in gross unrealized (losses) gains on
securities available-for-sale for the years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ----- ------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(607.1) $52.6 $137.5
Equity securities (8.8) 4.2 (2.7)
------- ----- ------
$(615.9) $56.8 $134.8
======= ===== ======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1999,
1998 and 1997 were $513.1 million, $610.5 million and $574.5 million,
respectively. During 1999, gross gains of $10.4 million ($9.0 million
and $9.9 million in 1998 and 1997, respectively) and gross losses of
$28.0 million ($7.6 million and $18.0 million in 1998 and 1997,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
The Company had $15.6 million of real estate investments at December
31, 1999 that were non-income producing the preceding twelve months.
During 1998 the Company had investments of $42.4 million that were
non-income producing, which consisted of $32.7 million of securities
available-for-sale and $9.7 million of real estate.
Real estate is presented at cost less accumulated depreciation of $24.8
million as of December 31, 1999 ($21.5 million as of December 31, 1998)
and valuation allowances of $5.5 million as of December 31, 1999 ($5.4
million as of December 31, 1998).
The recorded investment of mortgage loans on real estate considered to
be impaired was $3.7 million as of both December 31, 1999 and 1998. No
valuation allowance has been recorded for these loans as of December
31, 1999 or 1998. During 1999, the average recorded investment in
impaired mortgage loans on real estate was approximately $3.7 million
($9.1 million in 1998) and there was no interest income recognized on
those loans. Interest income recognized on impaired loans was $0.3
million in 1998 which is equal to interest income recognized using a
cash-basis method of income recognition.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Allowance, beginning of year $42.4 $42.5 $51.0
Additions (reductions) charged to operations 0.7 (0.1) (1.2)
Direct write-downs charged against the allowance -- -- (7.3)
Allowance on acquired mortgage loans 1.3 -- --
----- ----- -----
Allowance, end of year $44.4 $42.4 $42.5
===== ===== =====
</TABLE>
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $1,031.3 $ 982.5 $ 911.6
Equity securities 2.5 0.8 0.8
Mortgage loans on real estate 460.4 458.9 457.7
Real estate 28.8 40.4 42.9
Short-term investments 18.6 17.8 22.7
Other 26.5 30.7 21.0
-------- -------- --------
Total investment income 1,568.1 1,531.1 1,456.7
Less investment expenses 47.3 49.5 47.5
-------- -------- --------
Net investment income $1,520.8 $1,481.6 $1,409.2
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(25.0) $(0.7) $ 3.6
Equity securities 7.4 2.1 2.7
Mortgage loans on real estate (0.6) 3.9 1.6
Real estate and other 6.6 23.1 3.2
------ ----- -----
$(11.6) $28.4 $11.1
====== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $9.1 million as of
December 31, 1999 and $6.5 million as of December 31, 1998 were on
deposit with various regulatory agencies as required by law.
(4) Derivative Financial Instruments
The Company uses derivative financial instruments, principally interest
rate swaps, interest rate futures contracts and foreign currency swaps,
to manage market risk exposures associated with changes in interest
rates and foreign currency exchange rates. Provided they meet specific
criteria, interest rate swaps and futures are considered hedges and are
accounted for under the accrual method and deferral method,
respectively. The Company has no significant derivative positions that
are not considered hedges.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Interest rate swaps are primarily used to convert specific investment
securities and interest bearing policy liabilities from a fixed-rate to
a floating-rate basis. Amounts receivable or payable under these
agreements are recognized as an adjustment to net investment income or
interest credited to policyholder account balances consistent with the
nature of the hedged item. The changes in fair value of the interest
rate swap agreements are not recognized on the balance sheet, except
for interest rate swaps designated as hedges of fixed maturity
securities available-for-sale, for which changes in fair values are
reported in accumulated other comprehensive income.
Interest rate futures contracts are primarily used to hedge the risk of
adverse interest rate changes related to the Company's mortgage loan
commitments and anticipated purchases of fixed rate investments. Gains
and losses are deferred and, at the time of closing, reflected as an
adjustment to the carrying value of the related mortgage loans or
investments. The carrying value adjustments are amortized into net
investment income over the life of the related mortgage loans or
investments.
Foreign currency swaps are used to convert cash flows from specific
policy liabilities and investments denominated in foreign currencies
into U.S. dollars at specified exchange rates. Gains and losses on
foreign currency swaps are recorded in earnings based on the related
spot foreign exchange rate at the end of the reporting period. Gains
and losses on these contracts offset those recorded as a result of
translating the hedged foreign currency denominated liabilities and
investments to U.S. dollars.
The following table summarizes the notional amount of derivative
financial instruments classified as hedges outstanding as of December
31, 1999. Prior to 1999 the Company's activities in derivatives were
not significant.
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
Interest rate swaps
Pay fixed/receive variable rate swaps hedging investments $362.7
Pay variable/receive fixed rate swaps hedging investments $ 28.5
Other contracts hedging investments $ 19.1
Pay variable/receive fixed rate swaps hedging liabilities $577.2
Foreign currency swaps
Hedging foreign currency denominated investments $ 14.8
Hedging foreign currency denominated liabilities $577.2
Interest rate futures contracts $781.6
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(5) Federal Income Tax
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Fixed maturity securities $ 5.3 $ --
Future policy benefits 149.5 207.7
Liabilities in separate accounts 373.6 319.9
Mortgage loans on real estate and real estate 18.5 17.5
Other assets and other liabilities 51.1 58.9
----- ------
Total gross deferred tax assets 598.0 604.0
Less valuation allowance (7.0) (7.0)
----- ------
Net deferred tax assets 591.0 597.0
----- ------
Deferred tax liabilities:
Deferred policy acquisition costs 724.4 568.7
Fixed maturity securities -- 212.2
Deferred tax on realized investment gains 34.7 34.8
Equity securities and other long-term investments 10.8 9.6
Other 26.5 21.6
------ ------
Total gross deferred tax liabilities 796.4 846.9
------ ------
Net deferred tax liability $205.4 $249.9
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1999, 1998 and 1997.
The Company's current federal income tax liability was $104.7 million
and $72.8 million as of December 31, 1999 and 1998, respectively.
Federal income tax expense for the years ended December 31 was as
follows:
(in millions) 1999 1998 1997
------ ------ ------
Currently payable $ 53.6 $186.1 $121.7
Deferred tax expense 147.8 4.3 28.5
------ ------ ------
$201.4 $190.4 $150.2
====== ====== ======
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1999,
1998 and 1997 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
(in millions) Amount % Amount % Amount %
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $212.3 35.0 $195.0 35.0 $150.5 35.0
Tax exempt interest and dividends
received deduction (7.3) (1.2) (4.9) (0.9) -- --
Income tax credits (4.3) (0.7) -- -- -- --
Other, net 0.7 0.1 0.3 0.1 (0.3) (0.1)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $201.4 33.2 $190.4 34.2 $150.2 34.9
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $29.8 million, $173.4 million and
$91.8 million during the years ended December 31, 1999, 1998 and 1997,
respectively.
(6) Comprehensive Income
Comprehensive Income includes net income as well as certain items that
are reported directly within separate components of shareholder's
equity that bypass net income. Currently, the Company's only component
of Other Comprehensive Income is unrealized gains (losses) on
securities available-for-sale. The related before and after federal tax
amounts are as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Unrealized gains (losses) on securities available-for-sale
arising during the period:
Gross $(665.3) $ 58.2 $141.1
Adjustment to deferred policy acquisition costs 167.5 (12.9) (21.8)
Related federal income tax (expense) benefit 171.4 (15.9) (41.7)
------- ------ ------
Net (326.4) 29.4 77.6
------- ------ ------
Reclassification adjustment for net (gains) losses on
securities available-for-sale realized during the
period:
Gross 17.6 (1.4) (6.3)
Related federal income tax expense (benefit) (6.2) 0.5 2.2
------- ------ ------
Net 11.4 (0.9) (4.1)
------- ------ ------
Total Other Comprehensive Income $(315.0) $ 28.5 $ 73.5
======= ====== ======
</TABLE>
(7) Fair Value of Financial Instruments
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices. The carrying amount and fair value for fixed
maturity and equity securities exclude the fair value of
derivatives contracts designated as hedges of fixed maturity and
equity securities.
Mortgage loans on real estate, net: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which is net of certain surrender
charges.
Investment contracts: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Policy reserves on life insurance contracts: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
Commitments to extend credit: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 8.
Futures contracts: The fair value for futures contracts is based
on quoted market prices.
Interest rate and foreign currency swaps: The fair value for
interest rate and foreign currency swaps are calculated with
pricing models using current rate assumptions.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1999 1998
------------------------ -------------------------
Carrying Estimated Carrying Estimated
(in millions) amount fair value amount fair value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $15,294.0 $15,294.0 $14,245.1 $14,245.1
Equity securities 92.9 92.9 128.5 128.5
Mortgage loans on real estate, net 5,786.3 5,745.5 5,328.4 5,527.6
Policy loans 519.6 519.6 464.3 464.3
Short-term investments 416.0 416.0 289.1 289.1
Cash 4.8 4.8 3.4 3.4
Assets held in separate accounts 67,135.1 67,135.1 50,935.8 50,935.8
Liabilities:
Investment contracts (16,977.7) (16,428.6) (15,468.7) (15,158.6)
Policy reserves on life insurance contracts (4,883.9) (4,607.9) (3,914.0) (3,768.9)
Liabilities related to separate accounts (67,135.1) (66,318.7) (50,935.8) (49,926.5)
Derivative financial instruments:
Interest rate swaps hedging assets 4.3 4.3 - -
Interest rate swaps hedging liabilities - (24.2) - -
Foreign currency swaps (11.8) (11.8) - -
Futures contracts 1.3 1.3 (1.3) (1.3)
</TABLE>
(8) Risk Disclosures
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Interest Rate Risk: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
Financial Instruments with Off-Balance-Sheet Risk: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans and derivative financial instruments. These
instruments involve, to varying degrees, elements of credit risk in
excess of amounts recognized on the consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $216.2 million
extending into 2000 were outstanding as of December 31, 1999. The
Company also had $28.0 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1999.
Notional amounts of derivative financial instruments, primarily
interest rate swaps, interest rate futures contracts and foreign
currency swaps, significantly exceed the credit risk associated with
these instruments and represent contractual balances on which
calculations of amounts to be exchanged are based. Credit exposure is
limited to the sum of the aggregate fair value of positions that have
become favorable to NLIC, including accrued interest receivable due
from counterparties. Potential credit losses are minimized through
careful evaluation of counterparty credit standing, selection of
counterparties from a limited group of high quality institutions,
collateral agreements and other contract provisions. At December 31,
1999, NLIC's credit risk from these derivative financial instruments
was $6.1 million.
Significant Concentrations of Credit Risk: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 23% (22% in 1998) in any geographic area and no more than 2% (2%
in 1998) with any one borrower as of December 31, 1999. As of December
31, 1999, 39% (42% in 1998) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Reinsurance: The Company has entered into a reinsurance contract to
cede a portion of its general account individual annuity business to
The Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $143.6 million and $187.9 million as of December 31,
1999 and 1998, respectively. The contract is immaterial to the
Company's results of operations. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder.
Under the terms of the contract, Franklin has established a trust as
collateral for the recoveries. The trust assets are invested in
investment grade securities, the market value of which must at all
times be greater than or equal to 102% of the reinsured reserves.
(9) Pension Plan and Postretirement Benefits Other Than Pensions
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company. Assets of the
Retirement Plan are invested in group annuity contracts of NLIC.
Pension cost (benefit) charged to operations by the Company during the
years ended December 31, 1999, 1998 and 1997 were $(8.3) million, $2.0
million and $7.5 million, respectively. The Company has recorded a
prepaid pension asset of $13.3 million and $5.0 million as of December
31, 1999 and 1998, respectively.
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1999 and 1998 was $49.6 million and $40.1 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1999, 1998 and
1997 was $4.9 million, $4.1 million and $3.0 million, respectively.
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the pension plan as a whole
and the postretirement life and health care benefit plan as a whole as
of December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------ -----------------------
(in millions) 1999 1998 1999 1998
--------------------------------------------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,185.0 $2,033.8 $ 270.1 $ 237.9
Service cost 80.0 87.6 14.2 9.8
Interest cost 109.9 123.4 17.6 15.4
Actuarial (gain) loss (95.0) 123.2 (64.4) 15.6
Plan settlement in 1999/curtailment in 1998 (396.1) (107.2) -- --
Benefits paid (72.4) (75.8) (11.0) (8.6)
Acquired companies -- -- 13.3 --
-------- -------- ------- -------
Benefit obligation at end of year 1,811.4 2,185.0 239.8 270.1
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 2,541.9 2,212.9 77.9 69.2
Actual return on plan assets 161.8 300.7 3.5 5.0
Employer contribution 12.4 104.1 20.9 12.1
Plan settlement (396.1) -- -- --
Benefits paid (72.4) (75.8) (11.0) (8.4)
-------- -------- ------- -------
Fair value of plan assets at end of year 2,247.6 2,541.9 91.3 77.9
-------- -------- ------- -------
Funded status 436.2 356.9 (148.5) (192.2)
Unrecognized prior service cost 28.2 31.5 -- --
Unrecognized net (gains) losses (402.0) (345.7) (46.7) 16.0
Unrecognized net (asset) obligation at transition (7.7) (11.0) 1.1 1.3
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ 54.7 $ 31.7 $(194.1) $(174.9)
======== ======== ======= =======
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- -----------------------
1999 1998 1999 1998
---- ---- ------- ------
<S> <C> <C>
Weighted average discount rate 7.00% 5.50% 7.80% 6.65%
Rate of increase in future compensation levels 5.25% 3.75% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 15.00%
Ultimate rate -- -- 5.50% 8.00%
Uniform declining period -- -- 5 Years 15 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
-------------------------------------------------------------------------------- ----------- ------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 80.0 $ 87.6 $ 77.3
Interest cost on projected benefit obligation 109.9 123.4 118.6
Expected return on plan assets (160.3) (159.0) (139.0)
Recognized gains (9.1) (3.8) --
Amortization of prior service cost 3.2 3.2 3.2
Amortization of unrecognized transition obligation (asset) (1.4) 4.2 4.2
------- ------- --------
$ 22.3 $ 55.6 $ 64.3
======= ======= ========
</TABLE>
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with Nationwide Insurance and employees of WSC ended
participation in the plan. A curtailment gain of $67.1 million resulted
(consisting of a $107.2 million reduction in the projected benefit
obligation, net of the write-off of the $40.1 million remaining
unamortized transition obligation related to WSC). During 1999, the
plan transferred assets to settle its obligation related to WSC
employees . A settlement gain of $32.9 million was recognized.
Basis for measurements, net periodic pension cost for the pension plan:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Weighted average discount rate 6.08% 6.00% 6.50%
Rate of increase in future compensation levels 4.33% 4.25% 4.75%
Expected long-term rate of return on plan assets 7.33% 7.25% 7.25%
</TABLE>
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $14.2 $ 9.8 $ 7.0
Interest cost on accumulated postretirement benefit obligation 17.6 15.4 14.0
Actual return on plan assets (3.5) (5.0) (3.6)
Amortization of unrecognized transition obligation of affiliates 0.6 0.2 0.2
Net amortization and deferral (1.8) 1.2 (0.5)
----- ----- -----
$27.1 $21.6 $17.1
===== ===== =====
</TABLE>
Actuarial assumptions used for the measurement of the NPPBC for the
postretirement benefit plan for 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Discount rate 6.65% 6.70% 7.25%
Long term rate of return on plan
assets, net of tax 7.15% 5.83% 5.89%
Assumed health care cost trend rate:
Initial rate 15.00% 12.00% 11.00%
Ultimate rate 5.50% 6.00% 6.00%
Uniform declining period 5 Years 12 Years 12 Years
</TABLE>
For the postretirement benefit plan as a whole, a one percentage point
increase or decrease in the assumed health care cost trend rate would
have no impact on the APBO as of December 31, 1999 and have no impact
on the NPPBC for the year ended December 31, 1999.
(10) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
and Dividend Restrictions
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
The statutory capital and surplus of NLIC as of December 31, 1999, 1998
and 1997 was $1.35 billion, $1.32 billion and $1.13 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1999, 1998 and 1997 was $276.2 million, $171.0 million and
$111.7 million, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1999
$40.2 million of dividends could be paid by NLIC without prior
approval.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(11) Transactions With Affiliates
During second quarter 1999 the Company entered into a modified
coinsurance arrangement to reinsure the 1999 operating results of an
affiliated company, Employers Life Insurance Company of Wausau (ELOW)
retroactive to January 1, 1999. In September 1999, NFS acquired ELOW
for $120.8 million and immediately merged ELOW into NLIC terminating
the modified coinsurance arrangement. Because ELOW was an affiliate,
the Company accounted for the merger similar to poolings-of-interests;
however, prior period financial statements were not restated due to
immateriality. The reinsurance and merger combined contributed $1.46
million to year to date net income.
The Company has a reinsurance agreement with NMIC whereby all of the
Company's accident and health business is ceded to NMIC on a modified
coinsurance basis. The agreement covers individual accident and health
business for all periods presented and group and franchise accident and
health business since July 1, 1999. Either party may terminate the
agreement on January 1 of any year with prior notice. Prior to July 1,
1999 group and franchise accident and health business and a block of
group life insurance policies were ceded to ELOW under a modified
coinsurance agreement. Under a modified coinsurance agreement, invested
assets are retained by the ceding company and investment earnings are
paid to the reinsurer. Under the terms of the Company's agreements, the
investment risk associated with changes in interest rates is borne by
the reinsurer. Risk of asset default is retained by the Company,
although a fee is paid to the Company for the retention of such risk.
The ceding of risk does not discharge the original insurer from its
primary obligation to the policyholder. The Company believes that the
terms of the modified coinsurance agreements are consistent in all
material respects with what the Company could have obtained with
unaffiliated parties. Revenues ceded to NMIC and ELOW for the years
ended December 31, 1999, 1998 and 1997 were $193.0 million, $216.9
million, and $315.3 million, respectively, while benefits, claims and
expenses ceded were $216.9 million, $259.3 million, and $326.6 million,
respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by such agreement are subject to
allocation among NMIC and such subsidiaries. Measures used to allocate
expenses among companies include individual employee estimates of time
spent, special cost studies, salary expense, commission expense and
other methods agreed to by the participating companies that are within
industry guidelines and practices. In addition, beginning in 1999
Nationwide Services Company, a subsidiary of NMIC, provides computer,
telephone, mail, employee benefits administration, and other services
to NMIC and certain of its direct and indirect subsidiaries, including
the Company, based on specified rates for units of service consumed.
For the years ended December 31, 1999, 1998 and 1997, the Company made
payments to NMIC and Nationwide Services Company totaling $124.1
million, $95.0 million, and $85.8 million, respectively. In addition,
the Company does not believe that expenses recognized under these
agreements are materially different than expenses that would have been
recognized had the Company operated on a stand-alone basis.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1999, 1998 and 1997, the
Company made lease payments to NMIC and its subsidiaries of $9.9
million, $8.0 million and $8.4 million, respectively.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1999 and
1998 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $411.7 million and $248.4 million as
of December 31, 1999 and 1998, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
As part of certain restructuring activities that occurred prior to the
March 1997 IPO, the Company paid a dividend valued at $485.7 million to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of ELOW, National Casualty Company (NCC) and
West Coast Life Insurance Company (WCLIC). Also, on February 24, 1997,
the Company paid a dividend to NFS, and NFS paid an equivalent dividend
to Nationwide Corp., consisting of securities having an aggregate fair
value of $850.0 million. The Company recognized a gain of $14.4 million
on the transfer of securities.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1999 were $56.0
million, $60.0 million and $66.1 million, respectively.
(12) Bank Lines of Credit
NFS, NLIC and NMIC are parties to a $600.0 million revolving credit
facility which provides for a $600.0 million loan over a five year term
on a fully revolving basis with a group of national financial
institutions. The credit facility provides for several and not joint
liability with respect to any amount drawn by any party. NFS, NLIC and
NMIC pay facility and usage fees to the financial institutions to
maintain the revolving credit facility. As of December 31, 1999 the
Company had no amounts outstanding under the agreement.
(13) Contingencies
On October 29, 1998, the Company was named in a lawsuit filed in Ohio
state court related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
On May 3, 1999, the complaint was amended to, among other things, add
Marcus Shore as a second plaintiff. The amended complaint is brought as
a class action on behalf of all persons who purchased individual
deferred annuity contracts or participated in group annuity contracts
sold by the Company and the other named Company affiliates which were
used to fund certain tax-deferred retirement plans. The amended
complaint seeks unspecified compensatory and punitive damages. No class
has been certified. On June 11, 1999, the Company and the other named
defendants filed a motion to dismiss the amended complaint. On March 8,
2000, the court denied the motion to dismiss the amended complaint
filed by the Company and other named defendants. The Company intends to
defend this lawsuit vigorously.
(14) Segment Information
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The Variable Annuities segment consists of annuity contracts that
provide the customer with access to a wide range of investment options,
tax-deferred accumulation of savings, asset protection in the event of
an untimely death, and flexible payout options including a lump sum,
systematic withdrawal or a stream of payments for life. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that generate
a return for the customer at a specified interest rate fixed for a
prescribed period, tax-deferred accumulation of savings, and flexible
payout options including a lump sum, systematic withdrawal or a stream
of payments for life. Such contracts consist of single premium deferred
annuities, flexible premium deferred annuities and single premium
immediate annuities. The Fixed Annuities segment includes the fixed
option under variable annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
revenues and expenses of its investment advisor subsidiary, revenues
and expenses related to group annuity contracts sold to Nationwide
Insurance employee and agent benefit plans and all realized gains and
losses on investments in a Corporate and Other segment.
During 1999 the Company revised the allocation of net investment income
among its Life Insurance and Corporate and Other segments. Also,
certain amounts previously reported as other income were reclassified
to operating expense. Amounts reported for prior periods have been
restated to reflect these changes.
The following table summarizes the financial results of the Company's
business segments for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions) Annuities Annuities Insurance and Other Total
------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1999:
Net investment income (1) $ (41.5) $ 1,134.5 $ 253.1 $ 174.7 $ 1,520.8
Other operating revenue 668.2 43.4 393.0 77.8 1,182.4
--------- --------- -------- -------- ---------
Total operating revenue (2) 626.7 1,177.9 646.1 252.5 2,703.2
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 837.5 130.5 128.3 1,096.3
Amortization of deferred policy
acquisition costs 162.8 49.7 60.1 -- 272.6
Other benefits and expenses 173.6 113.5 334.7 94.4 716.2
--------- --------- -------- -------- ---------
Total expenses 336.4 1,000.7 525.3 222.7 2,085.1
--------- --------- -------- -------- ---------
Operating income before
federal income tax 290.3 177.2 120.8 29.8 618.1
Realized losses on investments -- -- -- (11.6) (11.6)
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 290.3 $ 177.2 $ 120.8 $ 18.2 $ 606.5
========= ========= ======== ======== =========
Assets as of year end $62,599.7 $17,134.8 $6,616.7 $6,324.7 $92,675.9
========= ========= ======== ======== =========
</TABLE>
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of
Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions) Annuities Annuities Insurance and Other Total
------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (31.3) $ 1,116.6 $ 225.6 $ 170.7 $ 1,481.6
Other operating revenue 532.9 35.7 318.5 78.6 965.7
--------- --------- -------- -------- ---------
Total operating revenue (2) 501.6 1,152.3 544.1 249.3 2,447.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 828.6 115.4 125.0 1,069.0
Amortization of deferred policy
acquisition costs 123.9 44.2 46.4 -- 214.5
Other benefits and expenses 159.3 104.2 293.5 78.1 635.1
--------- --------- -------- -------- ---------
Total expenses 283.2 977.0 455.3 203.1 1,918.6
--------- --------- -------- -------- ---------
Operating income before federal
income tax 218.4 175.3 88.8 46.2 528.7
Realized gains on investments -- -- -- 28.4 28.4
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 218.4 $ 175.3 $ 88.8 $ 74.6 $ 557.1
========= ========= ======== ======== =========
Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1
========= ========= ======== ======== =========
1997:
Net investment income (1) $ (26.8) $ 1,098.2 $ 184.9 $ 152.9 $ 1,409.2
Other operating revenue 413.9 43.2 283.4 56.6 797.1
--------- --------- -------- -------- ---------
Total operating revenue (2) 387.1 1,141.4 468.3 209.5 2,206.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 823.4 78.5 114.7 1,016.6
Amortization of deferred policy
acquisition costs 87.8 39.8 39.6 -- 167.2
Benefits and expenses 148.4 108.7 283.5 63.1 603.7
--------- --------- -------- -------- ---------
Total expenses 236.2 971.9 401.6 177.8 1,787.5
--------- --------- -------- -------- ---------
Operating income before federal
income tax 150.9 169.5 66.7 31.7 418.8
Realized gains on investments -- -- -- 11.1 11.1
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 150.9 $ 169.5 $ 66.7 $ 42.8 $ 429.9
========= ========= ======== ======== =========
Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7
========= ========= ======== ======== =========
</TABLE>
----------
(1) The Company's method of allocating net investment income results in
a charge (negative net investment income) to the Variable Annuities
segment which is recognized in the Corporate and Other segment. The
charge relates to non-invested assets which support this segment on
a statutory basis.
(2) Excludes realized gains and losses on investments.
The Company has no significant revenue from customers located outside
of the United States nor does the Company have any significant
long-lived assets located outside the United States.
<PAGE> 70
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment 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 96 pages.
Representations and Undertakings.
Independent Auditors' Consent.
Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C>
1. Power of Attorney dated July 26, 2000 Attached hereto.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for
authorizing the establishment of the Registrant, the Nationwide VLI Separate Account, and hereby
adopted. incorporated herein by reference.
3. Distribution Contracts Included with Post-Effective Amendment No. 19 and hereby
incorporated herein by reference
4. Form of Security Included with Post-Effective Amendment No. 8 and hereby
incorporated herein by reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account, and hereby
incorporated herein by reference.
6. Application form of Security Included with Post-Effective Amendment No. 8 and hereby
incorporated herein by reference.
7. Opinion of Counsel Included with Post-Effective Amendment No. 8 and hereby
incorporated herein by reference.
</TABLE>
<PAGE> 71
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and Nationwide hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940 (the "1940 Act"). The Registrant and Nationwide elect to be
governed by Rule 6e-3(T)(I)(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
Nationwide under the policies. Nationwide represents that the risk charges are
within the range of industry practice for comparable policies and reasonable in
relation to all of the risks assumed by the issuer under the policies. Actuarial
memoranda demonstrating the reasonableness of these charges are maintained by
Nationwide, and will be made available to the SEC on request.
(c) Nationwide has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available to the
SEC on request a memorandum setting forth the basis for this representation.
(d) Nationwide represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of Nationwide,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the SEC such
supplementary and periodic information, documents, and reports as may be
prescribed by any rule or regulation of the SEC heretofore or hereafter duly
adopted pursuant to authority conferred in that section.
(f) The fees and charges deducted under the policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Nationwide.
<PAGE> 72
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 LLP
Columbus, Ohio
April 28, 2000
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
NATIONWIDE VLI SEPARATE ACCOUNT, certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 20 and has duly caused this Post-Effective Amendment 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
20th day of September, 2000.
NATIONWIDE VLI SEPARATE ACCOUNT-4
-----------------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE INSURANCE COMPANY
-----------------------------------------
Attest: (Depositor)
By: /s/ GLENN W. SODEN By: /s/ STEVEN SAVINI
------------------------------- --------------------------------------
Glenn W. Soden Steven Savini, Esq.
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 20 has been signed below by the following persons in the
capacities indicated on the 20th day of September, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
----------------------------------------
Lewis J. Alphin
A. I. BELL Director
----------------------------------------
A. I. Bell
NANCY C. BREIT Director
----------------------------------------
Nancy C. Breit
KENNETH D. DAVIS Director
----------------------------------------
Kenneth D. Davis
KEITH W. ECKEL Director
----------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
----------------------------------------
Willard J. Engel
FRED C. FINNEY Director
----------------------------------------
Fred C. Finney
JOSEPH J. GASPER President and Chief Operating
---------------------------------------- Officer and Director
Joseph J. Gasper
W.G. JURGENSEN Chief Executive Officer Elect
---------------------------------------- and Director
W.G. Jurgensen
DIMON R. MCFERSON Chairman and Chief Executive
---------------------------------------- Officer and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and
---------------------------------------- Director
David O. Miller
YVONNE L. MONTGOMERY Director
----------------------------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President and Chief
---------------------------------------- Financial Officer
Robert A. Oakley
RALPH M. PAIGE Director
----------------------------------------
Ralph M. Paige
JAMES F. PATTERSON Director
----------------------------------------
James F. Patterson
ARDEN L. SHISLER Director By /s/ STEVEN SAVINI
---------------------------------------- --------------------------------------
Arden L. Shisler Steven Savini
ROBERT L. STEWART Director Attorney-in-Fact
----------------------------------------
Robert L. Stewart
</TABLE>
