<PAGE> 1
[NATIONWIDE LIFE INSURANCE COMPANY - LOGO]
NATIONWIDE(R)
VARIABLE
ACCOUNT-3
SEMI-ANNUAL REPORT
TO
CONTRACT OWNERS
JUNE 30, 2000
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
APO-1545-AC (06/00))
<PAGE> 2
[NATIONWIDE LIFE INSURANCE COMPANY - LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PHOTO OF PRESIDENT]
PRESIDENT'S MESSAGE
We at Nationwide Life Insurance Company are pleased to bring you the 2000
semi-annual report of the Nationwide Variable Account-3.
During the first half of 2000 fixed income and equity markets took a hiatus from
their recent advances. It appears the Federal Reserve's interest rate hikers are
accomplishing the intended purpose. Recent economic statistics show some
moderation in the areas of home and vehicles sales because of the higher
interest costs. And, there are other favorable indications that the Fed may yet
"glide" the economy to a soft landing. Inflation remains low. Sustained
increases in worker productivity continue to dampen pricing pressures of an
increasingly tight labor pool. Corporate profitability growth remains viable. An
improving global economy bodes well for U.S. exporting businesses. While all
this provides a positive backdrop, we expect the markets will continue jittery
and volatile during the second half of the year as uncertainty over further Fed
actions persists. However, we believe patient investors in financial assets will
be amply rewarded when we move beyond this temporary respite.
Nationwide Life was a forerunner in the variable annuity and variable life
insurance business. We continue to develop new and innovative investment
products to better meet your financial planning and retirement needs. And, we
are equally committed to providing you, our valued customer, the exceptional
level of customer service you expect and deserve.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
August 16, 2000
2
<PAGE> 3
HOW TO READ THE SEMI-ANNUAL REPORT
This semi-annual report is a presentation of the variable account as a whole and
only describes the underlying contracts and products of the variable account in
general terms. Please note the variable account may have more than one variable
product available. Such products may have different underlying mutual funds
available than those available in your contract. Therefore, not all funds listed
in this report may be available in your contract. Please refer to your most
recent account statement for specific information about your investment in the
Nationwide Variable Account-3. Rules and regulations of the United States
Securities and Exchange Commission and recognized conventions of Generally
Accepted Accounting Principals prescribe the format and content of this report.
We also invite you to call our service center at 1-800-848-6331 if you have
questions about your account, or you may access your account using our voice
response unit. And, please visit our web-site at www.nwservicecenter.com for
additional information about your contract and to learn more about other
products and services offered by Nationwide Financial.
THE ANNUAL REPORT HAS FOUR MAJOR FINANCIAL SECTIONS:
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNER'S EQUITY
This statement begins on page 4 and lists all of the underlying mutual funds of
the variable account, the number of shares owned, the amount paid for the shares
and their market value as of the close of business on June 30, 2000. The mutual
funds are listed in alphabetical order. The market value of the assets changes
as the underlying mutual funds change in value. As contract owners make exchange
transactions between the funds, the number of shares increases or decreases
accordingly. When money is deposited or withdrawn by a contract owner, shares
are correspondingly purchased or redeemed. The total market value of the funds
is equal to the TOTAL INVESTMENTS of the variable account.
ACCOUNTS RECEIVABLE, if applicable, represents an asset of the variable account
for money market fund shares purchased by contract owners and reinvested
dividend shares added to contract owners' accounts, but not yet added to Total
investments. Total investments plus Accounts receivable equal TOTAL ASSETS of
the variable account.
ACCOUNTS PAYABLE, if applicable, is a liability of the variable account for
money market fund shares redeemed by contract owners' but not yet deducted from
Total investments.
Total assets minus Accounts payable equals CONTRACT OWNERS' EQUITY. A summary of
Contract owners' equity by funds series may be found on page 5. This summary
also includes investment return for the reporting period for each fund series.
STATEMENTS OF OPERATIONS AND STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
These statements begin on page 6 and present the financial activity of each
underlying mutual fund sub-account of the variable account, for the periods
indicated.
The INVESTMENT ACTIVITY section shows income to the variable account for
reinvested dividends and capital gain distributions paid by the underlying
mutual funds. Also shown are the mortality, expense and administration charges
which are assessed through the daily unit value calculation and which represent
an expense to the variable account and its contract owners. This section also
shows the realized gain or loss as mutual fund shares are sold, and the change
in unrealized gain or loss, which represents the changes in market value of the
underlying fund shares.
The EQUITY TRANSACTIONS section illustrates the receipt of purchase payments, as
new contracts are sold or additional payments made to existing contracts. Also
presented are deductions from the variable account when the contract owners
withdraw money.
The sum of the above two sections represents the NET CHANGE IN CONTRACT OWNERS'
EQUITY which when added to the beginning Contract owners' equity equals Contract
owners' equity at the end of the reporting period.
NOTES TO FINANCIAL STATEMENTS, beginning on page 9, provide further disclosures
about the variable account and its underlying contract provisions.
3
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NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
Van Kampen LIT - Asset Allocation Fund
2,135,964 shares (cost $24,906,939) ......................... $23,260,646
Van Kampen LIT - Domestic Income Fund
450,682 shares (cost $3,751,477) ............................ 3,344,061
Van Kampen LIT - Emerging Growth Fund
186,622 shares (cost $6,831,323) ............................ 9,612,923
Van Kampen LIT - Enterprise Fund
1,495,585 shares (cost $29,764,654) ......................... 37,793,442
Van Kampen LIT - Global Equity Fund
55,304 shares (cost $898,346) ............................... 888,189
Van Kampen LIT - Government Fund
330,805 shares (cost $2,984,528) ............................ 2,854,847
Van Kampen LIT - Money Market Fund
1,983,805 shares (cost $1,983,805) .......................... 1,983,805
Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio
24,649 shares (cost $353,396) ............................... 331,770
-----------
Total investments ........................................ 80,069,683
Accounts receivable ............................................... 2,602
-----------
Total assets ............................................. 80,072,285
ACCOUNTS PAYABLE ..................................................... 148
-----------
CONTRACT OWNERS' EQUITY .............................................. $80,072,137
===========
</TABLE>
4
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<TABLE>
<CAPTION>
PERIOD
Contract owners' equity represented by: UNITS UNIT VALUE RETURN*
-------- ---------- --------
<S> <C> <C> <C> <C>
Contracts in accumulation phase:
Van Kampen LIT - Asset Allocation Fund:
Tax qualified ............................ 245,782 34.143472 $ 8,391,851 0%
Non-tax qualified ........................ 434,983 34.143472 14,851,830 0%
Van Kampen LIT - Domestic Income Fund:
Tax qualified ............................ 51,028 18.764203 957,500 0%
Non-tax qualified ........................ 126,590 18.764203 2,375,360 0%
Van Kampen LIT - Emerging Growth Fund:
Tax qualified ............................ 70,981 48.383859 3,434,335 11%
Non-tax qualified ........................ 127,703 48.383859 6,178,764 11%
Van Kampen LIT - Enterprise Fund:
Tax qualified ............................ 184,451 66.308014 12,230,579 6%
Non-tax qualified ........................ 384,910 66.308014 25,522,618 6%
Van Kampen LIT - Global Equity Fund:
Tax qualified ............................ 19,469 19.617035 381,924 (6)%
Non-tax qualified ........................ 25,809 19.617035 506,296 (6)%
Van Kampen LIT - Government Fund:
Tax qualified ............................ 33,302 17.129201 570,437 4%
Non-tax qualified ........................ 131,960 17.129201 2,260,369 4%
Van Kampen LIT - Money Market Fund:
Tax qualified ............................ 31,540 16.102897 507,885 2%
Non-tax qualified ........................ 90,439 16.102897 1,456,330 2%
Van Kampen LIT - Morgan Stanley
Real Estate Securities Portfolio:
Tax qualified ............................ 5,668 16.908684 95,838 14%
Non-tax qualified ........................ 13,954 16.908684 235,944 14%
======== =========
Reserves for annuity contracts in payout phase:
Tax qualified ............................ 1,904
Non-tax qualified ........................ 112,373
------------
$ 80,072,137
============
</TABLE>
* The period return does not include contract charges satisfied by surrendering
units.
See accompanying notes to financial statements.
5
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NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY
----------------------------------
STATEMENTS OF OPERATIONS
----------------------------------
SIX MONTH PERIODS ENDED JUNE 30,2000 AND 1999
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL ASSET ALLOCATION FUND
------------------------------ ----------------------------
2000 1999 2000 1999
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ $ 1,585,965 1,917,366 938,199 992,341
Mortality, expense and administration
charges (note 2) .............................. (544,956) (594,275) (158,668) (192,677)
------------ ---------- ---------- ----------
Net investment activity ....................... 1,041,009 1,323,091 779,531 799,664
------------ ---------- ---------- ----------
Proceeds from mutual fund shares sold ........... 21,000,387 20,636,637 3,229,540 4,546,783
Cost of mutual fund shares sold ................. (16,862,673) (16,871,588) (3,395,682) (3,640,667)
------------ ---------- ---------- ----------
Realized gain (loss) on investments ........... 4,137,714 3,765,049 (166,142) 906,116
Change in unrealized gain (loss) on investments . (7,596,593) (7,628,758) (2,459,959) (4,418,229)
------------ ---------- ---------- ----------
Net gain (loss) on investments ................ (3,458,879) (3,863,709) (2,626,101) (3,512,113)
------------ ---------- ---------- ----------
Reinvested capital gains ........................ 5,704,420 5,717,165 1,945,317 2,990,224
------------ ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 3,286,550 3,176,547 98,747 277,775
------------ ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................... 699,640 606,908 79,774 155,331
Transfers between funds ......................... - - 417,062 (1,066,142)
Redemptions ..................................... (9,748,264) (12,341,754) (2,785,657) (3,075,872)
Annuity benefits ................................ (13,581) (13,081) (4,812) (4,826)
Annual contract maintenance charge (note 2) ..... (27,867) (33,557) (10,520) (13,087)
Contingent deferred sales charges (note 2) ...... (6,240) (17,966) (2,444) (7,723)
Adjustments to maintain reserves ................ 2,913 234 637 123
------------ ---------- ---------- ----------
Net equity transactions .................... (9,093,399) (11,799,216) (2,305,960) (4,012,196)
------------ ---------- ---------- ----------
Net change in contract owners' equity ............. (5,806,849) (8,622,669) (2,207,213) (3,734,421)
Contract owners' equity beginning of period ....... 85,878,986 95,228,123 25,468,496 31,656,055
------------ ---------- ---------- ----------
Contract owners' equity end of period ............. $ 80,072,137 86,605,454 23,261,283 27,921,634
============ ========== ========== ==========
<CAPTION>
DOMESTIC INCOME FUND EMERGING GROWTH FUND
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ 288,470 429,732 - -
Mortality, expense and administration
charges (note 2) .............................. (22,902) (40,522) (63,212) (30,052)
--------- --------- --------- ---------
Net investment activity ....................... 265,568 389,210 (63,212) (30,052)
--------- --------- --------- ---------
Proceeds from mutual fund shares sold ........... 749,464 1,366,647 3,388,023 599,675
Cost of mutual fund shares sold ................. (834,523) (1,342,355) (1,005,242) (318,545)
--------- --------- --------- ---------
Realized gain (loss) on investments ........... (85,059) 24,292 2,382,781 281,130
Change in unrealized gain (loss) on investments . (190,417) (643,784) (1,418,742) 660,430
--------- --------- --------- ---------
Net gain (loss) on investments ................ (275,476) (619,492) 964,039 941,560
--------- --------- --------- ---------
Reinvested capital gains ........................ - - 28,081 -
--------- --------- --------- ---------
Net increase (decrease) in contract owners'
equity resulting from operations ......... (9,908) (230,282) 928,908 911,508
--------- --------- --------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................... 9,086 28,173 140,252 90,305
Transfers between funds ......................... 13,347 44,751 1,311,432 728,216
Redemptions ..................................... (617,757) (886,510) (658,807) (186,707)
Annuity benefits ................................ (1,218) (1,273) - -
Annual contract maintenance charge (note 2) ..... (1,730) (2,751) (2,361) (1,876)
Contingent deferred sales charges (note 2) ...... (992) (2,135) (636) (994)
Adjustments to maintain reserves ................ 57 (151) 265 53
--------- --------- --------- ---------
Net equity transactions .................... (599,207) (819,896) 790,145 628,997
--------- --------- --------- ---------
Net change in contract owners' equity ............. (609,115) (1,050,178) 1,719,053 1,540,505
Contract owners' equity beginning of period ....... 3,953,218 6,707,663 7,894,047 4,115,804
--------- --------- --------- ---------
Contract owners' equity end of period ............. 3,344,103 5,657,485 9,613,100 5,656,309
========= ========= ========= =========
</TABLE>
6
<PAGE> 7
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
----------------------------------
STATEMENTS OF OPERATIONS, CONTINUED
----------------------------------
SIX MONTH PERIODS ENDED JUNE 30,2000 AND 1999
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
ENTERPRISE FUND GLOBAL EQUITY FUND
------------------------------ -------------------------
2000 1999 2000 1999
------------ ---------- ------- -------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ $ 66,097 115,759 2,137 2,343
Mortality, expense and administration
charges (note 2) .............................. (246,992) (251,705) (9,782) (5,414)
------------ ---------- ------- -------
Net investment activity ....................... (180,895) (135,946) (7,645) (3,071)
------------ ---------- ------- -------
Proceeds from mutual fund shares sold ........... 5,071,962 7,760,058 873,434 135,136
Cost of mutual fund shares sold ................. (3,264,605) (5,219,605) (660,274) (130,078)
------------ ---------- ------- -------
Realized gain (loss) on investments ........... 1,807,357 2,540,453 213,160 5,058
Change in unrealized gain (loss) on investments . (3,243,411) (2,960,494) (260,534) 83,268
------------ ---------- ------- -------
Net gain (loss) on investments ................ (1,436,054) (420,041) (47,374) 88,326
------------ ---------- ------- -------
Reinvested capital gains ........................ 3,730,163 2,726,941 859 -
------------ ---------- ------- -------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 2,113,214 2,170,954 (54,160) 85,255
------------ ---------- ------- -------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................... 309,029 275,030 64,300 17,607
Transfers between funds ......................... 615,881 (1,218,296) 115,232 (13,248)
Redemptions ..................................... (3,773,212) (4,913,871) (159,611) (66,383)
Annuity benefits ................................ (3,622) (2,938) - -
Annual contract maintenance charge (note 2) ..... (10,285) (11,705) (412) (399)
Contingent deferred sales charges (note 2) ...... (1,814) (4,551) (19) (215)
Adjustments to maintain reserves ................ 1,350 267 300 2
------------ ---------- ------- -------
Net equity transactions .................... (2,862,673) (5,876,064) 19,790 (62,636)
------------ ---------- ------- -------
Net change in contract owners' equity ............. (749,459) (3,705,110) (34,370) 22,619
Contract owners' equity beginning of period ....... 38,544,208 41,283,855 922,581 862,619
------------ ---------- ------- -------
Contract owners' equity end of period ............. $ 37,794,749 37,578,745 888,211 885,238
============ ========== ======= =======
<CAPTION>
GOVERNMENT FUND MONEY MARKET FUND
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ 188,772 206,767 88,808 146,808
Mortality, expense and administration
charges (note 2) .............................. (19,777) (26,956) (21,632) (44,560)
--------- --------- --------- ---------
Net investment activity ....................... 168,995 179,811 67,176 102,248
--------- --------- --------- ---------
Proceeds from mutual fund shares sold ........... 789,000 629,977 6,852,026 5,529,793
Cost of mutual fund shares sold ................. (784,724) (613,821) (6,852,026) (5,529,793)
--------- --------- --------- ---------
Realized gain (loss) on investments ........... 4,276 16,156 - -
Change in unrealized gain (loss) on investments . (68,431) (364,744) - -
--------- --------- --------- ---------
Net gain (loss) on investments ................ (64,155) (348,588) - -
--------- --------- --------- ---------
Reinvested capital gains ........................ - - - -
--------- --------- --------- ---------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 104,840 (168,777) 67,176 102,248
--------- --------- --------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................... 8,951 11,658 60,326 23,183
Transfers between funds ......................... (146,582) 287,464 (2,309,337) 1,249,465
Redemptions ..................................... (482,570) (452,922) (1,248,797) (2,747,262)
Annuity benefits ................................ (2,395) (2,510) (1,534) (1,534)
Annual contract maintenance charge (note 2) ..... (1,406) (1,781) (1,048) (1,852)
Contingent deferred sales charges (note 2) ...... (292) (201) (31) (2,103)
Adjustments to maintain reserves ................ 68 (46) 239 (13)
--------- --------- --------- ---------
Net equity transactions .................... (624,226) (158,338) (3,500,182) (1,480,116)
--------- --------- --------- ---------
Net change in contract owners' equity ............. (519,386) (327,115) (3,433,006) (1,377,868)
Contract owners' equity beginning of period ....... 3,374,279 4,183,233 5,417,031 6,020,585
--------- --------- --------- ---------
Contract owners' equity end of period ............. 2,854,893 3,856,118 1,984,025 4,642,717
========= ========= ========= =========
</TABLE>
(continued)
7
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NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
-------------------------------------
STATEMENTS OF OPERATIONS, CONTINUED
-------------------------------------
SIX MONTH PERIODS ENDED JUNE 30,2000 AND 1999
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY REAL ESTATE
SECURITIES PORTFOLIO
------------------------
2000 1999
--------- -------
<S> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ $ 13,482 23,616
Mortality, expense and administration
charges (note 2) .............................. (1,991) (2,389)
--------- -------
Net investment activity ....................... 11,491 21,227
--------- -------
Proceeds from mutual fund shares sold ........... 46,938 68,568
Cost of mutual fund shares sold ................. (65,597) (76,724)
--------- -------
Realized gain (loss) on investments ........... (18,659) (8,156)
Change in unrealized gain (loss) on investments . 44,901 14,795
--------- -------
Net gain (loss) on investments ................ 26,242 6,639
--------- -------
Reinvested capital gains ........................ - -
--------- -------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 37,733 27,866
--------- -------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................... 27,922 5,619
Transfers between funds ......................... (17,035) (12,210)
Redemptions ..................................... (21,853) (12,226)
Annuity benefits ................................ - -
Annual contract maintenance charge (note 2) ..... (105) (106)
Contingent deferred sales charges (note 2) ...... (12) (43)
Adjustments to maintain reserves ................ (3) (1)
--------- -------
Net equity transactions .................... (11,086) (18,967)
--------- -------
Net change in contract owners' equity ............. 26,647 8,899
Contract owners' equity beginning of period ....... 305,126 398,309
--------- -------
Contract owners' equity end of period ............. $ 331,773 407,208
========= =======
</TABLE>
See accompanying notes to financial statements.
8
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NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
Nationwide Variable Account-3 (the Account) was established pursuant to
a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on October 7, 1987. The Account has been
registered as a unit investment trust under the Investment Company Act
of 1940.
The Company offers tax qualified and non-tax qualified Individual
Deferred Variable Annuity Contracts through the Account. The primary
distribution for the contracts is through the brokerage community;
however, other distributors may be utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase.
See note 2 for a discussion of contract expenses.
Contract owners in either the accumulation or the payout phase may
invest in the following funds of the Van Kampen Life Investment Trust
(Van Kampen LIT):
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 June 30, 2000, 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 contract expenses (see note 2). 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)
9
<PAGE> 10
NATIONWIDE VARIABLE ACCOUNT-3
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 June 30, 2000. The cost of investments
sold is determined on a specific identification basis. Investment
transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on 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 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.
(f) Calculation of Annuity Reserves
Annuity reserves are computed for contracts in the variable payout
stage according to industry standard mortality tables. The assumed
investment return is 3.5 percent unless the annuitant elects otherwise,
in which case the rate may vary from 3.5 percent to 7 percent, as
regulated by the laws of the respective states. The mortality risk is
fully borne by the Company and may result in additional amounts being
transferred into the Account by the Company to cover greater longevity
of annuitants than expected. Conversely, if reserves exceed amounts
required, transfers may be made to the Company.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of
such contracts is surrendered, the Company will, with certain exceptions,
deduct from the contract owner's contract value a contingent deferred sales
charge, not to exceed 6% (3% after 36 months) of the lesser of the total of
all purchase payments made within 72 months prior to the date of the
request for surrender, or the amount surrendered. (For contracts issued in
the State of New York, the contingent deferred sales charge will not exceed
7% of purchase payments, such charge declining 1% per year, to 0%, after
the purchase payment has been held in the contract for seven years.) No
sales charges are deducted on redemptions used to purchase units in the
fixed investment options of the Company.
The following contract charges are deducted by the Company: (a) an annual
contract maintenance charge of up to $35, dependent upon contract type and
issue date (up to $30, dependent upon contract type and issue date, for
contracts issued in the State of New York), which is satisfied by
surrendering units; and (b) a mortality risk charge, an expense risk charge
and an administration charge assessed through the daily unit value
calculation equal to an annual rate of 0.80%, 0.45% and 0.05%,
respectively.
(3) 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.
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NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43215-2220 ---------------
Bulk Rate
U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
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Nationwide(R) is a registered federal service mark of Nationwide Mutual
Insurance Company
