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Registration No. 33-35698
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REGISTRATION STATEMENT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 11
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------
NATIONWIDE VLI SEPARATE ACCOUNT
(Exact Name of Trust)
-------------------
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(Exact Name and Address of Depositor and Registrant)
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(Name and address of Agent for Service)
-------------------
This Post-Effective Amendment amends the Registration Statement in respect of
the Prospectus and the Financial Statements.
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 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
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities being registered: Multiple Payment Variable Life Insurance
Policies.
Approximate date of proposed offering: Continuously on and after May 1, 2000.
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
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<TABLE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<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
38..............................................................................Distribution of The Policies
39..............................................................................Distribution of The Policies
40..............................................................................Not Applicable
41(a)...........................................................................Distribution of The Policies
42..............................................................................Not Applicable
43..............................................................................Not Applicable
</TABLE>
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<TABLE>
<S> <C>
44..............................................................................How The Cash Value Varies
45..............................................................................Not Applicable
46..............................................................................How The Cash Value Varies
47..............................................................................Not Applicable
48..............................................................................Custodian of Assets
49..............................................................................Not Applicable
50..............................................................................Not Applicable
51..............................................................................Summary of The Policies;
Information About The Policies
52..............................................................................Substitution of Securities
53..............................................................................Taxation of The Company
54..............................................................................Not Applicable
55..............................................................................Not Applicable
56..............................................................................Not Applicable
57..............................................................................Not Applicable
58..............................................................................Not Applicable
59..............................................................................Financial Statements
</TABLE>
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NATIONWIDE LIFE INSURANCE COMPANY
Multiple Payment 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
Material incorporated by reference to this prospectus can be found on the SEC
website at:
WWW.SEC.GOV
THIS POLICY IS NOT:
o A BANK DEPOSIT;
o ENDORSED BY A BANK OR GOVERNMENT AGENCY;
o FEDERALLY INSURED; OR
o AVAILABLE IN EVERY STATE.
The life insurance policies offered by this prospectus are variable life
insurance policies. For policies offered 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.
The purpose of this policy is to provide life insurance protection for the
beneficiary named in the policy. No claim is made that the policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.
The death benefit and cash value of this policy may vary to reflect the
experience of the Nationwide VLI Separate Account or the fixed account,
depending on how premium payments are invested.
Investors assume certain risks when investing in the policies, including the
risk of losing money.
Nationwide guarantees the death benefit for as long as the policy is in force.
The cash surrender value is not guaranteed. The policy will lapse if the cash
surrender value is insufficient to cover policy charges. During the first five
policy years, the total premiums less any policy indebtedness must be greater
than or equal to the minimum premium requirement in order to keep the policy in
force.
Benefits described in this prospectus may not be available in every jurisdiction
- - refer to your policy for specific benefit information.
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This prospectus is not an offering in any jurisdiction where such offering may
not lawfully be made. No person is authorized to make any representations in
connection with this offering other than those contained in this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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GLOSSARY OF SPECIAL TERMS
ATTAINED AGE- The insured's age on the policy date, plus the number of full
years since the policy date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the cash
value of the variable account.
FIXED ACCOUNT- An investment option which is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the policy
under guaranteed mortality and expense charges with an interest rate of 4%. It
is calculated pursuant to Rule 6e-3(t) of the Investment Company Act of 1940.
GUIDELINE SINGLE PREMIUM- The single premium amount required to mature the
policy under guaranteed mortality and expense charges, and an interest rate of
6%. It is calculated pursuant to the Internal Revenue Code.
MATURITY DATE- The policy anniversary on or next following the insured's 95th
birthday.
NATIONWIDE- Nationwide Life Insurance Company.
NET AMOUNT AT RISK- Net amount at risk is the death benefit minus the cash
value. On a monthly anniversary day, the net amount at risk is the death benefit
minus the cash value prior to subtraction of the base policy cost of insurance
charge.
NET PREMIUMS- Net premiums are equal to the actual premiums minus the percent of
premium charges. The percent of premium charges are shown on the policy data
page.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units are separately maintained.
UNSCHEDULED PREMIUM- Additional premium payments which may be allowed under
certain conditions.
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.
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TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS..........................
SUMMARY OF POLICY EXPENSES.........................
UNDERLYING MUTUAL FUND ANNUAL EXPENSES.............
SYNOPSIS OF THE POLICIES...........................
NATIONWIDE LIFE INSURANCE COMPANY..................
INVESTING IN THE POLICY............................
The Variable Account and Underlying Mutual Funds
The Fixed Account
INFORMATION ABOUT THE POLICIES.....................
Minimum Requirements for Policy Issuance
Premium Payments
Pricing
POLICY CHARGES.....................................
Sales Load
Tax Expense Charge
Surrender Charges
Monthly Cost of Insurance
Monthly Administrative Charge
Mortality and Expense Risk Charge
Income Tax
SURRENDERING THE POLICY FOR CASH...................
Surrender (Redemption)
Cash Surrender Value
Partial Surrenders
Income Tax Withholding
VARIATION IN CASH VALUE............................
POLICY PROVISIONS..................................
Policy Owner
Beneficiary
Changes in Existing Insurance Coverage
OPERATION OF THE POLICY............................
Allocation of Net Premium and Cash Value
How the Investment Experience is Determined
Net Investment Factor
Determining the Cash Value
Transfers
RIGHT TO REVOKE....................................
POLICY LOANS.......................................
Taking a Policy Loan
Effect on Investment Performance
Interest
Effect on Death Benefit and Cash Value
Repayment
ASSIGNMENT.........................................
POLICY OWNER SERVICES..............................
Dollar Cost Averaging
DEATH BENEFIT INFORMATION..........................
Calculation of the Death Benefit
Changes in the Death Benefit Option
Proceeds Payable on Death
Incontestability
Error in Age or Sex
Suicide
Maturity Proceeds
EXCHANGE RIGHTS....................................
GRACE PERIOD ......................................
First Five Policy Years
Policy Years Six and After
All Policy Years
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.......................
ADDITIONAL INFORMATION ABOUT
NATIONWIDE....................................
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APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL
FUNDS.........................................
APPENDIX B: ILLUSTRATION OF SURRENDER CHARGES......
APPENDIX C: ILLUSTRATIONS OF CASH VALUES, CASH
SURRENDER VALUES, AND DEATH BENEFITS..........
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SUMMARY OF POLICY EXPENSES
Nationwide deducts certain charges from the policy. Charges are made for
administrative and sales expenses, tax expenses, providing life insurance
protection and assuming the mortality and expense risks.
Nationwide deducts a sales load and a premium expense charge for state premium
taxes from premium payments. The sales load is guaranteed never to exceed 3.5%
of each premium payment. The charge for state premium tax is approximately 2.5%
of premiums for all states (see "Sales Load" and "Premium Expense Charge").
Nationwide deducts a mortality and expense risk charge from the sub-accounts of
the variable accounts. The mortality and expense risk charge is deducted daily
and is equal to an annual rate of 0.80% of the daily net assets of the variable
account (see "Mortality and Expense Risk Charge").
Nationwide deducts the following charges from the cash value of the policy:
o monthly cost of insurance charge;
o monthly cost of any additional benefits provided by riders to the
policy; and
o administrative expense charge(1).
(1)Currently, the administrative expense charge is $5 per month. It is
guaranteed not to exceed $7.50 per month.
For policies which are surrendered during the first nine policy years,
Nationwide deducts a surrender charge (see "Surrender Charges").
For more information about any policy charge, see "Policy Charges" in this
prospectus.
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<TABLE>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(as a percentage of underlying mutual fund net assets, after expense reimbursement)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
MANAGEMENT OTHER 12B-1 TOTAL MUTUAL
FEES EXPENSES FEES FUND EXPENSES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen Life Investment Trust Asset Allocation
Portfolio 0.33% 0.27% 0.00% 0.60%
- -------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Domestic Income
Portfolio 0.01% 0.60% 0.00% 0.61%
- -------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Emerging Growth
Portfolio 0.67% 0.18% 0.00% 0.85%
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Van Kampen Life Investment Trust Enterprise
Portfolio 0.48% 0.12% 0.00% 0.60%
- -------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Global Equity-
Portfolio 0.00% 1.20% 0.00% 1.20%
- -------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Government
Portfolio 0.36% 0.24% 0.00% 0.60%
- -------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Money Market
Portfolio 0.19% 0.43% 0.00% 0.62%
- -------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust-Morgan Stanley
Real Estate Securities Portfolio 0.97% 0.13% 0.00% 1.10%
- -------------------------------------------------------------------------------------------------------------
</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>
- -------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen Life Investment Trust Asset Allocation
Portfolio 0.50% 0.27% 0.00% 0.77%
- -------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Domestic Income
Portfolio 0.50% 0.60% 0.00% 1.10%
- -------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Emerging Growth
Portfolio 0.70% 0.18% 0.00% 0.88%
- -------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Enterprise Portfolio 0.50% 0.12% 0.00% 0.62%
- -------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Global Equity-
Portfolio 1.00% 3.84% 0.00% 4.84%
- -------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Government Portfolio 0.50% 0.24% 0.00% 0.74%
- -------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Money Market Portfolio 0.50% 0.43% 0.00% 0.93%
- -------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust-Morgan Stanley Real
Estate Securities Portfolio 1.00% 0.13% 0.00% 1.13%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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SYNOPSIS OF THE POLICIES
The policy offered by this prospectus provides for life insurance coverage on
the insured. The death benefit and cash value of the policy may increase or
decrease to reflect the performance of the investment options chosen by the
policy owner (see "Death Benefit Information").
CASH SURRENDER VALUE
If the policy is terminated during the insured's lifetime, a cash surrender
value may be payable under the policy. However, there is no guaranteed cash
surrender value (see "Variation in Cash Value "). The policy will lapse without
value if the cash surrender value falls below what is needed to cover policy
charges. During the first five policy years, the total premium payments less any
policy indebtedness must be greater than or equal to the minimum premium
requirement in order to keep the policy in force. The minimum premium is equal
to the monthly minimum premium multiplied by the number of completed policy
months. The minimum monthly premium is shown on the policy data page.
PREMIUMS
The minimum initial premium for which a policy may be issued is $2,000.
The policies are designed to generally permit the payment of the guideline
single premium in five annual installments for death benefit Option 1, and five
annual guideline level premiums under death benefit Option 2 (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.
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.
GENERAL DISTRIBUTOR
The policies are distributed by the general distributor, Van Kampen Funds, Inc.
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
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<PAGE> 12
separate account is registered with the SEC as a unit investment trust pursuant
to the Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise
the management of Nationwide or the variable account.
Income, gains, and losses credited to, or charged against the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and 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.
The investment advisers of the underlying mutual funds may manage publicly
traded mutual funds with similar names and investment objectives. However the
underlying mutual funds are NOT directly related to any publicly traded mutual
fund. Policy owners should not compare the performance of a publicly traded fund
with the performance of underlying mutual funds participating in the variable
account. The performance of the underlying mutual funds could differ
substantially from that of any publicly traded funds.
Changes of Investment Policy
Nationwide may materially change the investment policy of the variable account.
Nationwide must inform policy owners 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 prior to
the shareholder meeting. Notification will contain proxy materials, and a form
to return to Nationwide with voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
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<PAGE> 13
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 contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
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. Premium payments will be allocated
to the fixed account by election of the policy owner. Under exemptive and
exclusionary provisions, Nationwide's general account has not been registered
under the Securities Act of 1933 and has not been registered as an investment
company under the Investment Company Act of 1940. Accordingly, neither the
general account nor any interest therein is subject to the provisions of these
Acts. Nationwide has been advised that the staff of the SEC has not reviewed the
disclosures in this prospectus relating to the fixed account. Disclosures
regarding the general account may, however, be subject to certain generally
applicable provisions of the federal securities laws concerning the accuracy and
completeness of statements made in prospectuses.
The investment income earned by the fixed account will be allocated to the
policies at varying rate(s) set by Nationwide. The guaranteed rate for any
premium payment will be effective for not less than twelve months. Nationwide
guarantees that the rate will not be less than 4.0% per year.
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 premium payments deposited to the contract which are allocated to the fixed
account may receive a different rate if interest than amounts transferred from
the sub-accounts to the fixed account and amounts maturing in the fixed account.
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<PAGE> 14
INFORMATION ABOUT THE POLICIES
MINIMUM REQUIREMENTS FOR POLICY ISSUANCE
The policies are designed to generally permit the payment of the guideline
single premium in five annual installments under death benefit Option 1 and five
annual guideline level premiums under death benefit Option 2. At issue, the
policy owner selects a scheduled premium level. This scheduled premium is used
to determine the initial specified amount. The minimum scheduled premium is
$2,000.
Policies may be issued to insureds with issue ages 75 or younger. Before issuing
any policy, Nationwide requires satisfactory evidence of insurability which may
include a medical examination.
PREMIUM PAYMENTS
Each premium payment must be at least equal to the monthly minimum premium. The
initial premium is payable in full at Nationwide's home office.
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 During the first five policy years, the total premium payments less any
policy indebtedness must be greater than or equal to the minimum
premium requirement in order to keep the policy in force. (The monthly
minimum premium is shown in the policy data page.)
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.
Nationwide will send scheduled premium payment reminder notices to policy owners
according to the premium mode shown on the policy data page.
PRICING
Premiums will not be priced when the New York Stock Exchange is closed or on the
following nationally recognized holidays:
o New Year's Day o Independence Day
o Martin Luther King, Jr. Day o Labor Day
o Presidents' Day o Thanksgiving
o Good Friday o Christmas
o Memorial Day
Nationwide also will not price purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities
held in the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for
the protection of security holders.
Rules and regulations of the SEC will govern as to when conditions described in
(2) and (3) exist.
If Nationwide is closed on days when the New York Stock Exchange is open,
contract value may be affected since the policy owner would not have access to
their account.
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<PAGE> 15
POLICY CHARGES
SALES LOAD
Nationwide deducts a sales load from each premium payment received. It is
guaranteed never to exceed 3.5% of each premium payment and may be reduced by
Nationwide at its sole discretion.
The total sales load actually deducted from any policy will be equal to the sum
of this front-end sales load plus any sales surrender charge.
TAX EXPENSE CHARGE
A charge equal to 2.5% is deducted from all premium payments when the premium
payments are received in order to compensate Nationwide for certain
administrative expenses which are incurred by Nationwide for taxes, which
include premium or other taxes imposed by various state and local jurisdictions,
as well as federal taxes imposed under Section 848 of the Internal Revenue Code.
The amount charged may be more or less than the amount actually assessed by the
state in which a particular policy owner lives. Nationwide does not expect to
make a profit from this charge.
SURRENDER CHARGES
Nationwide deducts a surrender charge from the cash value of any policy
surrendered during the first nine years. The initial surrender charge varies by
issue age, sex, and underwriting classification. The surrender charge is
calculated based on the initial specified amount.
The following table illustrates the initial surrender charge per $1,000 of
initial specified amount for policies which are issued on a standard basis (see
Appendix B for specific examples). Special guaranteed maximum surrender charges
apply in Pennsylvania (see Appendix B).
----------- ----------- ----------- ------------ -------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
----------- ----------- ----------- ------------ -------------
25 $5.878 $5.537 $6.680 $5.945
----------- ----------- ----------- ------------ -------------
35 7.260 6.712 8.559 7.373
----------- ----------- ----------- ------------ -------------
45 11.159 10.160 13.244 11.151
----------- ----------- ----------- ------------ -------------
55 15.275 13.375 18.373 14.686
----------- ----------- ----------- ------------ -------------
65 23.821 20.553 27.943 22.165
----------- ----------- ----------- ------------ -------------
The surrender charge is comprised of two components:
o an underwriting component; and
o sales component.
The underwriting component varies by issue age in the following manner:
- -------------------------------------------------------------
ISSUE CHARGE PER $1,000 OF
AGE INITIAL SPECIFIED AMOUNT
- -------------------------------------------------------------
0-39 $3.50
- -------------------------------------------------------------
40-59 $5.00
- -------------------------------------------------------------
60-75 $6.50
- -------------------------------------------------------------
The underwriting component is designed to cover the administrative expenses
associated with underwriting and issuing policies, including the costs of:
o processing applications;
o conducting medical exams;
o determining insurability and the insured's underwriting class; and
o establishing policy records.
The remainder of the surrender charge that is not attributable to the
underwriting component represents the sales component. The purpose of the sales
component is to reimburse Nationwide for some of the expenses incurred in the
distribution of the policies.
The surrender charge may be insufficient to recover certain expenses related to
the sale of the policies. Unrecovered expenses are borne by Nationwide's general
assets which may include profits, if any, from the mortality and expense risk
charge. Additional premiums and/or income earned on assets in the variable
account have no effect on these charges.
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<PAGE> 16
REDUCTIONS TO SURRENDER CHARGES
Surrender charges are reduced in subsequent policy years as follows:
- ---------------------- --------------------------------
COMPLETED POLICY SURRENDER CHARGE AS A % OF
YEARS INITIAL SURRENDER CHARGES
- ---------------------- --------------------------------
0 100%
- ---------------------- --------------------------------
1 100%
- ---------------------- --------------------------------
2 100%
- ---------------------- --------------------------------
3 95%
- ---------------------- --------------------------------
4 90%
- ---------------------- --------------------------------
5 85%
- ---------------------- --------------------------------
6 80%
- ---------------------- --------------------------------
7 75%
- ---------------------- --------------------------------
8 50%
- ---------------------- --------------------------------
9+ 0%
- ---------------------- --------------------------------
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. This deduction is
charged proportionately to the cash value in each sub-account and the fixed
account.
If death benefit Option 1 is in effect and there have been increases in the
specified amount, then the cash value will first be considered a part of the
initial specified amount. If the cash value exceeds the initial specified
amount, it will then be considered a part of the additional increases in
specified amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the policy.
Guaranteed cost of insurance rates for policies issued on a simplified basis are
based on the 1980 Commissioner's Extended Term Mortality Table, Age Last
Birthday (1980 CET). Guaranteed cost of insurance rates for policies issued on a
preferred basis are based on the 1980 Commissioner's Standard Ordinary Mortality
Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for
policies issued on a substandard basis are based on appropriate percentage
multiples of the 1980 CSO. These mortality tables are sex distinct. In addition,
separate mortality tables will be used for standard and non-tobacco.
For policies issued in Texas, guaranteed cost of insurance rates for
standard-simplified issues ("special class-simplified" in Texas) are based on
130% of the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO).
The rates for policies issued on a simplified or preferred basis will not exceed
the rates in the appropriate table. The cost of insurance rate per $1,000 of net
amount at risk is less for policies issued on a preferred basis as compared to a
simplified basis.
The rate class of an insured may affect the cost of insurance rate. 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.
MONTHLY ADMINISTRATIVE CHARGE
Nationwide deducts an administrative expense charge proportionately to the cash
value in each sub-account and the fixed account on a monthly basis. This charge
reimburses Nationwide for certain actual administrative expenses. Nationwide
does not expect to recover any amount in excess of aggregate maintenance
expenses from this charge.
Currently, this charge is $5 per month. Nationwide may, at its sole discretion,
increase this charge. However, Nationwide guarantees that this charge will never
exceed $7.50 per month.
MORTALITY AND EXPENSE RISK CHARGE
The mortality risk assumed under the policies is that the insured may not live
as long as
13
<PAGE> 17
expected. The expense risk assumed is that the actual expenses incurred in
issuing and administering the policies may be greater than expected. In
addition, Nationwide assumes risks associated with the non-recovery of policy
issue, underwriting and other administrative expenses due to policies that lapse
or are surrendered in the early policy years. Nationwide deducts the mortality
and expense risk charge from the variable account on a daily basis. Mortality
and expense risk deductions will be charged proportionally to the cash value in
each sub-account. The mortality and expense risk charge compensates Nationwide
for assuming risks associated with mortality and administrative costs. The
charge is equivalent to an annual effective rate of 0.80% of the daily net
assets of the variable account. Policy owners receive quarterly and annual
statements, advising policy owners of the cancellation of accumulation units for
mortality and expense risk charges.
These charges are all guaranteed. Nationwide may realize a profit from these
charges.
INCOME TAX
No charge is assessed to policy owners for income taxes incurred by Nationwide
as a result of the operations of the sub-accounts. However, Nationwide reserves
the right to assess a charge for income taxes against the variable account if
income taxes are incurred.
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:
1) the minimum partial surrender is $500;
2) the maximum partial surrender in any policy year is limited to
10% of the total premium payments; and
3) after the partial surrender, the policy continues to qualify
as life insurance.
When a partial surrender is made, the cash value is reduced by the amount of the
partial surrender. Under death benefit Option 1, the specified amount is reduced
by the amount of the partial surrender, unless the death benefit is based on the
applicable percentage of cash value. In such a case, a partial surrender will
decrease the specified amount by the amount by which the partial surrender
exceeds the difference between the death benefit and specified amount.
Partial surrender amounts must be first deducted from the values in the
sub-accounts. Partial surrenders will be deducted from the fixed account only to
the extent that insufficient values are available in the sub-accounts.
14
<PAGE> 18
Surrender charges will be waived for any partial surrenders which satisfy the
above conditions.
Certain partial surrenders may result in currently taxable income and tax
penalties (see "Tax Matters").
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 premiums applied since the previous
valuation date, minus any partial surrenders, plus or minus any investment
results, and less any policy charges.
There is no guaranteed cash value. The cash value will vary with the investment
experience of the variable account and/or the daily crediting of interest in the
fixed account and policy loan account depending on the allocation of cash value
by the policy owner.
POLICY PROVISIONS
POLICY OWNER
While the insured is living, all rights in this policy are vested in the policy
owner named in the application or as subsequently changed, subject to
assignment, if any.
The policy owner may name a contingent policy owner or a new policy owner while
the insured is living. Any change must be in a written form satisfactory to
Nationwide and recorded at Nationwide's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by Nationwide before it was recorded. Nationwide may require that
the policy be submitted for endorsement before making a change.
If the policy owner is other than the insured, names no contingent policy owner,
and dies before the insured, the policy owner's rights in this policy belong to
the policy owner's estate.
BENEFICIARY
The beneficiary(ies) will be as named in the application or as subsequently
changed, subject to assignment, if any.
The policy owner may name a new beneficiary(ies) 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.
15
<PAGE> 19
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 fifth policy year, the policy owner may request an increase to the
specified amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the cash surrender value is sufficient to continue the policy
in force for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the monthly anniversary day
on or next following the date Nationwide approves the supplemental application.
Nationwide reserves the right to limit the number of specified amount increases
to one each policy year.
Specified Amount Decreases
After the fifth policy year, the policy owner may also request a decrease to the
specified amount. Any approved decrease will be effective on the monthly
anniversary day on or next following the date Nationwide receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
Nationwide reserves the right to limit the number of specified amount decreases
to one each policy year. Nationwide will refuse a request for a decrease which
would:
1. reduce the specified amount to less than $10,000; or
2. disqualify the policy as a contract for life insurance.
OPERATION OF THE POLICY
ALLOCATION OF NET PREMIUM AND CASH VALUE
Nationwide allocates premium payments to sub-accounts or the fixed account, as
instructed by policy owners. Shares of the underlying mutual funds allocated to
the sub-accounts are purchased at net asset value, than converted into
accumulation units. All percentage allocations must be in whole numbers, and
must be at least 1%. The sum of allocations must equal 100%. Future premium
allocations may be changed by giving written notice to Nationwide.
Premiums allocated to a sub-account on the application are allocated to the Van
Kampen Life Investment Trust - Money Market Portfolio ("Money Market Portfolio")
during the period a policy owner may cancel the policy, unless specific states
require premiums to be allocated to the fixed account. At the expiration of the
cancellation period, these premiums are used to purchase shares of the
underlying mutual funds specified by the policy owner at net asset value for the
respective sub-account(s).
The policy owner may change the allocation of net premiums or may transfer cash
value from one sub-account to another. Changes are subject to the terms and
conditions imposed by each underlying mutual fund and those found in this
prospectus. 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
16
<PAGE> 20
accumulation unit value for each sub-account for the immediately preceding
valuation period by the net investment factor for the sub-account for the
subsequent valuation period. Though the number of accumulation units will not
change as a result of investment experience, the value of an accumulation unit
may increase or decrease from valuation period to valuation period.
NET INVESTMENT FACTOR
The net investment factor for any valuation period is determined by dividing (a)
by (b) 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;
and
(c) is a factor representing the daily mortality and expense risk charge
deducted from the variable account. This factor is equal to an annual
rate of 0.80% of the daily net assets of the variable account.
The net investment factor may be greater or less than one; therefore, the value
of an accumulation unit may increase or decrease. It should be noted that
changes in the net investment factor may not be directly proportional to changes
in the net asset value of underlying mutual fund shares, because of the
deduction for mortality and expense risk charge, and any charge or credit for
tax reserves.
DETERMINING THE CASH VALUE
The cash value is the sum of the value of all variable account accumulation
units attributable to the policy plus amounts credited to the fixed account and
the policy loan account.
The number of accumulation units credited to each sub-account is determined by
dividing the net amount allocated to the sub-account by the accumulation unit
value for the sub-account for the valuation period during which the premium is
received by Nationwide. In the event part or all of the cash value is
surrendered or charges or deductions are made against the cash value, an
appropriate number of accumulation units from the variable account and an
appropriate amount from the fixed account will be deducted in the same
proportion that the policy owner's interest in the variable account and the
fixed account bears to the total cash value.
The cash value in the fixed account and the policy loan account is credited with
interest daily at an effective annual rate which Nationwide periodically
declares. The annual effective rate will never be less than 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 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 the amount transferred from
the fixed account each policy year (subject to state restrictions).
Policy owners who have entered into Dollar Cost Averaging agreements
with Nationwide may transfer under the terms of that agreement.
o Nationwide reserves the right to restrict the amount transferred to the
fixed account to 25% of the cash value.
17
<PAGE> 21
o Transfers from the fixed account must be made within 30 days after the
end of an interest rate guarantee period; and
o Transfers among the sub-accounts are limited to once per valuation
period.
Transfer Requests
Nationwide will accept transfer requests in writing or in those states allow,
over the telephone. Nationwide will use reasonable procedures to confirm that
telephone instructions are genuine and will not be liable for following
instructions it reasonably determined to be genuine. Nationwide may withdraw the
telephone exchange privilege upon 30 days written notice to policy owners.
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
After the first policy year, the policy owner may take a policy loan using the
policy as security. Maximum policy indebtedness is limited to 90% of the cash
surrender value in the sub-accounts and 100% of the cash surrender value in the
fixed account less interest due on the next policy anniversary. Maximum policy
indebtedness in Texas is limited to 90% of the cash surrender value in the
variable account sub-accounts and 100% of the cash surrender value in the fixed
account, less interest due on the next policy anniversary.
Nationwide will not grant a loan for an amount less than $1,000 ($200 in
Connecticut, $500 in New York). Policy indebtedness will be deducted from the
death benefit, cash surrender value upon surrender, or the maturity proceeds.
Any request for a policy loan must be in written form. The request must be
signed 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
The annual effective loan interest rate charged on policy loans is 6.0%.
On a current basis, the cash value in the policy loan account is credited with
an annual effective rate of 5.1%. This rate is guaranteed never to be lower than
5.1%. Nationwide may change the current interest crediting rate on the policy
loans at any time at its sole discretion.
Amounts transferred to the policy loan account will earn interest daily from the
date of transfer. The earned interest is transferred from the
18
<PAGE> 22
policy loan account to a variable account or the fixed account on each policy
anniversary, or at the time of loan repayment. It will be allocated according to
the fund allocation factors in effect at the time of the transfer.
Interest is charged daily and is payable at the end of each policy year or at
the time of loan repayment. Unpaid interest will be added to the existing policy
indebtedness as of the due date and will be charged interest at the same rate as
the rest of the indebtedness.
Whenever the total policy indebtedness exceeds the cash value less any surrender
charges, 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 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A policy loan, whether or not repaid, will have a permanent effect on the death
benefit and cash value because the investment results of the variable account or
the fixed account will apply only to the non-loaned portion of the cash value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the variable account or the fixed account
while the loan is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the indebtedness may be repaid at any time while the policy is in
force during the insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the 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 Connecticut
and New York). Nationwide reserves the right to require that any loan repayments
resulting from policy loans transferred from the fixed account must be first
allocated to the fixed account.
ASSIGNMENT
While the insured is living, the policy owner may assign his or her rights in
the policy. The assignment must be in writing, signed by the policy owner and
recorded at Nationwide's home office. Prior to being recorded, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted for recording, nor is Nationwide
responsible for the sufficiency or validity of any assignment. Assignments are
subject to any indebtedness owed to Nationwide before being recorded.
POLICY OWNER SERVICES
DOLLAR COST AVERAGING
Dollar cost averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from the fixed account and/or certain sub-accounts into other
sub-accounts. Nationwide does not guarantee that this program will result in
profit or protect policy owners from loss.
Policy owners direct Nationwide to automatically transfer specified amounts from
the fixed account and the 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.
19
<PAGE> 23
DEATH BENEFIT INFORMATION
CALCULATION OF THE DEATH BENEFIT
At issue, the policy owner selects a desired scheduled premium level. The
scheduled premium is used to determine the initial specified amount.
Under death benefit Option 1, the initial specified amount is determined by
treating the scheduled premium as 20% of the Guideline Single Premium. Under
death benefit Option 2, the initial specified amount is determined by treating
the scheduled premium as the Guideline Level Premium. For either death benefit
option, the initial specified amount will be set at a level such that payment of
the scheduled premiums will not result in the policy being classified as a
modified endowment contract (see "Tax Matters").
The following tables illustrate the initial specified amount that results from a
$2,000 scheduled premium payment.
MALE NON-TOBACCO
- ------------------------------------------------------
ISSUE AGE OPTION 1 OPTION 2
- ------------------------------------------------------
30 $85,779 $75,378
- ------------------------------------------------------
35 $68,165 $61,559
- ------------------------------------------------------
40 $54,111 $50,082
- ------------------------------------------------------
45 $43,165 $40,605
- ------------------------------------------------------
50 $34,675 $32,791
- ------------------------------------------------------
55 $28,136 $26,852
- ------------------------------------------------------
60 $23,176 $22,867
- ------------------------------------------------------
65 $19,474 $19,474
- ------------------------------------------------------
FEMALE NON-TOBACCO
- ------------------------------------------------------
ISSUE AGE OPTION 1 OPTION 2
- ------------------------------------------------------
30 $99,541 $93,577
- ------------------------------------------------------
35 $79,212 $76,497
- ------------------------------------------------------
40 $63,070 $62,320
- ------------------------------------------------------
45 $50,599 $50,633
- ------------------------------------------------------
50 $40,824 $40,958
- ------------------------------------------------------
55 $33,171 $32,949
- ------------------------------------------------------
60 $27,141 $26,301
- ------------------------------------------------------
65 $22,369 $22,168
- ------------------------------------------------------
Generally, for a given scheduled premium, the initial specified amount is
greater for non-tobacco than standard and females than males. The specified
amount is shown in the policy.
While the policy is in force, the death benefit will never be less than the
specified amount. The death benefit may vary with the cash value of the policy,
which depends on investment performance.
The policy owner may choose one of two death benefit options.
OPTION 1: the death benefit will be the greater of the specified amount or the
applicable percentage of cash value. Under Option 1, the amount of the death
benefit will ordinarily not change for several years to reflect the investment
performance and may not change at all. If investment performance is favorable
the amount of death benefit may increase. To see how and when investment
performance will begin to affect death benefits, please see the illustrations in
Appendix C.
OPTION 2: the death benefit will be the greater of the specified amount plus the
cash value, or the applicable percentage of cash value and will vary directly
with the investment performance.
The term "applicable percentage" means:
1) 250% when the insured is attained age 40 or less at the
beginning of a policy year, and
2) when the insured is above attained age 40, the percentage
shown in the "Applicable Percentage of Cash Value" table.
20
<PAGE> 24
<TABLE>
APPLICABLE PERCENTAGE OF CASH VALUE
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
- -----------------------------------------------------------------------------------------------------------
41 243% 61 128% 81 105%
- -----------------------------------------------------------------------------------------------------------
42 236% 62 126% 82 105%
- -----------------------------------------------------------------------------------------------------------
43 229% 63 124% 83 105%
- -----------------------------------------------------------------------------------------------------------
44 222% 64 122% 84 105%
- -----------------------------------------------------------------------------------------------------------
45 215% 65 120% 85 105%
- -----------------------------------------------------------------------------------------------------------
46 209% 66 119% 86 105%
- -----------------------------------------------------------------------------------------------------------
47 203% 67 118% 87 105%
- -----------------------------------------------------------------------------------------------------------
48 197% 68 117% 88 105%
- -----------------------------------------------------------------------------------------------------------
49 191% 69 116% 89 105%
- -----------------------------------------------------------------------------------------------------------
50 185% 70 115% 90 105%
- -----------------------------------------------------------------------------------------------------------
51 178% 71 113% 91 104%
- -----------------------------------------------------------------------------------------------------------
52 171% 72 111% 92 103%
- -----------------------------------------------------------------------------------------------------------
53 164% 73 109% 93 102%
- -----------------------------------------------------------------------------------------------------------
54 157% 74 107% 94 101%
- -----------------------------------------------------------------------------------------------------------
55 150% 75 105% 95 100%
- -----------------------------------------------------------------------------------------------------------
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 fifth policy year, the policy owner may change the death benefit
option under the policy. If the change is from Option 1 to Option 2, the
specified amount will be decreased by the amount of the cash value. If the
change is from Option 2 to Option 1, the specified amount will be increased by
the amount of the cash value. Nationwide reserves the right to require evidence
of insurability for either change.
The effective date of the change will be the monthly anniversary day on or next
following the date Nationwide approves the request for change. Only one change
of option is permitted per policy year. A change in death benefit option will
not be permitted if it results in the total premiums paid exceeding the then
current maximum premium limitations prescribed by the IRS to qualify the policy
as a life insurance contract.
PROCEEDS PAYABLE ON DEATH
The actual death proceeds payable on the insured's death will be the death
benefit as described above, less any policy indebtedness, and less any unpaid
policy charges. Under certain circumstances, the death proceeds may be adjusted
(see "Incontestability," "Error in Age or Sex," and "Suicide").
INCONTESTABILITY
Nationwide will not contest payment of the death proceeds based on the initial
specified amount after the policy has been in force during the insured's
lifetime for 2 years from the policy date. For any increase in specified amount
requiring evidence of insurability, Nationwide will not contest
21
<PAGE> 25
payment of the death proceeds based on such an increase after it has been in
force during the insured's lifetime for 2 years from its effective date.
ERROR IN AGE OR SEX
If the age or sex of the insured has been misstated, the affected benefits will
be adjusted.
The amount of the death benefit will be (1) multiplied by (2) and then the
result added to (3), where:
(1) is the amount of the death benefit at the time of the
insured's death reduced by the amount of the cash value at the
time of the insured's death;
(2) is the ratio of the monthly cost of insurance applied in the
policy month of death and the monthly cost of insurance that
should have been applied at the true age and sex in the policy
month of death; and
(3) is the cash value at the time of the insured's death.
SUICIDE
If the insured dies by suicide, while sane or insane, within two years from the
policy date, Nationwide will pay no more than the sum of the premiums paid, less
any indebtedness, and less any partial surrenders. If the insured dies by
suicide, while sane or insane, within two years from the date an application is
accepted for an increase in the specified amount, Nationwide will pay no more
than the amount paid for the additional benefit.
MATURITY PROCEEDS
The maturity date is the policy anniversary on or next following the insured's
95th birthday. If the policy is still in force, maturity proceeds are payable to
the policy owner on the maturity date. Maturity proceeds are equal to the amount
of the policy's cash value, less any indebtedness.
EXCHANGE RIGHTS
The policy owner may exchange the policy for a flexible premium adjustable life
insurance policy offered by Nationwide on the policy date. The benefits for the
new policy will not vary with the investment experience of a separate account.
The exchange must be elected within 24 months from the policy date. No evidence
of insurability will be required.
The policy owner and beneficiary under the new policy will be the same as those
under the exchanged policy on the effective date of the exchange. The new policy
will have a death benefit on the exchange date not more than the death benefit
of the original policy immediately prior to the exchange date. The new policy
will have the same policy date and issue age as the original policy. The initial
specified amount and any increases in specified amount will have the same rate
class as those of the original policy. Any indebtedness may be transferred to
the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two policies.
After adjustment, if any excess is owed the policy owner, Nationwide will pay
the excess to the policy owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
GRACE PERIOD
FIRST FIVE POLICY YEARS
This policy will not lapse during the first five policy years provided that on
each monthly anniversary day (1) is greater than or equal to (2) where:
(1) is the sum of all premiums paid to date minus any policy
indebtedness; and
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<PAGE> 26
(2) is the sum of monthly minimum premiums since the policy date
including the monthly minimum premium for the current monthly
anniversary day.
If (1) is less than (2), a grace period of 61 days from the monthly anniversary
day will be allowed for the payment of sufficient premium to satisfy the minimum
premium requirement. If sufficient premium is not paid by the end of the grace
period, the policy will lapse. The policy will be terminated with the return of
any available cash surrender value. The cash surrender value will be calculated
as of the beginning of the grace period. The policy owner may also elect in
writing to have the policy placed on Extended Term Insurance.
POLICY YEARS SIX AND AFTER
If the cash surrender value on a monthly anniversary day is not sufficient to
cover the current monthly deduction for insurance costs, administrative expenses
and other benefits, a grace period of 61 days from the monthly anniversary day
will be allowed for the payment of sufficient premium to cover the current
monthly deduction plus an amount equal to three times the current monthly
deduction.
ALL POLICY YEARS
Nationwide will send a notice at the start of the grace period to the policy
owner's last known address. If the insured dies during the grace period,
Nationwide will pay the death proceeds.
REINSTATEMENT
If the grace period ends and the policy owner has neither paid the required
premium nor surrendered the policy for its cash surrender value, the policy
owner may reinstate the policy by:
1. submitting a written request at any time within 3 years after
the end of the grace period and prior to the maturity date;
2. providing evidence of insurability satisfactory to Nationwide;
3. paying sufficient premium to cover all policy charges that
were due and unpaid during the grace period;
4. paying sufficient premium to keep the policy in force for 3
months from the date of reinstatement; and
5. paying or reinstating any indebtedness against the policy
which existed at the end of the grace period.
The effective date of a reinstated policy will be the monthly anniversary day on
or next following the date the application for reinstatement is approved by
Nationwide. If the policy is reinstated, the cash value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the lesser of:
1. the cash value at the end of the grace period; or
2. the surrender charge for the policy year in which the policy
was reinstated.
Unless the policy owner has provided otherwise, all amounts will be allocated
based on the underlying mutual fund allocation factors in effect at the start of
the grace period.
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.
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<PAGE> 27
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.
The policies offered by this prospectus may or may not be issued as modified
endowment contracts. Nationwide will monitor premiums paid and will notify the
policy owner when the policy's non-modified endowment status is in jeopardy. If
a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the policy owner
pursuant to Section 7702(f)(7) of the Internal Revenue Code. The policy owner
should carefully consider this potential effect and seek further information
before initiating any changes in the terms of the policy. Under certain
conditions, a policy may become a modified endowment as a result of a material
change or a reduction in benefits as defined by Section 7702A(c) of the Internal
Revenue Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Internal Revenue Code requires that the investments of separate accounts
such as the variable account be adequately diversified. Regulations under 817(h)
provide that a variable life policy that fails to satisfy the diversification
standards will not be treated as life insurance unless such failure was
inadvertent, is corrected, and the policy owner or Nationwide pays an amount to
the IRS. The amount will be based on the tax that would have been paid by the
policy owner if the income, for the period the policy was not diversified, had
been received by the policy owner.
If the failure to diversify is not corrected in this manner, the policy owner
will be deemed the owner of the underlying securities and taxed on the earnings
of his or her account.
Representatives of the IRS have suggested, from time to time, that the number of
underlying mutual funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the 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
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<PAGE> 28
whatever steps are available to remain in compliance.
Nationwide will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the policy by lapse or the maturity of the
policy on its maturity date may have adverse tax consequences. If the amount
received by the policy owner plus total policy indebtedness exceeds the premiums
paid into the policy, the excess generally will be treated as taxable income,
regardless of whether or not the policy is a modified endowment contract.
WITHHOLDING
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
(which cannot be waived). The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise of no Taxpayer Identification Number
is provided to Nationwide, or if the IRS notifies Nationwide that back-up
withholding is required.
FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 1999, an estate of less than $625,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.
When the insured dies, the death benefit will generally be included in the
insured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the insured's estate; or (2) the insured held any "incident of
ownership" in the policy at death or at any time within three years of death. An
incident of ownership is, in general, any right that may be exercised by the
policy owner, such as the right to borrow on the policy, or the right to name a
new Beneficiary.
If the policy owner (whether or not he or she is the insured) transfers
ownership of the policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such policy owner transfers the policy to
someone two or more generations younger than the policy owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the policy.
Similarly, if the beneficiary is two or more generations younger than the
insured, the payment of the death proceeds at the death of the insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the U.S.
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 advisors regarding these taxes.
NON-RESIDENT ALIENS
Pre-death distributions from modified endowment contracts to nonresident aliens
("NRAs") are generally subject to federal income tax and tax withholding, at a
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<PAGE> 29
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.
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
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<PAGE> 30
be at variance with its current positions on these matters. In addition, current
state law (which is not discussed herein), and future amendments to state law,
may affect the tax consequences of the policy.
If the policy owner, insured, or beneficiary or other person receiving any
benefit or interest in or from the policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the policy, the
death proceeds, or other distributions and/or ownership of the policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a policy may be changed retroactively. There
is no way of predicting if, when, or to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
The foregoing is a general explanation as to certain tax matters pertaining to
insurance policies. It is not intended to be legal or tax advice, and should not
take the place of your independent legal, tax and/or financial advisor.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women. Thus the policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this policy.
STATE REGULATION
Nationwide is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
Nationwide for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine Nationwide's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Nationwide's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, Nationwide is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
REPORTS TO POLICY OWNERS
Nationwide will mail to the policy owner at the last known address of record:
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;
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<PAGE> 31
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, 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
28
<PAGE> 32
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 Funds, 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 National Association of Securities Dealers, Inc. ("NASD"). The
policies will be distributed by the general distributor, Van Kampen Funds, Inc.
Gross first year commissions plus any expense allowance payments paid by
Nationwide on the sale of these policies provided by the general distributor
will not exceed 26% of the scheduled premium plus 5% of any excess premium
payments. Gross renewal commissions paid by Nationwide will not exceed 5% of
actual premium payments.
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<PAGE> 33
<TABLE>
OFFICERS
VAN KAMPEN FUNDS INC.
<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
Robert F. Muller, Jr. Sr. Vice President Houston, TX
</TABLE>
30
<PAGE> 34
<TABLE>
<S> <C> <C>
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
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
</TABLE>
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<PAGE> 35
<TABLE>
<S> <C> <C>
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
Kevin S. Marsh Vice President Bellevue, WA
</TABLE>
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<PAGE> 36
<TABLE>
<S> <C> <C>
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
William C. Strafford Vice President Granger, IN
</TABLE>
33
<PAGE> 37
<TABLE>
<S> <C> <C>
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
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
</TABLE>
34
<PAGE> 38
<TABLE>
<S> <C> <C>
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>
35
<PAGE> 39
<TABLE>
DIRECTORS
VAN KAMPEN FUNDS INC.
<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>
36
<PAGE> 40
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 separtate investment 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 MFS Variable Account,
o Nationwide Variable Account-10;
o Nationwide Multi-Flex Variable Account,
o Nationwide Variable Account-11,
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 the Nationwide DCVA II
Nationwide, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
Nationwide operates in the highly competitive field of life insurance. There are
approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies. As is customary in insurance
company groups, employees are shared with the other insurance companies in the
group. In addition to its direct salaried employees, Nationwide shares employees
with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance
Company.
Nationwide does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. Nationwide shares its home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
Company Management
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual
Fire Insurance Company, Nationwide Property and Casualty Insurance Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide group of companies. The companies listed above have substantially
common boards of directors and officers.
Nationwide Financial Sevices,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
37
<PAGE> 41
sole owner of Nationwide Life and Annuity Insurance Company.
Each of the directors and officers listed below is a director or officer
respectively of at least one or more of the other major insurance affiliates of
the Nationwide group of companies. Messrs. McFerson, Gasper, Woodward, and Ms.
Thomas are also trustees of one or more of the registered investment companies
distributed by NISC, a registered broker-dealer affiliated with the Nationwide
group of companies.
38
<PAGE> 42
<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
- ------------------------------------- --------------------------- ----------------------------------------------------
DIRECTORS OF THE DEPOSITOR NAME AND
PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES
WITH DEPOSITOR PRINCIPAL OCCUPATION
- ------------------------------------- --------------------------- ----------------------------------------------------
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator, Bell Farms (1)
519 Bethel Church Road
Mount Olive, NC 28365-6107
- ------------------------------------- --------------------------- ----------------------------------------------------
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
- ------------------------------------- --------------------------- ----------------------------------------------------
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
- ------------------------------------- --------------------------- ----------------------------------------------------
</TABLE>
39
<PAGE> 43
<TABLE>
<CAPTION>
- ------------------------------------- --------------------------- ----------------------------------------------------
Directors of the Depositor
Name and Principal Business
Address Positions and Offices
With Depositor Principal Occupation
- ------------------------------------- --------------------------- ----------------------------------------------------
<S> <C> <C>
David O. Miller Chairman of the Board 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
- ------------------------------------- --------------------------- ----------------------------------------------------
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
the 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.
40
<PAGE> 44
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF NATIONWIDE
- -------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard D. Headley Executive Vice President - 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
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 45
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF NATIONWIDE
- -------------------------------------------------------------------------------------------------------------------
Officers of the Depositor Offices of the Depositor
Name and Principal Business Address
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Mark D. Phelan Senior Vice President - 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 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.
42
<PAGE> 46
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.
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.
43
<PAGE> 47
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.
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
<PAGE> 48
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 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
<PAGE> 49
director of the National Cooperative Business Association in
Washington, DC. He is a former board member and vice president of the Ohio Farm
Bureau Federation and past president of the Ohio Agricultural Marketing
Association, an Ohio Farm Bureau Federation subsidiary. He is a member of the
Ohio Trucking Association, the Ohio Trucking Safety Council, the Wayne County
Farm Bureau, Cornerstone Community Church, the Advisory Committee of The Ohio
State University Agriculture Technical Institute and a board member of the
Wilderness Center.
ROBERT L. STEWART has been a Director of Nationwide since 1989. Mr. Stewart is
the owner and operator of Sunnydale Farms and Mining in Jewett, OH. He served on
the board of the Ohio Farm Bureau Federation and as president of the Ohio
Holstein Association board. Mr. Stewart was a director of the Ohio Agricultural
Stabilization and Conservation Service board and Landmark, Inc. a farm supply
cooperative which is now part of Indianapolis-based Countrymark.
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.
<PAGE> 50
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investment
vehicles for variable annuity contracts and variable life insurance policies
issued by insurance companies.
There is no guarantee that the investment objectives will be met.
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 investment adviser
for the Trust and its Portfolios.
-ASSET ALLOCATION PORTFOLIO
The investment objective of this Portfolio is to seek a high total investment
return consistent with prudent risk through a fully managed investment policy
utilizing equity, intermediate and long-term debt and money market
securities. Total investment return consists of current income, including
dividends, interest, discount accruals, and capital appreciation. The Advisor
may vary the composition of the portfolio from time to time based upon an
evaluation of economic and market trends and the anticipated relative total
return available from a particular type of security.
-DOMESTIC INCOME PORTFOLIO
The investment objective of this Portfolio is to seek current income as its
primary objective. Capital appreciation is a secondary objective. The
Portfolio attempts to achieve these objectives through investment primarily
in a diversified portfolio of fixed-income securities. The Portfolio may
invest in investment grade securities and lower rated and nonrated
securities. Lower rated securities are regarded by the rating agencies as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments.
-EMERGING GROWTH PORTFOLIO
The investment objective of this Portfolio is to seek capital appreciation by
investing in a portfolio of securities consisting principally of common
stocks of small and medium sized companies considered by the Advisor to be
emerging growth companies. Under normal market conditions, at least 65% of
the Portfolio's total assets will be invested in common stocks of small and
medium sized companies (less than $2 billion of market capitalization), both
domestic and foreign. The Portfolio may invest up to 20% of its total assets
in securities of foreign issuers. Additionally, the Portfolio may invest up
to 15% of the value of its assets in restricted securities (i.e., securities
which may not be sold without registration under the Securities Act of 1933)
and in other securities not having readily available market quotations.
-ENTERPRISE PORTFOLIO
The investment objective of this Portfolio is to seek capital appreciation by
investing in securities believed by the Advisor to have above average
potential for capital appreciation. Any income received on such securities is
incidental to the objective of capital appreciation.
-GLOBAL EQUITY PORTFOLIO
The investment objective of this Portfolio is to seek long term capital
growth through investments in an internationally diversified portfolio of
equity securities of companies of any nation including the United States. The
Portfolio intends to be invested in equity securities of companies of at
least three countries including the United States. Under
44
<PAGE> 51
normal market conditions, at least 65% of the Portfolio's total assets are so
invested. Equity securities include common stocks, preferred stocks and
warrants or options to acquire such securities.
-GOVERNMENT PORTFOLIO
The investment objective of this Portfolio is to provide investors with a
high current return consistent with preservation of capital. The Government
Portfolio invests primarily in debt securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. In order to hedge against
changes in interest rates, the Government 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 as high a level of
current income as is considered consistent with the preservation of capital
and liquidity by investing primarily in money market instruments.
-MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
The investment objective of this Portfolio is to seek long-term capital
growth by investing in a diversified portfolio of securities of companies
operating in the real estate industry ("Real Estate Securities"). Current
income is a secondary consideration. Real Estate Securities include equity
securities, including common stocks and convertible securities, as well as
non-convertible preferred stocks and debt securities of real estate industry
companies. A "real estate industry company" is a company that derives at
least 50% of its assets (marked to market), gross income or net profits from
the ownership, construction, management or sale of residential, commercial or
industrial real estate. Under normal market conditions, at least 65% of the
Portfolio's total assets will be invested in Real Estate Securities,
primarily equity securities of real estate investment trusts. The Portfolio
may invest up to 25% of its total assets in securities issued by foreign
issuers, some or all of which may also be Real Estate Securities. There can
be no assurance that the Portfolio will achieve its investment objective.
45
<PAGE> 52
APPENDIX B: ILLUSTRATION OF SURRENDER CHARGES
Example 1: A female non-tobacco, age 45, purchases a policy with a scheduled
premium of $2,000 yielding a specified amount of $50,599. She now wishes to
surrender the policy during the first policy year. By using the initial
surrender charge table reproduced below, (also see "Surrender Charges") the
total surrender charge per thousand multiplied by the specified amount expressed
in thousands equals the total surrender charge of $514.09 ($10.160 x 50.599 =
$514.09).
Example 2: A male non-tobacco, age 35, purchases a policy with a scheduled
premium of $2,000 yielding a specified amount of $68,165. He now wants to
surrender the policy in the sixth policy year. The total initial surrender value
is calculated using the method illustrated above. (Specified amount in thousands
$68.165 x 7.260 = $494.88 total first year surrender charge). Because the fifth
policy year has been completed, the total initial surrender charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below (also see "Reductions to Surrender Charges"). In
this case, $494.88 x 85% = $420.65 which is the amount Nationwide deducts as a
total surrender charge.
<TABLE>
Initial Surrender Charge per $1,000 of Initial Specified Amount
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
- ------------------------------------------------------------------------------------------------------------------
35 7.260 6.712 8.559 7.373
- ------------------------------------------------------------------------------------------------------------------
45 11.159 10.160 13.244 11.151
- ------------------------------------------------------------------------------------------------------------------
55 15.275 13.375 18.373 14.686
- ------------------------------------------------------------------------------------------------------------------
65 23.821 20.553 27.943 22.165
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Reductions to Surrender Charges
<CAPTION>
- ------------------------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 100% 5 85%
- ------------------------------------------------------------------------------------------------
1 100% 6 80%
- ------------------------------------------------------------------------------------------------
2 100% 7 75%
- ------------------------------------------------------------------------------------------------
3 95% 8 50%
- ------------------------------------------------------------------------------------------------
4 90% 9+ 0%
- ------------------------------------------------------------------------------------------------
</TABLE>
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are 8% higher than those
shown on pages 7, 14, and 32. In addition, the guaranteed maximum Surrender
Charge in subsequent years in Pennsylvania are reduced in the following manner:
<TABLE>
<CAPTION>
SURRENDER CHARGE SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
<S> <C> <C> <C> <C> <C>
0 100% 5 83% 10 46%
1 98% 6 75% 11 37%
2 95% 7 70% 12 28%
3 92% 8 65% 13 14%
4 88% 9 55% 14+ 0%
</TABLE>
The illustrations of current values on page 13 are the same for Pennsylvania.
However, the guaranteed maximum Surrender Charges are slightly higher in
Pennsylvania. If this contract is issued in Pennsylvania, please contact
Nationwide for an illustration.
Nationwide has no plans to change the current Surrender Charges.
46
<PAGE> 53
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 debt, no additional premium
payments are made, no cash values are allocated to the fixed account, and there
are no changes in the specified amount or death benefit option.
The amounts shown for the cash value, aash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. The mortality and expense risk charge is equivalent
to an annual effective rate of .80% of the daily net asset value of the variable
account. In addition, the net investment returns also reflect the deduction of
underlying mutual fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.80 % of the daily net asset value of
the variable account. Some underlying mutual funds are subject to expense
reimbursements and fee waivers. Absent expense reimbursement and fees 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.
Considering current charges for mortality and expense risks, and underlying
mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.60%, 4.40% and
10.40%.
The illustrations also reflect the fact that 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
charge guaranteed in the policy. The values shown are for policies which are
issued as standard (including non-tobacco). Policies issued on a substandard
basis would result in lower cash values and death benefits than those
illustrated.
In addition, the illustrations reflect the fact that Nationwide deducts an
administrative charge at the beginning of each policy month. This monthly charge
is currently $5 and is guaranteed not to exceed $7.50. The illustrations also
reflect the fact that no charges for federal or state income taxes are currently
made against the variable account. If such a charge is made in the future, it
will require a higher gross investment return than illustrated in order to
produce the net after-tax returns shown in the illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
48
<PAGE> 54
<TABLE>
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,669 1,187 43,165 1,774 1,293 43,165 1,880 1,398 43,165
2 4,305 3,309 2,827 43,165 3,623 3,142 43,165 3,950 3,469 43,165
3 6,620 4,920 4,438 43,165 5,550 5,068 43,165 6,231 5,749 43,165
4 9,051 6,503 6,046 43,165 7,559 7,101 43,165 8,746 8,288 43,165
5 11,604 8,056 7,623 43,165 9,652 9,218 43,165 11,518 11,084 43,165
6 12,184 7,723 7,314 43,165 9,865 9,455 43,165 12,495 12,086 43,165
7 12,793 7,382 6,997 43,165 10,076 9,691 43,165 13,566 13,181 43,165
8 13,433 7,032 6,670 43,165 10,285 9,924 43,165 14,741 14,379 43,165
9 14,105 6,672 6,431 43,165 10,492 10,252 43,165 16,031 15,790 43,165
10 14,810 6,299 6,299 43,165 10,694 10,694 43,165 17,448 17,448 43,165
15 18,901 4,212 4,212 43,165 11,602 11,602 43,165 27,019 27,019 43,165
20 24,124 1,479 1,479 43,165 12,112 12,112 43,165 42,818 42,818 52,238
25 30,788 (*) (*) (*) 11,629 11,629 43,165 68,225 68,225 79,141
30 39,295 (*) (*) (*) 8,751 8,751 43,165 108,941 108,941 116,567
35 50,151 (*) (*) (*) 407 407 43,165 174,797 174,797 183,537
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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> 55
<TABLE>
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,576 1,095 43,165 1,679 1,197 43,165 1,781 1,300 43,165
2 4,305 3,120 2,639 43,165 3,423 2,941 43,165 3,739 3,257 43,165
3 6,620 4,632 4,151 43,165 5,237 4,755 43,165 5,891 5,409 43,165
4 9,051 6,112 5,655 43,165 7,123 6,665 43,165 8,260 7,803 43,165
5 11,604 7,561 7,127 43,165 9,085 8,651 43,165 10,870 10,437 43,165
6 12,184 7,114 6,705 43,165 9,152 8,743 43,165 11,662 11,252 43,165
7 12,793 6,650 6,265 43,165 9,202 8,817 43,165 12,520 12,135 43,165
8 13,433 6,164 5,803 43,165 9,229 8,868 43,165 13,450 13,089 43,165
9 14,105 5,651 5,411 43,165 9,230 8,989 43,165 14,459 14,218 43,165
10 14,810 5,108 5,108 43,165 9,199 9,199 43,165 15,553 15,553 43,165
15 18,901 1,768 1,768 43,165 8,372 8,372 43,165 22,695 22,695 43,165
20 24,124 (*) (*) (*) 5,535 5,535 43,165 34,256 34,256 43,165
25 30,788 (*) (*) (*) (*) (*) (*) 53,378 53,378 61,918
30 39,295 (*) (*) (*) (*) (*) (*) 83,544 83,544 89,392
35 50,151 (*) (*) (*) (*) (*) (*) 131,940 131,940 138,537
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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> 56
<TABLE>
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,671 1,218 42,276 1,777 1,323 42,382 1,882 1,429 42,487
2 4,305 3,309 2,855 43,914 3,622 3,169 44,227 3,948 3,495 44,553
3 6,620 4,911 4,458 45,516 5,538 5,085 46,143 6,217 5,764 46,822
4 9,051 6,480 6,050 47,085 7,529 7,098 48,134 8,708 8,278 49,313
5 11,604 8,012 7,604 48,617 9,593 9,185 50,198 11,441 11,034 52,046
6 14,284 9,507 9,122 50,112 11,734 11,348 52,339 14,442 14,057 55,047
7 17,098 10,966 10,603 51,571 13,953 13,591 54,558 17,735 17,372 58,340
8 20,053 12,386 12,047 52,991 16,253 15,913 56,858 21,348 21,009 61,953
9 23,156 13,770 13,543 54,375 18,637 18,411 59,242 25,316 25,090 65,921
10 26,414 15,113 15,113 55,718 21,106 21,106 61,711 29,670 29,670 70,275
15 45,315 21,412 21,412 62,017 35,044 35,044 75,649 59,013 59,013 99,618
20 69,439 26,503 26,503 67,108 51,435 51,435 92,040 105,809 105,809 146,414
25 100,227 29,930 29,930 70,535 70,234 70,234 110,839 180,303 180,303 220,908
30 139,522 30,793 30,793 71,398 90,822 90,822 131,427 298,503 298,503 339,108
35 189,673 27,940 27,940 68,545 112,064 112,064 152,669 486,038 486,038 526,643
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
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.
51
<PAGE> 57
<TABLE>
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,580 1,127 42,185 1,682 1,229 42,287 1,785 1,332 42,390
2 4,305 3,120 2,667 43,725 3,422 2,969 44,027 3,737 3,283 44,342
3 6,620 4,621 4,167 45,226 5,221 4,768 45,826 5,871 5,418 46,476
4 9,051 6,080 5,649 46,685 7,080 6,649 47,685 8,206 7,775 48,811
5 11,604 7,497 7,089 48,102 8,999 8,592 49,604 10,759 10,351 51,364
6 14,284 8,870 8,485 49,475 10,980 10,595 51,585 13,551 13,165 54,156
7 17,098 10,197 9,834 50,802 13,020 12,658 53,625 16,601 16,239 57,206
8 20,053 11,474 11,134 52,079 15,120 14,780 55,725 19,934 19,594 60,539
9 23,156 12,698 12,472 53,303 17,276 17,050 57,881 23,573 23,346 64,178
10 26,414 13,867 13,867 54,472 19,488 19,488 60,093 27,545 27,545 68,150
15 45,315 18,766 18,766 59,371 31,320 31,320 71,925 53,567 53,567 94,172
20 69,439 21,628 21,628 62,233 44,037 44,037 84,642 93,736 93,736 134,341
25 100,227 21,418 21,418 62,023 56,475 56,475 97,080 155,346 155,346 195,951
30 139,522 16,390 16,390 56,995 66,311 66,311 106,916 249,280 249,280 289,885
35 189,673 3,583 3,583 44,188 69,068 69,068 109,673 391,346 391,346 431,951
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
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> 58
<TABLE>
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES
<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 5,250 4,293 3,021 114,019 4,561 3,288 114,019 4,828 3,556 114,019
2 10,763 8,513 7,241 114,019 9,313 8,041 114,019 10,146 8,873 114,019
3 16,551 12,658 11,386 114,019 14,266 12,994 114,019 16,004 14,732 114,019
4 22,628 16,733 15,524 114,019 19,430 18,221 114,019 22,462 21,254 114,019
5 29,010 20,731 19,586 114,019 24,810 23,665 114,019 29,580 28,435 114,019
6 30,460 20,015 18,934 114,019 25,500 24,418 114,019 32,232 31,150 114,019
7 31,983 19,281 18,264 114,019 26,196 25,178 114,019 35,141 34,123 114,019
8 33,582 18,527 17,572 114,019 26,896 25,942 114,019 38,334 37,380 114,019
9 35,261 17,752 17,115 114,019 27,603 26,967 114,019 41,845 41,208 114,019
10 37,024 16,948 16,948 114,019 28,309 28,309 114,019 45,702 45,702 114,019
15 47,254 12,443 12,443 114,019 31,810 31,810 114,019 71,779 71,779 114,019
20 60,309 6,547 6,547 114,019 34,848 34,848 114,019 114,729 114,729 139,970
25 76,971 (*) (*) (*) 36,354 36,354 114,019 183,892 183,892 213,315
30 98,237 (*) (*) (*) 33,866 33,866 114,019 294,989 294,989 315,639
35 125,378 (*) (*) (*) 22,476 22,476 114,019 474,843 474,843 498,585
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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> 59
<TABLE>
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES
<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 5,250 4,161 2,889 114,019 4,424 3,152 114,019 4,687 3,415 114,019
2 10,763 8,241 6,969 114,019 9,025 7,753 114,019 9,841 8,569 114,019
3 16,551 12,241 10,969 114,019 13,812 12,540 114,019 15,512 14,240 114,019
4 22,628 16,162 14,953 114,019 18,794 17,586 114,019 21,756 20,547 114,019
5 29,010 20,004 18,859 114,019 23,981 22,836 114,019 28,635 27,490 114,019
6 30,460 19,117 18,036 114,019 24,453 23,372 114,019 31,012 29,931 114,019
7 31,983 18,195 17,177 114,019 24,905 23,887 114,019 33,605 32,587 114,019
8 33,582 17,230 16,276 114,019 25,330 24,376 114,019 36,434 35,479 114,019
9 35,261 16,215 15,579 114,019 25,719 25,083 114,019 39,521 38,884 114,019
10 37,024 15,141 15,141 114,019 26,065 26,065 114,019 42,893 42,893 114,019
15 47,254 8,579 8,579 114,019 26,825 26,825 114,019 65,311 65,311 114,019
20 60,309 (*) (*) (*) 24,571 24,571 114,019 102,226 102,226 124,715
25 76,971 (*) (*) (*) 15,540 15,540 114,019 161,729 161,729 187,606
30 98,237 (*) (*) (*) (*) (*) (*) 256,231 256,231 274,167
35 125,378 (*) (*) (*) (*) (*) (*) 408,353 408,353 428,770
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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> 60
<TABLE>
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES
<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 5,250 4,308 3,153 107,829 4,576 3,420 108,097 4,843 3,688 108,364
2 10,763 8,532 7,377 112,053 9,332 8,177 112,853 10,165 9,009 113,686
3 16,551 12,670 11,515 116,191 14,275 13,120 117,796 16,010 14,855 119,531
4 22,628 16,725 15,627 120,246 19,413 18,315 122,934 22,434 21,337 125,955
5 29,010 20,688 19,649 124,209 24,745 23,705 128,266 29,487 28,447 133,008
6 35,710 24,564 23,583 128,085 30,282 29,300 133,803 37,235 36,253 140,756
7 42,746 28,350 27,425 131,871 36,028 35,104 139,549 45,743 44,819 149,264
8 50,133 32,043 31,176 135,564 41,990 41,123 145,511 55,088 54,222 158,609
9 57,889 35,646 35,068 139,167 48,176 47,599 151,697 65,356 64,778 168,877
10 66,034 39,152 39,152 142,673 54,589 54,589 158,110 76,630 76,630 180,151
15 113,287 55,710 55,710 159,231 90,922 90,922 194,443 152,747 152,747 256,268
20 173,596 69,432 69,432 172,953 134,022 134,022 237,543 274,557 274,557 378,078
25 250,567 79,355 79,355 182,876 184,141 184,141 287,662 469,203 469,203 572,724
30 348,804 83,552 83,552 187,073 240,371 240,371 343,892 779,427 779,427 882,948
35 474,182 79,551 79,551 183,072 300,799 300,799 404,320 1,273,881 1,273,881 1,377,402
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
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> 61
<TABLE>
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES
<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 5,250 4,182 3,027 107,703 4,445 3,290 107,966 4,709 3,553 108,230
2 10,763 8,269 7,113 111,790 9,053 7,897 112,574 9,868 8,713 113,389
3 16,551 12,260 11,105 115,781 13,828 12,672 117,349 15,523 14,368 119,044
4 22,628 16,154 15,057 119,675 18,774 17,676 122,295 21,720 20,622 125,241
5 29,010 19,950 18,910 123,471 23,896 22,856 127,417 28,511 27,471 132,032
6 35,710 23,643 22,661 127,164 29,195 28,213 132,716 35,952 34,970 139,473
7 42,746 27,229 26,305 130,750 34,674 33,750 138,195 44,103 43,179 147,624
8 50,133 30,703 29,837 134,224 40,333 39,466 143,854 53,028 52,162 156,549
9 57,889 34,058 33,481 137,579 46,170 45,592 149,691 62,798 62,221 166,319
10 66,034 37,289 37,289 140,810 52,185 52,185 155,706 73,492 73,492 177,013
15 113,287 51,377 51,377 154,898 84,935 84,935 188,456 144,161 144,161 247,682
20 173,596 61,139 61,139 164,660 121,686 121,686 225,207 254,910 254,910 358,431
25 250,567 64,595 64,595 168,116 160,713 160,713 264,234 427,812 427,812 531,333
30 348,804 58,407 58,407 161,928 198,201 198,201 301,722 696,908 696,908 800,429
35 474,182 36,972 36,972 140,493 226,428 226,428 329,949 1,114,025 1,114,025 1,217,546
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
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> 62
<TABLE>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<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 21,000 17,228 12,621 301,625 18,300 13,692 301,625 19,372 14,765 301,625
2 43,050 34,166 29,559 301,625 37,380 32,772 301,625 40,722 36,115 301,625
3 66,203 50,834 46,226 301,625 57,297 52,689 301,625 64,285 59,677 301,625
4 90,513 67,231 62,854 301,625 78,091 73,714 301,625 90,300 85,923 301,625
5 116,038 83,344 79,198 301,625 99,792 95,645 301,625 119,028 114,881 301,625
6 121,840 80,575 76,659 301,625 102,734 98,818 301,625 129,942 126,026 301,625
7 127,932 77,711 74,026 301,625 105,712 102,026 301,625 141,953 138,268 301,625
8 134,329 74,723 71,267 301,625 108,706 105,251 301,625 155,177 151,721 301,625
9 141,045 71,598 69,294 301,625 111,714 109,410 301,625 169,759 167,455 301,625
10 148,097 68,341 68,341 301,625 114,748 114,748 301,625 185,877 185,877 301,625
15 189,014 48,497 48,497 301,625 129,367 129,367 301,625 296,579 296,579 344,032
20 241,235 18,045 18,045 301,625 140,748 140,748 301,625 477,065 477,065 510,460
25 307,884 (*) (*) (*) 144,237 144,237 301,625 769,507 769,507 807,982
30 392,947 (*) (*) (*) 130,130 130,130 301,625 1,235,396 1,235,396 1,297,166
35 501,511 (*) (*) (*) 69,897 69,897 301,625 1,968,588 1,968,588 2,067,018
</TABLE>
ASSUMPTIONS:
(1) ASSUMES NO POLICY HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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> 63
<TABLE>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<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 21,000 16,090 11,482 301,625 17,126 12,519 301,625 18,165 13,557 301,625
2 43,050 31,830 27,223 301,625 34,910 30,303 301,625 38,117 33,509 301,625
3 66,203 47,237 42,630 301,625 53,403 48,796 301,625 60,079 55,472 301,625
4 90,513 62,317 57,940 301,625 72,654 68,277 301,625 84,298 79,921 301,625
5 116,038 77,074 72,927 301,625 92,718 88,571 301,625 111,058 106,911 301,625
6 121,840 72,763 68,847 301,625 93,784 89,867 301,625 119,690 115,774 301,625
7 127,932 68,141 64,455 301,625 94,611 90,925 301,625 129,070 125,384 301,625
8 134,329 63,145 59,689 301,625 95,144 91,688 301,625 139,275 135,819 301,625
9 141,045 57,706 55,402 301,625 95,320 93,016 301,625 150,403 148,100 301,625
10 148,097 51,753 51,753 301,625 95,073 95,073 301,625 162,580 162,580 301,625
15 189,014 11,272 11,272 301,625 84,689 84,689 301,625 246,076 246,076 301,625
20 241,235 (*) (*) (*) 43,920 43,920 301,625 389,728 389,728 417,009
25 307,884 (*) (*) (*) (*) (*) (*) 621,406 621,406 652,476
30 392,947 (*) (*) (*) (*) (*) (*) 979,313 979,313 1,028,279
35 501,511 (*) (*) (*) (*) (*) (*) 1,514,963 1,514,963 1,590,711
</TABLE>
ASSUMPTIONS:
(1) ASSUMES NO POLICY HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
58
<PAGE> 64
<TABLE>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<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 21,000 17,280 13,133 288,742 18,351 14,204 289,813 19,423 15,276 290,885
2 43,050 34,194 30,047 305,656 37,400 33,253 308,862 40,733 36,587 312,195
3 66,203 50,753 46,607 322,215 57,182 53,035 328,644 64,131 59,984 335,593
4 90,513 66,948 63,008 338,410 77,713 73,774 349,175 89,813 85,874 361,275
5 116,038 82,746 79,014 354,208 98,988 95,256 370,450 117,973 114,241 389,435
6 142,840 98,160 94,636 369,622 121,044 117,520 392,506 148,871 145,346 420,333
7 170,982 113,183 109,866 384,645 143,902 140,584 415,364 182,772 179,455 454,234
8 200,531 127,788 124,678 399,250 167,561 164,452 439,023 219,950 216,840 491,412
9 231,558 141,971 139,898 413,433 192,047 189,974 463,509 260,728 258,654 532,190
10 264,136 155,748 155,748 427,210 217,404 217,404 488,866 305,483 305,483 576,945
15 453,150 219,101 219,101 490,563 359,192 359,192 630,654 605,556 605,556 877,018
20 694,385 266,818 266,818 538,280 522,020 522,020 793,482 1,079,684 1,079,684 1,351,146
25 1,002,269 293,778 293,778 565,240 703,566 703,566 975,028 1,828,689 1,828,689 2,100,151
30 1,395,216 293,109 293,109 564,571 898,479 898,479 1,169,941 3,013,781 3,013,781 3,285,243
35 1,896,726 252,804 252,804 524,266 1,093,780 1,093,780 1,365,242 4,890,156 4,890,156 5,161,618
</TABLE>
ASSUMPTIONS:
(1) ASSUMES NO POLICY HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
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.
59
<PAGE> 65
<TABLE>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<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 21,000 16,193 12,046 287,655 17,229 13,082 288,691 18,266 14,120 289,728
2 43,050 31,902 27,755 303,364 34,968 30,821 306,430 38,158 34,012 309,620
3 66,203 47,121 42,974 318,583 53,224 49,077 324,686 59,828 55,682 331,290
4 90,513 61,830 57,891 333,292 71,992 68,053 343,454 83,429 79,490 354,891
5 116,038 76,005 72,273 347,467 91,260 87,528 362,722 109,123 105,391 380,585
6 142,840 89,618 86,093 361,080 111,013 107,489 382,475 137,087 133,562 408,549
7 170,982 102,640 99,322 374,102 131,232 127,915 402,694 167,510 164,193 438,972
8 200,531 115,021 111,911 386,483 151,877 148,767 423,339 200,584 197,474 472,046
9 231,558 126,715 124,642 398,177 172,906 170,833 444,368 236,518 234,445 507,980
10 264,136 137,676 137,676 409,138 194,280 194,280 465,742 275,545 275,545 547,007
15 453,150 180,048 180,048 451,510 304,839 304,839 576,301 527,159 527,159 798,621
20 694,385 194,577 194,577 466,039 413,296 413,296 684,758 904,420 904,420 1,175,882
25 1,002,269 166,771 166,771 438,233 499,862 499,862 771,324 1,463,805 1,463,805 1,735,267
30 1,395,216 78,274 78,274 349,736 534,756 534,756 806,218 2,291,535 2,291,535 2,562,997
35 1,896,726 (*) (*) (*) 464,768 464,768 736,230 3,508,317 3,508,317 3,779,779
</TABLE>
ASSUMPTIONS:
(1) ASSUMES NO POLICY HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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.
60
<PAGE> 66
<TABLE>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<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 21,000 16,627 11,741 205,135 17,682 12,796 205,135 18,738 13,852 205,135
2 43,050 32,966 28,080 205,135 36,120 31,234 205,135 39,403 34,516 205,135
3 66,203 49,042 44,155 205,135 55,385 50,499 205,135 62,250 57,363 205,135
4 90,513 64,862 60,220 205,135 75,539 70,897 205,135 87,560 82,918 205,135
5 116,038 80,462 76,064 205,135 96,683 92,285 205,135 115,688 111,290 205,135
6 121,840 77,069 72,915 205,135 98,991 94,838 205,135 125,984 121,831 205,135
7 127,932 73,432 69,523 205,135 101,238 97,329 205,135 137,375 133,466 205,135
8 134,329 69,528 65,863 205,135 103,419 99,754 205,135 150,035 146,370 205,135
9 141,045 65,316 62,873 205,135 105,521 103,078 205,135 164,166 161,723 205,135
10 148,097 60,735 60,735 205,135 107,517 107,517 205,135 180,008 180,008 205,135
15 189,014 30,003 30,003 205,135 115,209 115,209 205,135 289,775 289,775 304,263
20 241,235 (*) (*) (*) 115,939 115,939 205,135 464,975 464,975 488,224
25 307,884 (*) (*) (*) 98,785 98,785 205,135 740,693 740,693 777,728
30 392,947 (*) (*) (*) 26,156 26,156 205,135 1,183,353 1,183,353 1,195,186
35 501,511 (*) (*) (*) (*) (*) (*) 1,925,400 1,925,400 1,925,400
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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.
61
<PAGE> 67
<TABLE>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<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 21,000 14,214 9,327 205,135 15,197 10,311 205,135 16,183 11,297 205,135
2 43,050 28,097 23,210 205,135 30,979 26,093 205,135 33,987 29,100 205,135
3 66,203 41,686 36,799 205,135 47,438 42,551 205,135 53,684 48,798 205,135
4 90,513 55,014 50,372 205,135 64,676 60,034 205,135 75,604 70,962 205,135
5 116,038 68,111 63,713 205,135 82,814 78,416 205,135 100,144 95,746 205,135
6 121,840 61,803 57,650 205,135 81,644 77,490 205,135 106,295 102,142 205,135
7 127,932 54,756 50,847 205,135 79,847 75,938 205,135 112,910 109,001 205,135
8 134,329 46,792 43,127 205,135 77,269 73,604 205,135 120,052 116,387 205,135
9 141,045 37,698 35,255 205,135 73,722 71,279 205,135 127,819 125,376 205,135
10 148,097 27,236 27,236 205,135 68,994 68,994 205,135 136,356 136,356 205,135
15 189,014 (*) (*) (*) 16,457 16,457 205,135 200,805 200,805 210,845
20 241,235 (*) (*) (*) (*) (*) (*) 316,074 316,074 331,878
25 307,884 (*) (*) (*) (*) (*) (*) 488,573 488,573 513,002
30 392,947 (*) (*) (*) (*) (*) (*) 761,140 761,140 768,751
35 501,511 (*) (*) (*) (*) (*) (*) 1,238,097 1,238,097 1,238,097
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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.
62
<PAGE> 68
<TABLE>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<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 21,000 16,555 11,917 211,294 17,603 12,964 212,342 18,652 14,013 213,391
2 43,050 32,638 27,999 227,377 35,750 31,111 230,489 38,987 34,348 233,726
3 66,203 48,240 43,601 242,979 54,447 49,808 249,186 61,162 56,523 255,901
4 90,513 63,326 58,919 258,065 73,675 69,268 268,414 85,319 80,912 280,058
5 116,038 77,889 73,714 272,628 93,441 89,266 288,180 111,644 107,469 306,383
6 142,840 91,920 87,977 286,659 113,750 109,807 308,489 140,341 136,398 335,080
7 170,982 105,370 101,659 300,109 134,567 130,856 329,306 171,592 167,881 366,331
8 200,531 118,232 114,753 312,971 155,897 152,418 350,636 205,641 202,161 400,380
9 231,558 130,484 128,164 325,223 177,729 175,409 372,468 242,740 240,420 437,479
10 264,136 142,076 142,076 336,815 200,024 200,024 394,763 283,138 283,138 477,877
15 453,150 190,985 190,985 385,724 319,900 319,900 514,639 548,727 548,727 743,466
20 694,385 217,810 217,810 412,549 446,923 446,923 641,662 956,671 956,671 1,151,410
25 1,002,269 214,110 214,110 408,849 571,206 571,206 765,945 1,583,081 1,583,081 1,777,820
30 1,395,216 169,455 169,455 364,194 677,161 677,161 871,900 2,547,576 2,547,576 2,742,315
35 1,896,726 99,545 99,545 294,284 773,544 773,544 968,283 4,075,781 4,075,781 4,270,520
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
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.
63
<PAGE> 69
<TABLE>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<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 21,000 14,073 9,434 208,812 15,041 10,402 209,780 16,011 11,373 210,750
2 43,050 27,456 22,818 222,195 30,250 25,611 224,989 33,164 28,525 227,903
3 66,203 40,126 35,487 234,865 45,598 40,959 240,337 51,536 46,897 246,275
4 90,513 52,048 47,641 246,787 61,046 56,639 255,785 71,206 66,799 265,945
5 116,038 63,172 58,997 257,911 76,533 72,358 271,272 92,240 88,065 286,979
6 142,840 73,431 69,488 268,170 91,978 88,034 286,717 114,693 110,750 309,432
7 170,982 82,738 79,027 277,477 107,274 103,563 302,013 138,601 134,890 333,340
8 200,531 90,981 87,502 285,720 122,287 118,808 317,026 163,981 160,502 358,720
9 231,558 98,052 95,732 292,791 136,873 134,554 331,612 190,849 188,530 385,588
10 264,136 103,860 103,860 298,599 150,903 150,903 345,642 219,241 219,241 413,980
15 453,150 111,861 111,861 306,600 208,760 208,760 403,499 386,776 386,776 581,515
20 694,385 74,182 74,182 268,921 228,548 228,548 423,287 600,159 600,159 794,898
25 1,002,269 (*) (*) (*) 171,861 171,861 366,600 853,968 853,968 1,048,707
30 1,395,216 (*) (*) (*) (*) (*) (*) 1,139,903 1,139,903 1,334,642
35 1,896,726 (*) (*) (*) (*) (*) (*) 1,445,143 1,445,143 1,639,882
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
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.
64
<PAGE> 70
<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> 71
<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> 72
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 11 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 102 pages.
Representations and Undertakings.
Independent Auditors' Consent.
Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C>
1. Power of Attorney dated April 5, 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 (File No. 811-4399),
adopted and hereby incorporated herein by reference.
3. Distribution Contracts Attached hereto.
4. Form of Security Included with Pre-Effective Amendment No. 1 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 (File No. 811-4399), and hereby
incorporated herein by reference.
6. Application form of Security Included with Pre-Effective Amendment No. 1 and hereby
incorporated herein by reference.
7. Opinion of Counsel Included with Pre-Effective Amendment No. 1 and hereby
incorporated herein by reference.
</TABLE>
<PAGE> 73
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)(b)(13)(i)(A) under the 1940 Act with respect to the
policies described in the prospectus. The policies have been designed in such a
way as to qualify for the exemptive relief from various provisions of the 1940
Act afforded by Rule 6e-3(T).
(b) Paragraph (b)(13)(iii)(F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges") assumed by
Nationwide under the policies. Nationwide represents that the risk charges are
within the range of industry practice for comparable policies and reasonable in
relation to all of the risks assumed by the issuer under the policies. Actuarial
memoranda demonstrating the reasonableness of these charges are maintained by
Nationwide, and will be made available to the Securities and Exchange Commission
(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> 74
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> 75
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. 11 and has duly caused this Post-Effective Amendment No. 11 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 28th day of April, 2000.
NATIONWIDE VLI SEPARATE ACCOUNT
-----------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE INSURANCE COMPANY
Attest: -----------------------------------
(Sponsor)
GLENN W. SODEN By: STEVEN SAVINI
- ---------------------------------------- -------------------------------
Glenn W. Soden Steven Savini, Esq.
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment has been signed below by the following persons in the capacities
indicated on the 28th day of April, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- ----------------------------------------
Lewis J. Alphin
A. I. BELL Director
- ----------------------------------------
A. I. Bell
KENNETH D. DAVIS Director
- ----------------------------------------
Kenneth D. Davis
KEITH W. ECKEL Director
- ----------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ----------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- ----------------------------------------
Fred C. Finney
JOSEPH J. GASPER President and Chief Operating
- ---------------------------------------- Officer and Director
Joseph J. Gasper
DIMON R. MCFERSON Chairman and Chief Executive
- ---------------------------------------- Officer and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and
- ---------------------------------------- Director
David O. Miller
YVONNE L. MONTGOMERY Director
- ----------------------------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President and Chief
- ---------------------------------------- Financial Officer
Robert A. Oakley
RALPH M. PAIGE Director
- ----------------------------------------
Ralph M. Paige
JAMES F. PATTERSON Director
- ----------------------------------------
James F. Patterson
ARDEN L. SHISLER Director By /s/ STEVEN SAVINI
- ---------------------------------------- --------------------------------------
Arden L. Shisler Steven Savini
Attorney-in-Fact
ROBERT L. STEWART Director
- ----------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ----------------------------------------
Nancy C. Thomas
</TABLE>
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENT, that each of the undersigned as directors
and/or officers of NATIONWIDE LIFE INSURANCE COMPANY and NATIONWIDE LIFE AND
ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or will file
with the U.S. Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and if applicable, the Investment Company
Act of 1940, as amended, various Registration Statements and amendments thereto
for the registration under said Act(s) of Immediate or Deferred Variable Annuity
contracts in connection with MFS Variable Account, Nationwide Multi-Flex
Variable Account, Nationwide Variable Account, Nationwide Variable Account-11,
Nationwide Variable Account-3, Nationwide Variable Account-4, Nationwide
Variable Account-5, Nationwide Variable Account-6, Nationwide Fidelity Advisor
Variable Account, Nationwide Variable Account-8, Nationwide Variable Account-9,
Nationwide Variable Account-10, Nationwide Variable Account-11, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, and Nationwide VA Separate
Account-C; and the registration of fixed interest rate options subject to a
market value adjustment offered under some or all of the aforementioned
individual Variable Annuity Contracts in connection with Nationwide Multiple
Maturity Separate Account and Nationwide Multiple Maturity Separate Account-A;
and the registration of Group Flexible Fund Retirement Contracts in connection
with Nationwide DC Variable Account, Nationwide DCVA-II, and NACo Variable
Account; and the registration of Group Common Stock Variable Annuity Contracts
in connection with Separate Account No. 1; and the registration of variable life
insurance policies in connection with Nationwide VLI Separate Account,
Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, Nationwide
VLI Separate Account-4, Nationwide VLI Separate Account-5, Nationwide VL
Separate Account-A, Nationwide VL Separate Account-B, Nationwide VL Separate
Account-C and Nationwide VL Separate Account-D, as well as any future separate
accounts established by said corporation for the purpose of registering variable
annuities, variable life insurance policies or market value adjustment products
with the U.S. Securities and Exchange Commission, hereby constitute and appoint
Dimon Richard McFerson, Joseph J. Gasper, Robert J. Woodward, Jr., Philip C.
Gath, Richard A. Karas, Edwin P. McCausland, Jr., Douglas C. Robinette, Susan A.
Wolken, Mark B. Koogler, Steven R. Savini and Mark R. Thresher, and each of them
with power to act without the others, his/her attorney, with full power of
substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument may
be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and seals
as of this 5th day of April, 2000.
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------- -------------------------------------
Lewis J. Alphin, Director David O. Miller, Chairman of the
Board, Director
/s/ A. I. Bell /s/ Yvonne L. Montgomery
- ------------------------------------- -------------------------------------
A. I. Bell, Director Yvonne L. Montgomery, Director
/s/ Kenneth D. Davis /s/ Robert A. Oakley
- ------------------------------------- -------------------------------------
Kenneth D. Davis, Director Robert A. Oakley, Executive Vice
President Chief Financial Officer
/s/ Keith W. Eckel /s/ Ralph M. Paige
- ------------------------------------- -------------------------------------
Keith W. Eckel, Director Ralph M. Paige, Director
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------- -------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------- -------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------- -------------------------------------
Joseph J. Gasper, President and Robert L. Stewart, Director
Chief Operating Officer and Director
/s/ Dimon R. McFerson /s/ Nancy C. Thomas
- ------------------------------------- -------------------------------------
Dimon R. McFerson, Chairman and Chief Nancy C. Thomas, Director
Executive Officer and Director
<PAGE> 1
MARKETING COORDINATION AND
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement entered into this 1st day of May, 2000, between Nationwide Life
Insurance Company ("Nationwide"), and Nationwide Investment Services Corporation
("NISC").
Nationwide proposes to develop, issue and administer, and NISC proposes to
provide the exclusive national distribution services for certain annuity and
life products (the "Products"). The parties hereby agree as follows:
A. ADMINISTRATION OF PRODUCTS
1. Appointment of Product Administration
Nationwide is hereby appointed Product Administrator for the
Products.
2. Duties of Nationwide
Nationwide will perform in a proper and timely manner, those
functions enumerated in the column marked "Nationwide" in the
"Analysis of Administrative Functions," attached hereto as
EXHIBIT A, and incorporated herein by reference.
3. Duties of NISC
NISC will perform in a proper and timely manner, those
functions enumerated in the column marked "NISC" in the
"Analysis of Administrative Functions," attached hereto as
EXHIBIT A, and incorporated herein by reference.
B. MARKETING COORDINATION AND SALES ADMINISTRATION
1. Distribution of Products
The Products will be distributed through registered
representatives of NASD broker-dealer firms, appointed by
Nationwide, who shall be duly qualified and licensed as agents
(the "Agents"), in accordance with applicable state insurance
authority.
2. NISC shall be the exclusive National Distributor of the
Products.
<PAGE> 2
3. Appointment and Termination of Agents
Appointment and termination of Agents shall be processed and
executed by Nationwide. NISC reserves the right to require
Nationwide to consult with it regarding licensing decisions.
4. Advertising
NISC shall not print, publish or distribute any advertisement,
circular or document relating to the Products or relating to
Nationwide unless such advertisement, circular or document has
been approved in writing by Nationwide. Such approval shall
not be unreasonably withheld, and shall be given promptly,
normally within five (5) business days. Neither Nationwide nor
any of its affiliates shall print, publish or distribute any
advertisement, circular or document relating to the Products
or relating to NISC unless such advertisement, circular or
document has been approved in writing by NISC. Such approval
shall not be unreasonably withheld, and shall be given
promptly, normally within five (5) business days. However,
nothing herein shall prohibit any person from advertising the
Products on a generic basis.
5. Marketing Conduct
The parties will jointly develop standards, practices and
procedures respecting the marketing of the Products. Such
standards, practices and procedures are intended to help
Nationwide meet its obligations as an issuer under the
securities laws, to assure compliance with state insurance
laws, and to help NISC meet its obligations under the
securities laws as National Distributor. These standards,
practices and procedures are subject to continuing review and
neither Nationwide nor NISC will object unreasonably to
changes to such standards, practices and procedures
recommended by the other to comply with the intent of this
provision.
6. Sales Material and Other Documents
a. Sales Material
1) Nationwide shall develop and prepare all
promotional material to be used in the
distribution of the Products, in
consultation with NISC.
2) Nationwide is responsible for the printing
and the expense of providing such
promotional material.
3) Nationwide is responsible for approval of
such promotional material by state insurance
regulators, where required.
<PAGE> 3
4) NISC and Nationwide agree to abide by the
Advertising and Sales Promotion Material
Guidelines, attached hereto as EXHIBIT B,
and incorporated herein by reference.
b. Prospectuses
1) Nationwide is responsible for the
preparation and regulatory clearance of any
required registration statements and
prospectuses for the Products.
2) Nationwide is responsible for the printing
of Product prospectuses in such quantities
as the parties agree are necessary to assure
sufficient supplies.
3) Nationwide is responsible for supplying
Agents with sufficient quantities of Product
prospectuses.
c. Contracts, Applications and Related Forms
1) Nationwide, in consultation with NISC, is
responsible for the design and printing of
adequate supplies of Product applications,
contracts, related forms, and such service
forms as the parties agree are necessary.
2) Nationwide is responsible for supplying
adequate quantities of all such forms to the
Agents.
7. Appointment of Agents
a. NISC will assist Nationwide in facilitating the
appointment of Agents by Nationwide.
b. Nationwide will forward all appointment forms and
applications to the appropriate states and maintain
all contacts with the states.
c. Nationwide will maintain appointment files on Agents,
and NISC will have access to such files as needed.
8. Licensing and Appointment Guide
Nationwide shall provide to NISC a Licensing and Appointment
Guide (as well periodic updates thereto), setting forth the
requirements for licensing and appointment, in such quantities
as NISC may reasonably require.
<PAGE> 4
9. Other
a. Product Training
Nationwide is responsible for any Product training
for the Agents.
b. Field Sales Material
1) Nationwide, in consultation with NISC, is
responsible for the development, printing
and distribution of non-public field sales
material to be used by Agents.
2) NISC shall have the right to review all
field sales materials and to require any
modification mandated by regulatory
requirements.
c. Production Reports
Nationwide will deliver to NISC the items listed in
Production Reports to be Provided, attached hereto as
EXHIBIT C, and incorporated herein by reference.
d. Customer Service
Each party will notify the other of all material
pertinent inquiries and complaints it receives, from
whatever source and to whomever directed, and will
consult with the other in responding to such
inquiries and complaints.
e. Records and Books
All books and records maintained by Nationwide in
connection with the offer and sale of variable
annuity interests funded by a Separate Account are
maintained and preserved in conformity with the
requirements of Rule 17a-3 and 17a-4 under the 1934
Exchange Act, to the extent such requirements are
applicable to the variable annuity operations.
All such books and records are maintained and held by
Nationwide on behalf of and as agent for NISC, whose
property they are and shall remain. Such books and
records are at all times subject to inspection by the
Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
<PAGE> 5
C. GENERAL PROVISIONS
1. Waiver
The forbearance or neglect of either party to insist upon
strict compliance by the other with any of the provisions of
this Agreement, whether continuing or not, or to declare a
forfeiture of termination against the other, shall not be
construed as a waiver of any rights or privileges of the
forbearing party in the event of a further default or failure
of performance.
2. Limitations
Neither party shall have authority on behalf of the other to:
make, alter or discharge any contractual terms of the
Products; waive any forfeiture; extend the time of making any
contributions to the products; guarantee dividends; alter the
forms which either may prescribe; nor substitute other forms
in place of those prescribed by the other.
3. Binding Effect
This Agreement shall be binding on and shall inure to the
benefit of the parties to it and their respective successors
and assigns, provided that neither party shall assign or
sub-contract this Agreement or any rights or obligations
hereunder without prior written consent of the other.
4. Indemnification
Each party ("Indemnifying Party") hereby agrees to release,
indemnify and hold harmless the other party, its officers,
directors, employers, agents, servants, predecessors or
successors from any claims or liability arising out of the
acts or omissions of the Indemnifying Party not authorized by
this Agreement, including the violation of any federal or
state law or regulation.
5. Notices
All notices, requests, demands and other communication under
this Agreement shall be in writing and shall be deemed to have
been given on the date of service if served personally on the
party to whom notice is to be given, or on the date of mailing
if sent postage prepaid by First Class Mail, Registered or
Certified mail, by overnight mail, properly addressed as
follows:
TO NATIONWIDE:
Nationwide Life Insurance Company
Michael C. Butler, Vice President-Sales
Three Nationwide Plaza
Columbus, Ohio 43215
<PAGE> 6
TO NISC:
Nationwide Investment Services Corporation.
Barbara Shane, Vice President-Compliance Officer
Two Nationwide Plaza
Columbus, Ohio 43215
6. Governing Law
This Agreement shall be construed in accordance with and
governed by the laws of the State of Ohio.
7. Arbitration
The parties agree that misunderstandings or disputes arising
from this Agreement shall be decided by arbitration, conducted
upon request of either party before three arbitrators (unless
the parties agree on a single arbitrator) designated by the
American Arbitration Association, and in accordance with the
rules of such Association. The expenses of the arbitration
proceedings conducted hereunder shall be borne equally by both
parties.
8. Confidentiality
Any information, documents and materials, whether printed or
oral, furnished by either party or its agents or employees to
the other shall be held in confidence. No such information
shall be given to any third party, other than to such
sub-contractors of NISC as may be permitted herein, or under
requirements of a lawful authority, without the express
written consent of the other party.
D. TERM OF AGREEMENT
This Agreement, including the Exhibits attached hereto, shall remain in
full force and effect until terminated, and may be amended only by
mutual agreement of the parties in writing. Any decision by either
party to cease issuance or distribution of any specific Product shall
not effect a termination of the Agreement unless such termination is
mutually agreed upon, or unless notice is given pursuant to Section
E.2. hereof.
E. TERMINATION
1. Either party may terminate this Agreement for cause at any
time, upon written notice to the other, if the other knowingly
and willfully: (a) fails to comply with the laws or
regulations of any state or governmental agency or body having
jurisdiction over the sale of insurance or securities; (b)
misappropriates any money or property belonging to the other;
(c) subjects the other to any actual or potential liability
due to misfeasance, malfeasance, or nonfeasance; (d) commits
any fraud upon the other; (e) has an assignment for the
benefit of creditors; (f) incurs bankruptcy; or (g) commits a
material breach of this Agreement.
<PAGE> 7
2. Either party may terminate this Agreement, without regard to
cause, upon six months prior written notice to the other.
3. In the event of termination of this Agreement, the following
conditions shall apply:
a) The parties irrevocably acknowledge the continuing
right to use any Product trademark that might then be
associated with any Products, but only with respect
to all business in force at the time of termination.
b) In the event this Agreement is terminated the parties
will use their best efforts to preserve in force the
business issued pursuant to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date first above written.
NATIONWIDE LIFE INSURANCE
COMPANY
By: __________________________
Michael C. Butler
Title: Vice President - Sales
NATIONWIDE INVESTMENT SERVICES
CORPORATION
By: ________________________
Barbara Shane
Title: Vice President - Compliance Officer
<PAGE> 8
EXHIBIT A
ANALYSIS OF ADMINISTRATIVE FUNCTIONS
A. PRODUCT UNDERWRITING/ISSUE
NATIONWIDE NISC
- - Establishes underwriting criteria for - Consults with regard to new business
application processing and rejections. procedures and processing.
- - Reviews the completed application.
Applies underwriting/issue criteria to
application.
- - Notifies Agent and/or customer of
any error or missing data necessary to
underwrite application and establish
records for owner of Product ("Contract
Owner").
- - Prepares policy data page for
approved business and mails with policy
to Contract Owner.
- - Establishes and maintains all records
required for each Contract Owner, as
applicable.
- - Prepares and mails confirmation and
other statements to Contract Owners and
Agents, as required.
- - Prints, provides all forms ancillary
to issue of contract/policy forms for
Products.
- - Maintains supply of approved specimen
policy forms and all ancillary forms,
distributes same to Agents.
<PAGE> 9
B. BILLING AND COLLECTION
NATIONWIDE
- - Receives premium/purchase
payments and reconciles amount
received with remittance media.
- - Updates Contract Owner records to
reflect receipt of premium/purchase
payment and performs accounting/
investment allocation of each
payment received.
- - Deposits all cash received under the
Products in accordance with the
terms of the Products.
C. BANKING
NATIONWIDE
- - Balances, edits, endorses and prepares daily deposit.
- - Places deposits in depository account.
- - Prepares daily cash journal summary reports and
maintains same for review by NISC.
<PAGE> 10
D. PRICING/VALUATION/ACCOUNTING/TRADING
NATIONWIDE NISC
- - Maintains and makes available, as - Cooperates in annual audit of separate
reasonably requested, records used in account financials conducted for purposes
determining "Net Amount Available for of financial statement certification and
Investment." publication.
- - Collects information needed in - Will clear and settle Mutual Fund
determining Variable Account unit trades on behalf of the separate accounts
values from the Funds including using the National Securities Clearing
daily net asset value, capital Corporation FUND/Serv System.
gains or dividend distributions,
and the number of Fund Shares
acquired or sold during the
immediately preceding valuation
period.
- - Performs daily unit valuation
calculation.
<PAGE> 11
E. CONTRACT OWNER SERVICE/
RECORD MAINTENANCE
NATIONWIDE NISC
- - Receives and processes all - Accommodates customer service function
Contract Owner service requests, by providing any supporting information
including but not limited to or documentation which may be in the
informational requests, beneficiary control of NISC.
changes, and transfers of Contract
Value among eligible investment
options.
- - Maintains daily records of all
changes made to Contract Owner
accounts.
- - Researches and responds to all
Contract Owner/Agent inquiries.
- - Keeps all required Contract Owner
records.
- - Maintains adequate number of toll
free lines to service Contract Owner/
Agent inquiries.
F. DISBURSEMENTS (SURRENDERS,
DEATH CLAIMS, LOANS)
NATIONWIDE NISC
- - Receives and processes surrenders,
loans, and death claims in accordance
with established guidelines.
- - Prepares checks for surrenders,
loans, and death claims, and forwards
to Contract Owner or Beneficiary.
Prepares and mails confirmation
statement of disbursement to Contract
Owner/Beneficiary with copy to Agent.
<PAGE> 12
G. COMMISSIONS
NATIONWIDE NISC
- - Ascertains, on receipt of - Receives and performs record keeping
applications, whether writing Agent for investment company payments made
is appropriately licensed. under a 12b-1 Plan.
- - Pays commissions and other fees
in accordance with agreements
relating to same.
H. PROXY PROCESSING
NATIONWIDE NISC
- - Receives record date information
from Funds Receives proxy
solicitation materials from Funds.
- - Prepares Voting Instruction cards
and mails solicitation, if necessary.
- - Tabulates and votes all Fund Shares
in accordance with SEC requirements.
I. PERIODIC REPORTS TO CONTRACT OWNERS
NATIONWIDE NISC
- - Prepares and mails quarterly and
annual Statements of Account to
Contract Owners.
- - Prepares and mails all semi-annual
and annual reports of Variable
Account(s) to Contract Owners.
<PAGE> 13
J. REGULATORY/STATEMENT REPORTS
NATIONWIDE NISC
- - Prepares and files Separate Account - Prepares and files periodic FOCUS
Annual Statements. Reports with the NASDR and SEC, as
applicable.
- - Prepares and mails the appropriate, - Prepares and files annual audited
required IRS reports at the Contract financial statements with required
Owner level. Files same with required regulatory agencies.
regulatory agencies.
- - Prepares and files form N-SAR for
the Separate Account.
K. PREMIUM TAXES
NATIONWIDE NISC
- - Collects, pays and accounts for
premium taxes as appropriate.
- - Prepares and maintains all premium
tax records by state.
- - Maintains liabilities in General
Account ledger for accrual of premium
tax collected.
- - Integrates all company premium taxes
due and performs related accounting.
L. FINANCIAL AND MANAGEMENT REPORTS
NATIONWIDE NISC
- - Provides periodic reports in - Provides periodic reports in accordance
accordance with the Schedule of with the Schedule of Reports to be
Reports to be prepared jointly by prepared jointly by Nationwide and NISC.
Nationwide and NISC. (See EXHIBIT C) (See EXHIBIT C)
<PAGE> 14
M. AGENT LICENSE RECORDKEEPING
NATIONWIDE NISC
- - Receives, establishes, processes, - Maintains securities registrations and
and maintains Agent appointment assumes supervisory responsibility for
records. representatives of affiliated sales and
marketing companies involved in the
wholesale distribution of Nationwide
variable contract products.
- Maintains training, supervisory, and
other required records for and on behalf
of registered representatives of NISC.
<PAGE> 15
EXHIBIT B
ADVERTISING AND SALES PROMOTION MATERIAL GUIDELINES
FOR APPROVAL BY NATIONWIDE AND NISC
In order to assure compliance with state and federal regulatory requirements and
to maintain control over the distribution of promotional materials dealing with
the Products, Nationwide and NISC require that all variable contract promotional
materials be reviewed and approved by both Nationwide and NISC prior to their
use. These guidelines are intended to provide appropriate regulatory and
distribution controls.
1. Sufficient lead time must be allowed in the submission of all
promotional material. Nationwide and NISC shall approve in writing all
promotional material. Such approval shall not be unreasonably withheld,
and shall be given promptly, normally within five (5) days.
2. All promotional material will be submitted in "draft" form to permit
any changes or corrections to be made prior to the printing.
3. Nationwide and NISC will provide each other with details as to each and
every use of all promotional material submitted. Approval for one use
will not constitute approval for any other use. Different standards of
review may apply when the same advertising material is intended for
different uses. The following information will be provided for each
item of promotional material:
a. In what jurisdiction(s) the material will be used.
b. Whether distribution will be to broker/dealer, entity,
participant, etc.
c. How the material will be used (e.g., brochure, mailing, web
site, etc.)
d. The projected date of initial use.
4. Each party will advise the other of the date it discontinues the use of
any material.
5. Any changes to previously approved promotional material must be
resubmitted, following these procedures. When approved material is to
be put to a different use, request for approval of the material for the
new use must be submitted.
6. Nationwide will assign a form number to each item of advertising and
sales promotional material. This number will appear on each piece of
advertising and sales promotional material. It will be used to aid in
necessary filings, and to maintain appropriate controls.
7. Nationwide and NISC will provide written approval for all material to
be used.
8. Nationwide will be responsible to effect necessary state filings.
9 NISC will coordinate SEC/NASD filings of sales and promotional
material.
10. All telephone communication and written correspondence regarding
promotional materials should be directed to Office of Product and
Market Compliance, Nationwide Life Insurance Company, One Nationwide
Plaza, Columbus, Ohio 43215
