<PAGE> 1
Registration No. 33-44789
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 7
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
--------------------
NATIONWIDE VLI SEPARATE ACCOUNT-3
(EXACT NAME OF TRUST)
--------------------
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
GORDON E. MCCUTCHAN
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(NAME AND ADDRESS OF AGENT FOR SERVICE)
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus and the Financial Statement.
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) (i) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of securities by a prior
registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Pursuant to Paragraph (a)(3) thereof, a non-refundable
fee in the amount of $500.00 has been paid to the Commission. Pursuant to
Paragraph (b)(2) of Rule 24f-2, the Registrant need not file a Notice for the
fiscal year ended December 31, 1995, because it did not sell any securities
during that most recent fiscal year.
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1 of 86
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
The Variable Account
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Custodian of Assets
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Variable Account
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information About The Policies; How
The Cash Value Varies; Right to
Exchange for a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments of The Variable Account
12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Variable Account
13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy Charges
Reinstatement
14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Underwriting and Issuance - Premium
Payments
Minimum Requirements for Issuance
of a Policy
15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments of the Variable Account;
Premium Payments
16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Underwriting and Issuance -
Allocation of Cash Value
17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Surrendering The Policy for Cash
18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reinvestment
19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy Loans
22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company Management
29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company Management
30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
41(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How The Cash Value Varies
45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
2 of 86
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
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>
3 of 86
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 182150
One Nationwide Plaza
Columbus, Ohio 43218-2150
(800) 243-6295, TDD 1-800-238-3035
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES**
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-3
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage on the Insured named in the
Policy. The Policies may also provide a Cash Surrender Value if the Policy is
terminated during the lifetime of the Insured. The Death Benefit and Cash
Value of the Policies may vary to reflect the experience of the Nationwide VLI
Separate Account-3 (the "Variable Account") or the Fixed Account to which Cash
Values are allocated.
The Policies described in this prospectus may meet the definition of "modified
endowment contracts" under Section 7702A of the Internal Revenue Code (the
"Code"). The Code provides for taxation of surrenders, partial surrenders,
loans, collateral assignments and other pre-death distributions from modified
endowment contracts in the same way annuities are taxed. Any distribution is
taxable to the extent the Cash Value of the Policy exceeds, at the time of the
distribution, the premiums paid into the Policy. The Code also provides for a
10% tax penalty on the taxable portion of such distributions. That penalty is
applicable unless the distribution is 1) paid after the Policy Owner is 59 1/2
or disabled; or 2) the distribution is part of an annuity to the Policy Owner
as defined in the Code (see "Tax Matters").
It may not be advantageous to replace existing insurance with Policies
described in this prospectus. It may also be disadvantageous to purchase a
policy to obtain additional insurance protection if the purchaser already owns
another variable life insurance policy. The policies may not be advantageous
for persons who may wish to make policy loans or withdrawals prior to attaining
age 59 1/2 (see "Tax Matters").
The Policy Owner may allocate premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at Net Asset Value, shares of a
designated Mutual Fund in the following series of the underlying variable
account Mutual Fund options:
<TABLE>
<S> <C>
DREYFUS: OPPENHEIMER VARIABLE ACCOUNT FUNDS:
-Dreyfus Stock Index Fund -Oppenheimer Bond Fund
-Dreyfus Socially Responsible Growth Fund -Oppenheimer Global Securities Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: -Oppenheimer Multiple Strategies Fund
-Equity-Income Portfolio STRONG SPECIAL FUND II, INC.
-Growth Portfolio STRONG VARIABLE INSURANCE FUNDS, INC.
-High Income Portfolio * -Discovery Fund II, Inc.
-Overseas Portfolio -International Stock Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: TCI PORTFOLIOS, INC.:
-Asset Manager Portfolio -TCI Advantage
-Contrafund Portfolio -TCI Balanced
NATIONWIDE SEPARATE ACCOUNT TRUST: -TCI Growth
-Capital Appreciation Fund -TCI International
-Government Bond Fund VAN ECK WORLDWIDE INSURANCE TRUST
-Money Market Fund -Gold & Natural Resources Fund
-Small Company Fund -Worldwide Bond Fund
-Total Return Fund VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST:
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST: -American Capital Real Estate Securities Fund
-Balanced Portfolio WARBURG PINCUS TRUST
-Growth Portfolio -International Equity Portfolio
-Limited Maturity Bond Portfolio -Small Company Growth Portfolio
-Partners Portfolio
</TABLE>
*The High Income Portfolio may invest in lower quality debt securities commonly
referred to as junk bonds.
Nationwide Life Insurance Company ("the Company") guarantees that the Death
Benefit for a Policy will never be less than the Specified Amount stated on the
Policy data pages as long as the Policy is in force. There is no guaranteed
Cash Surrender Value. If the Cash Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse.
This prospectus generally describes only that portion of the Cash Value
allocated to the Variable Account. For a brief summary of the Fixed Account
Option, see "The Fixed Account Option" section of this prospectus.
1
<PAGE> 5
**The contract is titled a "Flexible Premium Life Variable Insurance Policy" in
Texas.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
The date of this Prospectus is May 1, 1996.
2
<PAGE> 6
GLOSSARY OF TERMS
ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full
years since the Policy Date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Cash Value.
BENEFICIARY- The person to whom the proceeds due on the Insured's death are
paid.
CASH VALUE- The sum of the value of Policy assets in the Variable Account,
Fixed Account and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE- The Policy's Cash Value, less any indebtedness under the
Policy, less any Surrender Charge.
CODE- The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life Insurance Company.
DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Code. It represents the single premium required to
mature the Policy under guaranteed mortality and expense charges, and an
interest rate of 6%.
HOME OFFICE- The main office of the Company located in Columbus, Ohio.
INSURED- The person whose life is covered by the Policy, and who is named on
the Policy Data Page.
MATURITY DATE- The Policy Anniversary on or following the Insured's 95th
birthday.
MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding
month.
MUTUAL FUNDS- The underlying Mutual Funds which correspond to the sub-accounts
of the Variable Account.
NET ASSET VALUE- The worth of one share at the end of a market day or at the
close of the New York Stock Exchange. Net Asset Value is computed by adding
the value of all portfolio holdings, plus other assets, deducting liabilities
and then dividing the results by the number of shares outstanding.
POLICY ANNIVERSARY DATE- An anniversary of the Policy Date.
POLICY CHARGES- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy Data Page.
POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy
Loans.
POLICY OWNER- The person designated in the Policy application as the Owner. In
the State of New York, the variable life insurance policies offered by the
Company are offered as either "Certificates" for "Certificate Owners" under a
group contract or as individual Policies. The provisions of both these
Certificates and the Policies are essentially the same and references to the
provisions of Policies and rights of Policy Owners in the prospectus include
Certificates and Certificate Owners.
POLICY YEAR- Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
SPECIFIED AMOUNT- A dollar amount used to determine the Death Benefit under a
Policy. It is shown on the Policy Data Page.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
VALUATION DATE- Each day the New York Stock Exchange and the Company's Home
Office is open for business or any other day during which there is sufficient
degree of trading that the current Net Asset Value of the Accumulation Units
might be materially affected.
VALUATION PERIOD- A period commencing with the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT-A separate investment account of the Nationwide Life Insurance
Company.
3
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Variable Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Variable Account and its Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . 6
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
NATIONWIDE LIFE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investments of the Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Dreyfus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Fidelity Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . . . . . . 9
Fidelity Variable Insurance Products Fund II . . . . . . . . . . . . . . . . . . . . . . 10
Nationwide Separate Account Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . . . . . . . . . . 11
Oppenheimer Variable Account Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Strong Special Fund II, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Strong Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . . . . . . . 12
TCI Portfolios, Inc., member of the Twentieth Century Family of Mutual Funds . . . . . . 12
Van Eck Worldwide Insurance Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Van Kampen American Capital Life Investment Trust . . . . . . . . . . . . . . . . . . . 13
Warburg Pincus Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Substitution of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Underwriting and Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-Minimum Requirements for Issuance of a Policy . . . . . . . . . . . . . . . . . . . . . 16
-Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-Allocation of Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-Short-Term Right to Cancel Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Deductions from Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-Charges on Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-Annual Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-Cost of Insurance Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Deductions from the Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-Administrative Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-Premium Tax Recovery Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-Income Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
HOW THE CASH VALUE VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
How the Investment Experience is Determined . . . . . . . . . . . . . . . . . . . . . . 19
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Determining the Contract Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Valuation Periods and Valuation Dates . . . . . . . . . . . . . . . . . . . . . . . . . 20
SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Right to Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Partial Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Maturity Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Taking a Policy Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Effect on Investment Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Effect on Death Benefit and Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
HOW THE DEATH BENEFIT VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-Calculation of the Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-Proceeds Payable on Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . 24
CHANGE OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CHANGES IN EXISTING INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Changes in the Specified Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Changes in the Death Benefit Option . . . . . . . . . . . . . . . . . . . . . . . . . . 25
OTHER POLICY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Policy Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Error in Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Nonparticipating Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
CUSTODIAN OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Directors of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
OTHER CONTRACTS ISSUED BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
APPENDIX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
APPENDIX 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
PERFORMANCE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF AN UNDERLYING
MUTUAL FUND.
5
<PAGE> 9
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") are similar in many ways to fixed-benefit whole life
insurance. As with fixed-benefit whole life insurance, the Owner of the Policy
pays a premium for life insurance coverage on the person insured. Also like
fixed-benefit whole life insurance, the Policies may provide for a Cash
Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. (As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid.)
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the Death Benefit and
Cash Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated (see "How the Death Benefit Varies"). There is no
guaranteed Cash Surrender Value (see "How the Cash Value Varies"). If the Cash
Surrender Value is insufficient to pay Policy Charges, the Policy will lapse.
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Cash Value in the Nationwide VLI Separate
Account-3 (the "Variable Account") at the time the Policy is issued. The
Policy Owner chooses the sub-accounts of the Variable Account or the Fixed
Account into which the Cash Value will be allocated (see "Allocation of Cash
Value"). During the free look period, however, the Cash Value is allocated to
the money market fund or the Fixed Account. For more information on the short
term right to cancel this policy, please see "Short Term Right to Cancel
Policy." Assets of each sub-account are invested at Net Asset Value in shares
of a corresponding underlying Mutual Fund options (the "Funds"). For a
description of the underlying Mutual Fund options and their investment
objectives, see "Investments of the Variable Account".
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account.
Cash Values allocated to the Fixed Account are credited with interest daily at
a rate declared by the Company. The interest rate declared is at the Company's
sole discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks.
The Company deducts a charge for the cost of insurance from the Policy's Cash
Value on the Policy Date and each Monthly Anniversary Day. The Company deducts
an annual policy administrative charge from the Policy's Cash Value at the
beginning of each Policy Year after the first. The current annual charge is
$90 ($65 in New York) for total premium payments less than $25,000 and $50 for
total premium payments greater than or equal to $25,000. This charge is
guaranteed never to exceed $135 ($120 in New York) for total premium payments
less than $25,000 and $75 for total premium payments greater than or equal to
$25,000. The Company also deducts on a daily basis from the assets of the
Variable Account a charge to provide for mortality and expense risks,
administrative charges and premium tax recovery. These current charges are
equal on an annual basis to 1.30% of the Variable Account assets for the first
10 Policy Years and 1.00% thereafter and are guaranteed never to exceed 1.60%
and 1.30% respectively. For Policies which are surrendered, the Company may
deduct a Surrender Charge. The Surrender Charge associated with each premium
payment will not exceed 8.5% of the premium payment, and will be applied for
nine years after the effective date of the premium payment. The Surrender
Charge is designed to recover certain expenses incurred by the Company related
to the sale of the Policies.
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each underlying Mutual Fund's investment adviser
for managing the underlying Mutual Funds and selecting its portfolio of
securities. Other underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the underlying Mutual Fund. The
management fees and other expenses for each underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the underlying
Mutual Fund's average assets, are as follows:
6
<PAGE> 10
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Management Other Total
Fees Expenses Expenses
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Stock Index Fund 0.27% 0.12% 0.39%
- -------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund 0.69% 0.58% 1.27%
- -------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund-Equity Income Portfolio 0.51% 0.10% 0.61%
- -------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund-Growth Portfolio 0.61% 0.09% 0.70%
- -------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund-High Income Portfolio 0.60% 0.11% 0.71%
- -------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund-Overseas Portfolio 0.76% 0.15% 0.91%
- -------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II-Asset Manager 0.71% 0.08% 0.79%
Portfolio
- -------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II-Contrafund Portfolio 0.61% 0.11% 0.72%
- -------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Capital Appreciation Fund 0.50% 0.04% 0.54%
- -------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Government Bond Fund 0.50% 0.01% 0.51%
- -------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Money Market Fund 0.50% 0.02% 0.52%
- -------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Small Company Fund 1.00% 0.25% 1.25%
- -------------------------------------------------------------------------------------------------------------
Nationwide Separate Account Trust-Total Return Fund 0.50% 0.01% 0.51%
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust - Balanced Portfolio 0.85% 0.19% 1.04%
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust - Growth Portfolio 0.84% 0.10% 0.94%
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust - Limited Maturity 0.65% 0.10% 0.75%
Bond Portfolio
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust - Partners Portfolio 0.85% 0.30% 1.15%
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Oppenheimer Bond Fund 0.75% 0.05% 0.80%
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Oppenheimer Global Securities 0.74% 0.15% 0.89%
Fund
- -------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Oppenheimer Multiple 0.74% 0.03% 0.77%
Strategies Fund
- -------------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 1.00% 0.20% 1.20%
- -------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.-Discovery Fund II, Inc. 1.00% 0.31% 1.31%
- -------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.-International Stock Fund II 1.00% 0.97% 1.97%
- -------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.-TCI Advantage 1.00% 0.00% 1.00%
- -------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.-TCI Balanced 1.00% 0.00% 1.00%
- -------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.-TCI Growth 1.00% 0.00% 1.00%
- -------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.-TCI International 1.50% 0.00% 1.50%
- -------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Gold and Natural Resources Fund 0.80% 0.16% 0.96%
- -------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Bond Fund 0.79% 0.15% 0.94%
- -------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment Trust-Real Estate 1.00% 1.90% 2.90%
Securities Fund
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity Portfolio 1.00% 0.44% 1.44%
- -------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company Growth Portfolio 0.90% 0.35% 1.25%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Mutual Fund expenses shown above are assessed at the underlying Mutual Fund
level and are not direct charges against the Variable Account or reductions in
Cash Value. These underlying Mutual Fund expenses are taken into consideration
in computing each underlying Mutual Fund's Net Asset Value, which is the share
price used to calculate the Variable Account's unit value. The management fees
and other expenses, some of which may be subject to fee waivers or expense
reimbursements, are more fully described in the prospectuses for each
individual underlying Mutual Fund. The information relating to the underlying
Mutual Fund expenses was provided by the underlying Mutual Fund and was not
independently verified by the Company.
PREMIUMS
The minimum premium for which a Policy may be issued is $10,000. A Policy may
be issued to an insured up to age 80.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid (see "Short-Term Right to Cancel
Policy").
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise which includes Nationwide Mutual Insurance Company,
Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity Insurance
7
<PAGE> 11
Company, National Casualty Company, West Coast Life Insurance Company,
Nationwide Property and Casualty Insurance Company, Scottsdale Indemnity
Company, Nationwide Indemnity Company and Nationwide General Insurance Company.
The Company's Home Office is at One Nationwide Plaza, Columbus, Ohio 43216.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in all states and
in the District of Columbia and Puerto Rico (for additional information, see
"The Company").
THE VARIABLE ACCOUNT
The Nationwide VLI Separate Account-3 (the "Variable Account"), was established
by a resolution of the Company's Board of Directors, on August 8, 1984,
pursuant to the provisions of Ohio law. The Company has caused the Variable
Account to be registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940. Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio
43216 serves as trustee for the trust. Nationwide Financial Services, Inc.,
One Nationwide Plaza, Columbus, Ohio 43216 serves as principal underwriter for
the trust. Such registration does not involve supervision of the management of
the Variable Account or the Company by the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The Death Benefit and Cash Value under
the Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
Premium payments and Cash Value are allocated within the Variable Account among
one or more sub-accounts. The assets of each sub-account are used to purchase
shares of the underlying Mutual Fund options designated by the Policy Owner.
Thus, the investment performance of a Policy depends upon the investment
performance of the underlying Mutual Fund options designated by the Policy
Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Cash Value
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account (see "Allocation of Cash Value"). When the policy is issued, the
Policy's Cash Value not allocated to the Fixed Account is placed in the
Nationwide Separate Account Trust Money Market sub-account (for any Cash Value
allocated to a Sub-Account on the application) or Fixed Account until
expiration of the period in which the Policy Owner may exercise his or her
short-term right to cancel the Policy. At the expiration of the period in
which the Policy Owner may exercise his or her short-term right to cancel the
Policy, shares of the underlying Mutual Fund options specified by the Policy
Owner are purchased at Net Asset Value for the respective sub-account(s). Such
election is subject to any minimum contribution limitations which may be
imposed by the underlying Mutual Fund(s). In addition, no less than 5% of
premium may be allocated to any one sub-account or the Fixed Account. The
Policy Owner may change the allocation of Cash Value or may transfer Cash Value
from one sub-account to another, subject to such terms and conditions as may be
imposed by each Fund and as set forth in this prospectus (see "Transfers",
"Allocation of Cash Value" and "Short-Term Right to Cancel Policy").
Additional Premium Payments, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise (see "Premium Payments").
Each of the underlying Mutual Fund options is a series of registered investment
companies which receive investment advice from a registered investment adviser:
1. Dreyfus Stock Index Fund, managed by Wells Fargo Nikko Investment
Advisors;
2. The Dreyfus Socially Responsible Growth Fund, managed by Dreyfus
Corporation;
3. Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company;
4. Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company;
5. Nationwide Separate Account Trust, managed by Nationwide Financial
Services, Inc.;
6. Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated;
7. Oppenheimer Variable Account Funds, managed by Oppenheimer Management
Corporation;
8. Strong Special Fund II, Inc., managed by Strong Capital Management,
Inc.;
9. Strong Variable Insurance Funds, Inc. managed by Strong Capital
Management, Inc.;
8
<PAGE> 12
10. TCI Portfolios, Inc., managed by Investors Research Corporation, an
affiliate of Twentieth Century Companies;
11. Van Eck Worldwide Insurance Trust, managed by Van Eck Associates
Corporation;
12. Van Kampen American Capital Life Investment Trust, managed by Van Kampen
American Capital Management, Inc.; and
13. Warburg Pincus Trust, managed by Warburg Pincus Counsellors, Inc.
A summary of investment objectives is contained in the description of each
underlying Mutual Fund below. These underlying Mutual Fund options are
available only to serve as the underlying investment for variable annuity and
variable life contracts issued through separate accounts of life insurance
companies which may or may not be affiliated, also known as "mixed and shared
funding." There are certain risks associated with mixed and shared funding,
which is disclosed in the underlying Mutual Funds' prospectuses. A full
description of the Funds, their investment policies and restrictions, risks and
charges are contained in the prospectuses of the respective underlying Mutual
Funds. A prospectus for the underlying Mutual Fund or Funds being considered
must accompany this prospectus and should be read in conjunction herewith.
DREYFUS
- DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified management
investment company. It was incorporated under Maryland law on January
24, 1989, and commenced operations on September 29, 1989. Wells Fargo
Nikko Investment Advisors serves as the Fund's index fund manager. As
of May 1, 1994, Dreyfus Life and Annuity Index Fund began doing
business as Dreyfus Stock Index Fund.
Investment Objective: To provide investment results that correspond
to the price and yield performance of publicly traded common stocks in
the aggregate, as represented by the Standard & Poor's 500 Composite
Stock Price Index. The Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation.
- DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Dreyfus Socially Responsible Growth Fund, Inc. is an open-end,
diversified, management investment company. It was incorporated under
Maryland law on July 20, 1992, and commenced operations on October 7,
1993. Dreyfus Corporation serves as the Fund's investment advisor.
Tiffany Capitol Advisors, Inc. serves as the Fund's sub-investment
adviser and provides day-to-day management of the Fund's portfolio.
Investment Objective: The Fund's primary goal is to provide capital
growth through equity investment in companies that, in the opinion of
the Fund's management, not only meet traditional investment standards,
but which also show evidence that they conduct their business in a
manner that contributes to the enhancement of the quality of life in
America. Current income is secondary to the primary goal.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fund is an open-end, diversified management investment company organized as
a Massachusetts business trust on November 13, 1981. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management & Research Company ('FMR') is the Fund's
manager.
- HIGH INCOME PORTFOLIO
Investment Objective: Seeks to obtain a high level of current income
by investing primarily in high-risk, high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
The portfolio's manager will seek high current income normally by
investing the Portfolio's assets as follows:
- at least 65% in income-producing debt securities and preferred
stocks, including convertible securities, zero coupon
securities, and mortgage-backed and asset-backed securities.
- up to 20% in common stocks and other equity securities when
consistent with the Portfolio's primary objective or acquired
as part of a unit combining fixed-income and equity
securities.
Higher yields are usually available on securities that are lower-rated or that
are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Portfolio may also purchase lower-quality bonds such
as those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus.
9
<PAGE> 13
- EQUITY-INCOME PORTFOLIO
Investment Objective: To seek reasonable income by investing
primarily in income-producing equity securities. In choosing these
securities FMR also will consider the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which
exceeds the composite yield on the securities comprising the Standard
& Poor's 500 Composite Stock Price Index.
- GROWTH PORTFOLIO
Investment Objective: Seeks to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and
established companies, and smaller, less well-known companies which
may have a narrow product line or whose securities are thinly traded.
These latter securities will often involve greater risk than may be
found in the ordinary investment security. FMR's analysis and
expertise plays an integral role in the selection of securities and,
therefore, the performance of the Portfolio. Many securities which
FMR believes would have the greatest potential may be regarded as
speculative, and investment in the Portfolio may involve greater risk
than is inherent in other mutual funds. It is also important to point
out that the Portfolio makes most sense for you if you can afford to
ride out changes in the stock market, because it invests primarily in
common stocks. FMR also can make temporary investments in securities
such as investment-grade bonds, high-quality preferred stocks and
short-term notes, for defensive purposes when it believes market
conditions warrant.
- OVERSEAS PORTFOLIO
Investment Objective: To seek long term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio
provides a means for investors to diversify their own portfolios by
participating in companies and economics outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fund is an open-end, diversified management investment company organized as
a Massachusetts business trust on March 21, 1988. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the Fund's manager.
- ASSET MANAGER PORTFOLIO
Investment Objective: To seek to obtain high total return with
reduced risk over the long-term by allocating its assets among
domestic and foreign stocks, bonds and short-term fixed income
instruments.
- CONTRAFUND PORTFOLIO
Investment Objective: To seek capital appreciation by investing
primarily in companies that the fund manager believes to be
undervalued due to an overly pessimistic appraisal by the public.
This strategy can lead to investments in domestic or foreign
companies, small and large, many of which may not be well known. The
Fund primarily invests in common stock and securities convertible into
common stock, but it has the flexibility to invest in any type of
security that may produce capital appreciation.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (the "Trust") is a diversified, open-end
management investment company created under the laws of Massachusetts. The
Trust offers shares in the five separate Mutual Funds listed below, each with
its own investment objective. Currently, shares of the Trust will be sold only
to life insurance company separate accounts to fund the benefits under variable
life insurance policies or variable annuity contracts issued by life insurance
companies. The assets of the Trust are managed by Nationwide Financial
Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216, a wholly-owned
subsidiary of Nationwide Life Insurance Company.
- CAPITAL APPRECIATION FUND
Investment Objective: The Fund is designed for investors who are
interested in long-term growth. The Fund seeks to meet its objective
primarily through a diversified portfolio of the common stock of
companies which the investment manager determines have a better-than-
average potential for sustained capital growth over the long term.
- GOVERNMENT BOND FUND
Investment Objective: To provide as high a level of income as is
consistent with capital preservation through investing primarily in
bonds and securities issued or backed by the U.S. Government, its
agencies or instrumentalities.
10
<PAGE> 14
- MONEY MARKET FUND
Investment Objective: 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.
- SMALL COMPANY FUND
Investment Objective: The Fund seeks long-term growth of capital by
investing primarily in equity securities of domestic and foreign
companies with market capitalizations of less the $1 billion at the
time of purchase. Nationwide Financial Services, Inc. ("NFS"), the
Fund's adviser, has employed a group of sub-advisers, each of which
will manage a portion of the Fund's portfolio. These sub-advisers are
the Dreyfus Corporation, Neuberger & Berman, L. P., Pictet
International Management Limited, Van Eck Associates Corporation,
Strong Capital Management, Inc. and Warburg, Pincus Counsellors, Inc.
The sub-advisers were chosen because they utilize a number of
different investment styles when investing in small company stocks.
By utilizing a number of investment styles, NFS hopes to increase
prospects for investment return and to reduce market risk and
volatility.
- TOTAL RETURN FUND
Investment Objective: To obtain a reasonable long-term total return
(i.e., earnings growth plus potential dividend yield) on invested
capital from a flexible combination of current return and capital
gains through investments in common stocks, convertible issues, money
market instruments and bonds with a primary emphasis on common stocks.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14, 1983. Shares of the Trust are offered in connection with certain
variable annuity contracts and variable life insurance policies issued through
life insurance company separate accounts and are also offered directly to
qualified pension and retirement plans outside of the separate account context.
The investment adviser is Neuberger & Berman Management Incorporated.
- BALANCED PORTFOLIO
Investment Objective: To provide long-term capital growth and
reasonable current income without undue risk to principal. The
Balanced Portfolio will seek to achieve its objective through
investment of a portion of its assets in common stocks and a portion
of its assets in debt securities. The Investment Adviser anticipates
that the Balanced Portfolio's investments will normally be managed so
that approximately 60% of the Portfolio's total assets will be
invested in common stocks and the remaining assets will be invested in
debt securities. However, depending on the Investment Adviser's views
regarding current market trends, the common stock portion of the
Portfolio's investments may be adjusted downward to as low as 50% or
upward to as high as 70%. At least 25% of the Portfolio's assets will
be invested in fixed income senior securities.
- LIMITED MATURITY BOND PORTFOLIO
Investment Objective: To provide the high level of current income,
consistent with low risk to principal and liquidity. As a secondary
objective, it also seeks to enhance its total return through capital
appreciation when market factors, such as falling interest rates and
rising bond prices, indicate that capital appreciation may be
available without significant risk to principal. It seeks to achieve
its objectives through investments in a diversified portfolio of
limited maturity debt securities. The portfolio invests in securities
which are at least investment grade and does not invest in junk bonds.
- GROWTH PORTFOLIO
Investment Objective: The Portfolio seeks capital growth through
investments in common stocks of companies that the investment adviser
believes will have above average earnings or otherwise provide
investors with above average potential for capital appreciation. To
maximize this potential, the investment adviser may also utilize, from
time to time, securities convertible into common stocks, warrants and
options to purchase such stocks.
- PARTNERS PORTFOLIO
Investment Objective: To seek capital growth. This portfolio will
seek to achieve its objective by investing primarily in the common
stock of established companies. Its investment program seeks
securities believed to be undervalued based on fundamentals such as
low price-to-earnings ratios, consistent cash flows, and support from
asset values. The objective of the Partners Portfolio is not
fundamental and can be changed by the Trustees of the Trust without
shareholder approval. Shareholders will, however, receive at least 30
days prior notice thereof. There is no assurance the investment
objective will be met.
11
<PAGE> 15
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds is an open-end, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. Oppenheimer Management Corporation is
the Funds' investment advisor.
- OPPENHEIMER BOND FUND
Investment Objective: Primarily to seek a high level of current
income from investment in high yield fixed-income securities rated
"Baa" or better by Moody's or "BBB" or better by Standard & Poor's.
Secondarily, the Fund seeks capital growth when consistent with its
primary objective.
- OPPENHEIMER GLOBAL SECURITIES FUND
Investment Objective: To seek long-term capital appreciation by
investing a substantial portion of assets in securities of foreign
issuers, "growth-type" companies, cyclical industries and special
situations which are considered to have appreciation possibilities.
Current income is not an objective. These securities may be
considered to be speculative.
- OPPENHEIMER MULTIPLE STRATEGIES FUND
Investment Objective: To seek a total investment return (which
includes current income and capital appreciation in the value of its
shares) form investments in common stocks and other equity securities,
bonds and other debt securities, and "money market" securities.
STRONG SPECIAL FUND II, INC.
The Strong Special Fund II, Inc. ("Special Fund II") is a diversified, open-end
management company commonly called a Mutual Fund. The Special Fund II was
incorporated in Wisconsin and may only be purchased by the Separate accounts of
insurance companies for the purpose of funding variable annuity contracts and
variable life policies. Strong Capital Management, Inc. (the "Advisor") is the
investment advisor for the Fund.
Investment Objective: To seek capital appreciation through investments
in a diversified portfolio of equity securities.
STRONG VARIABLE INSURANCE PRODUCTS FUNDS, INC.
The Strong Variable Insurance Funds, Inc. is a diversified, open-end
management investment company, commonly called a Mutual Fund. The Strong
Discovery Fund II, Inc. ("Discovery Fund II") and the Strong International
Stock Fund II (the "International Stock Fund II") were separately incorporated
in Wisconsin and may only be purchased by the separate accounts of insurance
companies for the purpose of funding variable annuity contracts and variable
life insurance policies. Strong Capital Management, Inc. is the investment
advisor for each of the Funds.
- DISCOVERY FUND II, INC.
Investment Objective: To seek maximum capital appreciation through
investments in a diversified portfolio of securities. The Fund
normally emphasizes investment in equity securities and may invest up
to 100% of its total assets in equity securities including common
stock, preferred stocks and securities convertible into common or
preferred stocks. Although the Fund normally emphasizes investment in
equity securities, the Fund has the flexibility to invest in any type
of security that the Advisor believes has the potential for capital
appreciation including up to 100% of its total assets in debt
obligations, including intermediate to long-term corporate or U.S.
government debt securities.
- INTERNATIONAL STOCK FUND II
Investment Objective: To seek capital growth by investing primarily
in the equity securities of issuers located outside the United States.
TCI PORTFOLIOS, INC., MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS
TCI Portfolios Inc. was organized as a Maryland corporation in 1987. It is a
diversified, open-end management investment company, designed only to provide
investment vehicles for variable annuity and variable life insurance products
of insurance companies. A member of the Twentieth Century Family of Mutual
Funds, TCI Portfolios is managed by Investors Research Corporation.
- TCI ADVANTAGE
Investment Objective: Current income and capital growth. The Fund
will seek to achieve its objective by investing in three types of
securities. The Fund's investment manager intends to invest
approximately (i)
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<PAGE> 16
20% of the Fund's assets in securities of the United States government
and its agencies and instrumentalities and repurchase agreements
collateralized by such securities with a weighted average maturity of
six months or less, i.e., cash or cash equivalents; (ii) 40% of the
Fund's assets in fixed income securities of the United States
government and its agencies and instrumentalities with a weighted
average maturity of three to ten years; and (iii) 40% of the Fund's
assets in equity securities that are considered by management to have
better-than-average prospects for appreciation. Assets will be
purchased or sold, as the case may be, as is necessary in response to
changes in market value to maintain the asset mix of the Fund's
portfolio at approximately 60% cash, cash equivalents and fixed income
securities and 40% equity securities. There can be no assurance that
the Fund will achieve its investment objective.
- TCI BALANCED
Investment Objective: Capital growth and current income. The Fund
will seek to achieve its objective by maintaining approximately 60% of
the assets of the Fund in common stocks (including securities
convertible into common stocks and other equity equivalents) that are
considered by management to have better-than-average prospects for
appreciation and approximately 40% in fixed income securities. There
can be no assurance that the Fund will achieve its investment
objective.
- TCI GROWTH
Investment Objective: Capital growth. The Fund will seek to achieve
its objective by investing in common stocks (including securities
convertible into common stocks and other equity equivalents) that meet
certain fundamental and technical standards of selection and have, in
the opinion of the Fund's investment manager, better than average
potential for appreciation. The Fund tries to stay fully invested in
such securities, regardless of the movement of stock prices generally.
The Fund may invest in cash and cash equivalents temporarily or when
it is unable to find common stocks meeting its criteria of selection.
It may purchase securities only of companies that have a record of at
least three years continuous operation. There can be no assurance
that the Fund will achieve its investment objective.
- TCI INTERNATIONAL
Investment Objective: To seek capital growth. The Fund will seek to
achieve its investment objective by investing primarily in securities
of foreign companies that meet certain fundamental and technical
standards of selection and, in the opinion of the investment manager,
have potential for appreciation. Under normal conditions, the Fund
will invest at least 65% of its assets in common stocks or other
equity securities of issuers from at least three countries outside the
United States. Securities of United States issuers may be included in
the portfolio from time to time. Although the primary investment of
the Fund will be common stocks (defined to include depository receipts
for common stocks), the Fund may also invest in other types of
securities consistent with the Fund's objective. When the manager
believes that the total return potential of other securities equals or
exceeds the potential return of common stocks, the Fund may invest up
to 35% of its assets in such other securities. There can be no
assurance that the Fund will achieve its objectives.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a "business trust" under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Shares of the Trust are offered only to
separate accounts of various insurance companies to Fund benefits of variable
insurance and annuity policies. The assets of the Trust are managed by Van Eck
Associates Corporation.
- GOLD AND NATURAL RESOURCES FUND
Investment Objective: To seek long-term capital appreciation by
investing in equity and debt securities of companies engaged in the
exploration, development, production and distribution of gold and
other natural resources, such as strategic and other metals, minerals,
forest products, oil, natural gas and coal. Current income is not an
objective.
- WORLDWIDE BOND FUND
Investment Objective: To seek high total return through a flexible
policy of investing globally, primarily in debt securities. The
portfolio does not invest in junk bonds.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust is an open-end
diversified management investment company organized as a Massachusetts business
trust on June 3, 1985. The Trust offers shares in
13
<PAGE> 17
separate funds which are sold only to insurance companies to provide funding
for variable life insurance policies and variable annuity contracts. Van
Kampen American Capital Asset Management, Inc. serves as the Fund's investment
adviser.
- -REAL ESTATE SECURITIES FUND
Investment Objective: To seek long-term capital growth by investing in a
portfolio of securities of companies operating in the real estate industry
("Real Estate Securities"). Current income is a secondary consideration. Real
Estate Securities include equity securities, common stocks and convertible
securities, as well as non-convertible preferred stocks and debt securities of
real estate industry companies. A "real estate industry company" is a company
that derives at least 50% of its assets (marked to market), gross income or net
profits from the ownership, construction, management or sale of residential,
commercial or industrial real estate. Under normal market conditions, at least
65% of the Fund's total assets will be invested in Real Estate Securities,
primarily equity securities of real estate investment trusts. The Fund 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 Fund will achieve its investment objective.
WARBURG PINCUS TRUST
The Warburg Pincus Trust ("Trust") is an open-end management investment company
organized in March 1995 as a business trust under the laws of The Commonwealth
of Massachusetts. The Trust offers its shares to insurance companies for
allocation to separate accounts for the purpose of funding variable annuity and
variable life contracts. Trust portfolios are managed by Warburg, Pincus
Counsellors, Inc. ("Counsellors.")
- INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: To seek long-term capital appreciation by
investing primarily in a broadly diversified portfolio of equity
securities of companies, wherever organized, that in the judgment of
"Counsellors" have their principal business activities and interests
outside the United States. The Portfolio will ordinarily invest
substantially all of its assets, but no less than 65% of its total
assets, in common stocks, warrants and securities convertible into or
exchangeable for common stocks. The Portfolio intends to invest
principally in the securities of financially strong companies with
opportunities for growth within growing international economies and
markets through increased earning power and improved utilization or
recognition of assets.
- SMALL COMPANY GROWTH PORTFOLIO
Investment Objective: To seek capital growth by investing in a
portfolio of equity securities of small-sized domestic companies. The
Portfolio ordinarily will invest at least 65% of its total assets in
common stocks or warrants of small-sized companies (i.e., companies
having stock market capitalizations of between $25 million and $1
billion at the time of purchase) that represent attractive
opportunities for capital growth. The Portfolio intends to invest
primarily in companies whose securities are traded on domestic stock
exchanges or in the over-the-counter market. The Portfolio's
investments will be made on the basis of their equity characteristics
and securities ratings generally will not be a factor in the selection
process.
(Although the Statement of Additional Information concerning TCI Portfolios,
Inc. refers to redemptions of securities in kind under certain conditions, all
surrendering or redeeming Policy Owners will receive cash from the Company.)
REINVESTMENT
The underlying Mutual Fund options described above have as a policy the
distribution of dividends in the form of additional shares (or fractions
thereof) of the underlying Mutual Funds. The distribution of additional shares
will not affect the number of Accumulation Units attributable to a particular
Policy (see "Allocation of Cash Value").
TRANSFERS
The Policy Owner may request a transfer of up to 100% of the Cash Value from
the Variable Account to the Fixed Account. The Policy Owner's Cash Value in
each Sub-Account will be determined as of the date the transfer request is
received in the Home Office in good order. The Company reserves the right to
restrict transfers to the Fixed Account to 25% of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account and a portion of the Variable Account to the
Fixed Account, without penalty or adjustment. The Company reserves the right
to limit the amount of Cash Value transferred out of the Fixed Account each
Policy Year.
14
<PAGE> 18
Transfers from the Fixed Account must be made within 30 days after the
termination date of the interest rate guarantee period.
Transfers may be made once per Valuation Date and may be made either in
writing, or in states allowing such transfers, by telephone. The Company will
employ procedures reasonably designed to confirm that instructions communicated
by telephone are genuine. Such procedures may include any or all of the
following, or such other procedures as the Company may, from time to time, deem
reasonable: requesting identifying information, such as name, contract number,
Social Security number, and/or personal identification number; tape recording
all telephone transactions, and providing written confirmation thereof to both
the Policy owner and any agent of record at the last address of record.
Although failure to follow reasonable procedures may result in the Company's
liability for any losses due to unauthorized or fraudulent telephone transfers,
the Company will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine. The Company may withdraw
the telephone exchange privilege upon 30 days written notice to Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging") may transfer from the Fixed Account to
the Variable Account under the terms of that agreement.
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer from the
Money Market sub-account or the Fixed Account to any other sub- account within
the Variable Account on a monthly basis. This service is intended to allow the
Policy Owner to utilize Dollar Cost Averaging, a long-term investment program
which provides for regular, level investments over time. The Company makes no
guarantees that Dollar Cost Averaging will result in a profit or protect
against loss. To qualify for Dollar Cost Averaging there must be a minimum
total Cash Value, less policy indebtedness, of $15,000. Transfers for purposes
of Dollar Cost Averaging can only be made from the Money Market sub-account or
the Fixed Account. The minimum monthly Dollar Cost Averaging transfer is $100.
In addition, Dollar Cost Averaging monthly transfers from the Fixed Account
must be equal to or less than 1/30th of the Fixed Account value when the Dollar
Cost Averaging program is requested. Transfers out of the Fixed Account, other
than for Dollar Cost Averaging, may be subject to certain additional
restrictions (see "Transfers). A written election of this service, on a form
provided by the Company, must be completed by the Policy Owner in order to
begin transfers. Once elected, transfers from the Money Market sub-account or
the Fixed Account will be processed monthly until either the value in the Money
Market sub- account or the Fixed Account is completely depleted or the Policy
Owner instructs the Company in writing to cancel the monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days' written notice to Policy Owners however, any such discontinuation
would not affect Dollar Cost Averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
SUBSTITUTION OF SECURITIES
If shares of the underlying Mutual Fund options described in this prospectus
should no longer be available for investment by the Variable Account or, if in
the judgment of the Company's management further investment in such underlying
Mutual Funds should become inappropriate in view of the purposes of the Policy,
the Company may eliminate Sub-Accounts, combine two or more Sub-Accounts, or
substitute one or more underlying Mutual Funds for other underlying Mutual Fund
shares already purchased or to be purchased in the future by premium payments
under the Policy. No substitution of securities in the Variable Account may
take place without prior approval of the Securities and Exchange Commission,
and under such requirements as it and any state insurance department may
impose.
VOTING RIGHTS
Voting rights under the Policies apply with respect to Cash Value allocated to
the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote
the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Mutual
Funds. These shares will be voted in accordance with instructions received
from Policy Owners who have an interest in the Variable Account. If the
Investment Company Act of 1940 or any regulation thereunder should be amended
or if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the shares of the underlying
Mutual Funds in its own right, it may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that underlying Mutual Fund by the Net Asset
Value of one share of that
15
<PAGE> 19
underlying Mutual Fund. The number of shares which a person has a right to
vote will be determined as of a date chosen by the Company, but not more than
90 days prior to the meeting of the underlying Mutual Fund. Voting
instructions will be solicited by written communication at least 21 days prior
to such meeting.
Underlying Mutual Fund shares held in the Variable Account as to which no
timely instructions are received will be voted by the Company in the same
proportion as the voting instructions which are received.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The minimum amount of initial premium that will be accepted by the Company is
$10,000. Policies may be issued to Insureds issue ages 80 or younger. Before
issuing any Policy, the Company requires evidence of insurability satisfactory
to it, which may include a medical examination.
- -Premium Payments
The initial premium for a Policy is payable in full at the Company's Home
Office. The minimum amount of initial premium required is $10,000 for issue
ages 75 or younger and $50,000 for issue ages 76 through 80. The Specified
Amount is determined by treating the initial premium as equal to 100% of the
Guideline Single Premium. Upon payment of an initial premium, temporary
insurance may be provided, subject to a maximum amount. The effective date of
permanent insurance coverage is dependent upon completion of all underwriting
requirements, payment of the initial premium, and delivery of the Policy while
the Insured is still living.
The Policy Owner may make additional premium payments. The Policy is primarily
intended to be a single premium with a limited ability to make additional
payments. Subsequent premium payments under the Policy are permitted under the
following circumstances:
1. an additional premium payment is required to keep the Policy in force
(see "Grace Period"); or
2. except in Virginia, additional premium payments of at least $1,000 may
be made at any time provided the premium limits prescribed by the
Internal Revenue Service to qualify the Policy as a life
insurance contract are not violated.
Payment of additional premiums if accepted, may increase the Specified Amount
of insurance. However, the Company reserves the right to require satisfactory
evidence of insurability before accepting any additional premium payment which
results in an increase in the net amount at risk. The Company may also require
that any existing Policy indebtedness is repaid prior to accepting any
additional premium payments.
The Company will not accept a subsequent premium payment which would result in
total premiums paid exceeding the premium limitations prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance contract.
- -Allocation of Cash Value
At the time a Policy is issued, its Cash Value will be based on the Nationwide
Separate Account Trust Money Market Fund sub-account value or the Fixed Account
as if the Policy had been issued and the premium invested on the date the
premium was received in good order by the Company. When the Policy is issued,
the Cash Value will be allocated to the Nationwide Separate Account Trust Money
Market Fund sub-account (for any Cash Value allocated to a Sub-Account on the
application) or the Fixed Account until the expiration of the period in which
the Policy Owner may exercise his or her short-term right to cancel the Policy.
Cash Value not designated for the Fixed Account will be placed in the
Nationwide Separate Account Trust Money Market Sub-Account. At the expiration
of the period in which the Policy Owner may exercise his or her short term
right to cancel the Policy, shares of the underlying Mutual Funds specified by
the Policy Owner are purchased at Net Asset Value for the respective
sub-account(s). The Policy Owner may change the allocation of Cash Value or
may transfer Cash Value from one sub-account to another, subject to such terms
and conditions as may be imposed by each underlying Mutual Fund and as set
forth in the prospectus. Cash Value allocated to the Fixed Account at the time
of application may not be transferred prior to the first Policy Anniversary
(see "Transfers" and "Investments of the Variable Account").
The designation of investment allocations will be made by the prospective
Policy Owner at the time of application for a Policy. The Policy Owner may
change the way in which future premiums are allocated by giving written notice
to the Company. All percentage allocations must be in whole numbers, and must
be at least 5%. The sum of allocations must equal 100%.
16
<PAGE> 20
- -Short-Term Right to Cancel Policy
A Policy may be returned for cancellation and a full refund of premium within
10 days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed
or delivered to the registered representative who sold it, or the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund the total premiums paid within seven
days after it receives the Policy.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
No deduction is made from any premium at the time of payment. 100% of each
premium payment is applied to the Cash Value.
DEDUCTIONS FROM CASH VALUE
The Company may deduct certain charges from the Policy's Cash Value. While the
Company reserves the right to change current charges, it has no present intent
to do so. These are comprised of the following items:
- -Charges on Surrender
No charges are deducted from any premium payment. The Company incurs certain
expenses related to the sale of the Policies. These expenses include
commissions paid to sales personnel, the cost of sales literature and other
promotional activity. To recover these expenses, the Company imposes a
Surrender Charge. The Surrender Charge may be insufficient to recover all
these expenses. Unrecovered expenses are borne by the company's general assets
which may include profits, if any, from Mortality and Expense Risk Charges.
The initial premium payment and any subsequent premium payment which results in
an increased net amount at risk will have a Surrender Charge associated with
it, that will be less than or equal to 8.5% of such premium payment, as set
forth in the following chart. The Surrender Charge applies for nine years
after the effective date of each premium payment. Certain surrenders may
result in adverse tax consequences (see "Tax Matters").
<TABLE>
<CAPTION>
Completed Year(s) Charges on Completed Year(s) Charges on
Since Surrender as a Since Surrender as a
Premium Payment % Premium Payment Premium Payment % Premium Payment
<S> <C> <C> <C>
0 8.5% 5 7.0%
1 8.5% 6 6.0%
2 8.0% 7 5.0%
3 8.0% 8 4.0%
4 7.5% 9 0.0%
</TABLE>
In no event will the surrender charge deducted on surrender exceed 8.5% of the
total premiums paid.
The amount of the Surrender Charge may be eliminated when the Policies are
issued to an officer, director, former director, partner, employee, or retired
employee of the Company; an employee of the General distributor of the
Policies, Nationwide Financial Services, Inc.; an employee of an affiliate of
the Company or the General Distributor; or a duly appointed representative of
the Company who receives no commission as a result of the purchase.
Elimination of the Surrender Charge will be permitted by the Company only in
those situations where the Company does not incur sales or administrative
expenses normally associated with sales of a Policy. In no event will
reduction of the Surrender Charge be permitted where such reduction will be
unfairly discriminatory to any person.
- -Annual Administrative Charge
The Company deducts an annual administrative charge at the beginning of each
Policy Year after the first. It will be charged proportionately to the Cash
Values in each Variable sub-account and the Fixed Account. The amount of this
annual charge is determined by the total net premium payments (premium payments
less any previous partial surrenders) as follows:
17
<PAGE> 21
<TABLE>
<CAPTION>
Total Net Premium Payments
Greater than But Less Current Annual Guaranteed Maximum Annual
or Equal to than Administrative Charge Administrative Charge
<S> <C> <C> <C> <C> <C>
$10,000 $25,000 $90 Non-New York $135 Non-New York
$65 in New York $120 in New York
$25,000 $50 All States $ 75 All States
</TABLE>
- -Cost of Insurance Charge
A monthly deduction for the Cost of Insurance is charged proportionately
against the Cash Value in each Sub-account and the Fixed Account on the Policy
Date and each Monthly Anniversary Day. The Company will determine the Monthly
Cost of Insurance charge by multiplying the Applicable Cost of Insurance rate
by the net amount at risk. The net amount at risk is equal to the Death
Benefit minus the Cash Value.
Guaranteed cost of insurance charges will not exceed the cost based on the
guaranteed cost of insurance rate and the Policy's net amount at risk.
Guaranteed cost of insurance rates for Standard Simplified issues are based on
the 1980 Commissioner's Extended Term Mortality Table, Age Last Birthday (1980
CET). Guaranteed cost of insurance rates for Standard Preferred issues are
based on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO). Guaranteed cost of insurance rates for substandard issues
are based on appropriate percentage multiples of the 1980 CSO. These mortality
tables are sex distinct. In addition, separate mortality tables will be used
for standard and non-tobacco.
For Policies issued in Texas, guaranteed cost of insurance rates for Standard
Simplified issues ("Special Class-Simplified" in Texas) are based on 130% of
the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last Birthday
(1980 CSO).
The rate class of an Insured may affect the cost of insurance rate. The
Company currently places Insureds into both standard rate classes and
substandard classes that involve a higher mortality risk. In an otherwise
identical Policy, an Insured in the standard rate class will have a lower cost
of insurance than an Insured in a rate class with higher mortality risks. The
Company may also issue certain Policies on a "Simplified Issue" basis to
certain categories of individuals. Due to the underwriting criteria
established for Policies issued on a Simplified Issue basis, actual rates for
healthy individuals will be higher than the current cost of insurance rates
being charged under otherwise identical Policies that are issued on a Preferred
basis.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company will deduct, on a daily basis, certain charges from the assets of
the Variable Account. On an annual basis, these charges are equivalent to:
<TABLE>
<CAPTION>
Policy Years Policy Years
1-10 11+
<S> <C> <C>
Current 1.30% 1.00%
Guaranteed Maximum 1.60% 1.30%
</TABLE>
While the Company reserves the right to change current charges, it has no
present intent to do so.
These charges consist of the following items:
- -Mortality and Expense Risk Charge
The Company assumes certain risks for guaranteeing Mortality and Expense
Charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
nonrecovery of policy issue, underwriting, and other administrative expenses
due to Policies which lapse or are surrendered during the first ten years
following each premium payment.
To compensate the Company for assuming these risks associated with the
Policies, the Company deducts a daily charge from the assets of the sub-
accounts of the Variable Account. This charge currently is equivalent to an
effective annual rate of 0.75%. To the extent that future levels of mortality
and expenses are less than or equal to those expected, the Company may realize
a profit from these charges. This charge is guaranteed not to exceed 0.90%.
- -Administrative Expense Charge
The Company deducts a daily Administrative Expense Charge to reimburse it for
expenses related to issuance and maintenance of the Policies including
underwriting, establishing policy records, accounting and record
18
<PAGE> 22
keeping, and periodic reporting to Policy Owners. This charge is designed only
to reimburse the Company for its actual administrative expenses. In the
aggregate, the Company expects that the charges for administrative costs will
be approximately equal to the related expenses.
This charge is deducted daily from the assets of the sub-accounts of the
Variable Account. This charge currently is equivalent to an annual effective
rate of 0.25%. This charge is guaranteed not to exceed 0.40%.
- -Premium Tax Recovery Charge
Premium taxes are not deducted at the time a premium is paid. The Company pays
any state premium taxes attributable to a particular Policy when incurred by
the Company. The Company expects to pay an average state premium tax rate of
approximately 2.5% of premiums for all states. To reimburse the Company for
the payment of state premium taxes associated with the Policies, during the
first ten Policy Years the Company deducts a daily charge from the assets of
the sub-accounts. This charge is computed on a daily basis, and is equivalent
to an annual effective rate of 0.30% of the assets of the Variable Account
during the first ten Policy Years, and 0% thereafter.
- -Income Tax Charge
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the sub-accounts of the Variable
Account (see "Taxation of the Company"). The Company reserves the right to
assess a charge for such taxes against the Variable Account if the Company
determines that such taxes will be incurred.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any premium applied since the previous Valuation
Date, plus or minus any investment results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the
investment experience of the Variable Account and/or the daily crediting of
interest in the Fixed Account and Policy Loan Account depending on the
allocation of Cash Value by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash
Value allocated to a sub-account by the value of an Accumulation Unit for the
sub-account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the Mutual Fund shares in that sub-account were available
for purchase. The value for any subsequent Valuation Period is determined by
multiplying the Accumulation Unit value for each sub-account for the
immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing
(a) by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the Net Asset Value per share of the underlying Mutual Fund held
in the sub-account determined at the end of the current Valuation
Period, plus
(2) the per share amount of any dividend or capital gain
distributions made by the underlying Mutual Fund held in the
sub-account if the "ex-dividend" date occurs during the current
Valuation Period.
(b) is the net of:
(1) the Net Asset Value per share of the underlying Mutual Fund held
in the Sub-Account determined at the end of the
immediately preceding Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved
for in the immediately preceding Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk Charge,
Administration Expense Charge and Premium Tax Recovery Charge deducted
from the Variable Account. Such factor is equal to an annual
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<PAGE> 23
rate of 1.30% for the first ten years and then 1.00% thereafter of the
daily Net Asset Value of the Variable Account.
For underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for the
monthly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the Net Investment Factor may not be directly proportional to
changes in the Net Asset Value of underlying Mutual Fund shares, because of the
deduction for Mortality and Expense Risk Charge, Administration Expense Charge,
and Premium Tax Recovery Charge and any charge or credit for tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
Net Asset Value.
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account is the Cash Value. The
number of Accumulation Units credited per each sub-account are determined by
dividing the net amount allocated to the sub-account by the Accumulation Unit
Value for the sub-account for the Valuation Period during which the premium is
received by the Company. If part or all of the Cash Value is surrendered or
charges or deductions are made against the Cash Value, an appropriate number of
Accumulation Units from the Variable Account and an appropriate amount from the
Fixed Account will be deducted in the same proportion that the Policy Owner's
interest in the Variable Account and the Fixed Account bears to the total Cash
Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited
with interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's Home Office is open for business or any other day during
which there is sufficient degree of trading that the current Net Asset Value of
the Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a commercial
bank or savings and loan, which is a member of the Federal Deposit Insurance
Corporation or other eligible guarantor institution as defined by the federal
securities laws and regulations. In some cases, the Company may require
additional documentation of a customary nature.
CASH SURRENDER VALUE
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender of the Policy, minus any charges, indebtedness or
other deductions due on that date, which may also include a Surrender Charge.
PARTIAL SURRENDERS
After the Policy has been in force for 5 Policy Years, the Policy Owner may
request a partial surrender. Partial surrenders will be permitted only if they
satisfy the following requirements:
1. The maximum partial surrender in any Policy Year is limited to 10% of
the total premium payments;
2. Partial surrenders must not result in a reduction of the Cash Surrender
Value below $10,000; and
3. After the partial surrender, the Policy continues to qualify as life
insurance.
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<PAGE> 24
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 Variable sub-accounts. Partial surrenders will be deducted from the Fixed
Account only to the extent that insufficient values are available in the
Variable sub-accounts. Surrender charges will be waived for any partial
surrenders which satisfy the above conditions. Certain partial surrenders may
result in currently taxable income and tax penalties (see "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The maturity proceeds will be payable to the Policy Owner on
the Maturity Date provided the Policy is still in force. The Maturity Proceeds
will be equal to the amount of the Policy's Cash Value, less any indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income
tax purposes, one or more of the following: (1) the value each year of the
life insurance protection provided; (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value of the
contract exceeds the employer's interest in the contract. Participants should
consult with the sponsor or the administrator of the plan, and/or with their
personal tax or legal advisers, to determine the tax consequences, if any, of
their employer-sponsored life insurance arrangements.
POLICY LOANS
TAKING A POLICY LOAN
The Policy Owner may take a loan using the Policy as security. During the
first year, maximum Policy indebtedness is limited to 50% of the Cash Surrender
value less interest due on the next Policy Anniversary. After the first Policy
Year, the maximum policy indebtedness is limited to 90% of the Cash Surrender
Value less interest due on the next Policy Anniversary. The Company will not
grant a loan for an amount less than $1,000 ($200 in Connecticut, $500 in New
York). Should the Death Benefit become payable, the Policy be surrendered, or
the Policy mature while a loan is outstanding, the amount of Policy
indebtedness will be deducted from the Death Benefit, Cash Surrender Value or
the Maturity Value, respectively.
Maximum Policy indebtedness, in Texas, is limited to 90% of the Cash Surrender
Value in the sub-accounts and 100% of the Cash Surrender Value in the Fixed
Account less interest due on the next Policy Anniversary.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings
and Loan which is a member of the Federal Deposit Insurance Corporation.
Certain Policy loans may result in currently taxable income and tax penalties
(see "Tax Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating
to a Policy are held in more than one sub-account, withdrawals from
sub-accounts will be made in proportion to the assets in each Variable
sub-account at the time of the loan. Policy Loans will be transferred from the
Fixed Account only when insufficient amounts are available in the Variable
sub-accounts. The amount taken out of the Variable Account will not be
affected by the Variable Account's investment experience while the loan is
outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from
the date of transfer.
Policy Loans will be currently credited interest daily at an annual effective
rate of 5.0%. This rate is guaranteed never to be lower than 4%. The Company
may change the current interest crediting rate on Policy Loans at
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<PAGE> 25
any time at its sole discretion. This earned interest is transferred from the
Policy Loan Account to a Variable Account or the Fixed Account on each Policy
Anniversary. It will be allocated according to the Fund Allocation Factors in
effect at the time of the transfer.
The loan interest rate is 6% per year for all Policy Loans. Interest is
charged daily and is payable at the end of each Policy Year. Unpaid interest
will be added to the existing policy indebtedness as of the due date and will
be charged interest at the same rate as the rest of the indebtedness.
Whenever the total loan indebtedness plus accrued interest exceeds the Cash
Value less any Surrender Charges, the Company will send a notice to the Policy
Owner and the assignee, if any. The Policy will terminate without value 61
days after the mailing of the notice unless a sufficient repayment is made
during that period. A repayment is sufficient if it is large enough to reduce
the total loan indebtedness plus accrued interest to an amount equal to the
total Cash Value less any Surrender Charges plus an amount sufficient to
continue the Policy in force for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account
or the Fixed Account will apply only to the non-loaned portion of the Cash
Value. The longer the loan is outstanding, the greater the effect is likely to
be. Depending on the investment results of the Variable Account or the Fixed
Account while the loan is outstanding, the effect could be favorable or
unfavorable.
REPAYMENT
All or part of a loan may be repaid at any time while the Policy is in force
during the Insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments
will be credited to the Variable sub-accounts and the Fixed Account in
proportion to the Policy Owner's Premium allocation in effect at the time of
the repayment. Each repayment may not be less than $1,000 ($50 in Connecticut
and New York). The Company reserves the right to require that any loan
repayments resulting from Policy Loans transferred from the Fixed Account must
be first allocated to the Fixed Account.
HOW THE DEATH BENEFIT VARIES
- -Calculation of the Death Benefit
At issue, the Specified Amount is determined by treating the initial premium as
equal to 100% of the Guideline Single Premium. Additional premium payments, if
accepted, may increase the Specified Amount. Guideline Single Premiums vary by
attained age, sex, smoking classification, underwriting classification and
total premium payments. The following table illustrates representative initial
Specified Amounts, under Death Benefit Option 1, for non-tobacco.
<TABLE>
<CAPTION>
Issue $25,000 Single Premium $50,000 Single Premium
Age Male Female Male Female
<S> <C> <C> <C> <C>
35 $179,733 $208,354 $364,774 $423,008
40 143,373 166,704 290,792 338,264
45 114,856 134,300 232,769 272,332
50 92,583 108,739 187,452 220,323
55 75,306 88,601 152,298 179,349
60 62,112 72,636 125,453 146,866
65 52,094 59,930 105,070 121,014
</TABLE>
Generally, for a given premium payment, the initial Specified Amount is greater
for non-tobacco than standard, and females than males. The Specified Amount is
shown in the Policy.
While the Policy is in force, the Death Benefit will never be less than the
Specified Amount. The Death Benefit may vary with the Cash Value of the
Policy, which depends on investment performance.
The Policy Owner may choose one of two Death Benefit Options. Under Option 1,
the Death Benefit will be the greater of the Specified Amount or the Applicable
Percentage of Cash Value. Under Option 1, the amount of the Death Benefit will
ordinarily not change for several years to reflect the investment performance
and may not change at all. If investment performance is favorable the amount
of Death Benefit may increase. To see how and when investment performance will
begin to affect Death Benefits, please see the illustrations. Under Option 2,
the Death Benefit will be the greater of the Specified Amount plus the Cash
Value, or the Applicable Percentage of Cash Value and will vary directly with
the investment performance.
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<PAGE> 26
Policy Owners who are satisfied with the amount of their current insurance
coverage and prefer to have favorable investment performance and any future
premium payments reflected in increased Policy Cash Values should choose Death
Benefit Option 1. Policy Owners who prefer to have favorable investment
performance and any future premium payments increase Death Benefits should
choose Death Benefit Option 2.
The monthly Cost of Insurance for Option 1 will always be less than or equal to
the monthly Cost of Insurance for the same amount of Specified Amount under
Option 2 (see "Cost of Insurance Charge").
The term "applicable percentage" means:
1. 250% when the Insured is Attained Age 40 or less at the beginning of a
Policy Year; and
2. when the Insured is above Attained Age 40, the percentage shown in the
"Applicable Percentage of Cash Value Table" in this provision.
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C>
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>
- -Proceeds Payable on Death
The actual Proceeds payable on the Insured's death will be the Death Benefit as
described above, less any outstanding Policy loans and less any unpaid Policy
Charges. Under certain circumstances, the Proceeds may be adjusted (see
"Incontestability", "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a modified single premium life
insurance policy offered by the Company on the Policy Date. If not available,
the new policy may be a flexible premium adjustable life insurance policy
offered by the Company on the Policy Date. The benefits for the new policy
will not vary with the investment experience of a separate account. The
exchange must be elected within 24 months from the Policy Date. No evidence of
insurability will be required.
The Policy Owner and Beneficiary under the new Policy will be the same as those
under the exchanged Policy on the effective date of the exchange. The new
Policy will have a death benefit on the exchange date not more than the death
benefit of the original Policy immediately prior to the exchange date. The new
Policy will have the same policy date and issue age as the original Policy.
The initial Specified Amount and any increases in Specified Amount will have
the same rate class as those of the original Policy. Any indebtedness may be
transferred to the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two Policies.
After adjustment, if any excess is owed the Policy Owner, the
23
<PAGE> 27
Company will pay the excess to the Policy Owner in cash. The exchange may be
subject to federal income tax withholding (see "Income Tax Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the Investment Policy of the Variable
Account. The Company must inform the Policy Owner and obtain all necessary
regulatory approvals. Any change must be submitted to the various state
insurance departments which may disapprove it if deemed detrimental to the
interests of the policy holders or if it renders the Company's operations
hazardous to the public. If a Policy Owner objects, the Policy may be
converted to a substantially comparable Nationwide General Account Life
Insurance Policy on the life of the insured. The Policy Owner has the later of
60 days (6 months in Pennsylvania) from the date of the Investment Policy
change or 60 days (6 months in Pennsylvania) from being informed of such change
to make this conversion. The Company will not require evidence of insurability
for this conversion.
The new policy will not be affected by the investment experience of any
Variable Account. The New Policy will be for an amount of insurance not
exceeding the Death Benefit of the Policy converted on the date of such
conversion.
GRACE PERIOD
If the Cash Surrender Value in the Policy is insufficient to pay the Cost of
Insurance Charges, Policy Loan interest, or other charges which become due but
are unpaid, a grace period of 61 days will be allowed for payment of sufficient
premium to continue the Policy in force. The Company will notify the Policy
Owner of the amount required to continue the Policy in force. If the required
amount is not received within 61 days of the notice, the Policy will terminate
without value. If the Insured dies during the Grace Period, the Company will
pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the end
of the Grace Period and prior to the Maturity Date;
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all policy charges that were due
and unpaid during the Grace Period;
4. paying sufficient premium to keep the Policy in force for 3 months
from the date of reinstatement; and
5. paying or reinstating any indebtedness against the Policy which
existed at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day
on or next following the date the application for reinstatement is approved by
the Company. If the Policy is reinstated, the Cash Value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the appropriate Surrender Charge. Such Surrender Charge
will be based on the length of time from the date of premium payments to the
effective date of the reinstatement. Unless the Policy Owner has provided
otherwise, the allocation of the amount of the Surrender Charge, additional
premium payments, and any loan repayments will be based on the underlying
Mutual Fund option allocation factors in effect at the start of the Grace
Period.
THE FIXED ACCOUNT OPTION
Because of exemptive and exclusionary provisions, interests in the Company's
General Account have not been registered under the Securities Act of 1933 and
the General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor
any interests therein are subject to the provisions of these Acts, and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus relating to the
Fixed Account option. Disclosures regarding the General Account may, however,
be subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of the Company's general assets (General Account). The
Company's General Account consists of all assets of the Company other than
those in the Variable Account and in other separate accounts that have been or
may be established by the Company. Subject to applicable law, the Company has
sole discretion over the investment of the assets of the General Account, and
Policy Owners do not share in the investment experience of those assets. The
Company
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<PAGE> 28
guarantees that the part of the Cash Value invested under the Fixed-Account
option will accrue interest daily at an effective annual rate that the Company
declares periodically. The Fixed Account crediting rate will not be less than
an effective annual rate of 4%. Upon request and in the annual statement the
Company will inform a Policy Owner of the then applicable rate. The Company is
not obligated to credit interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
After the first Policy Year, the Policy Owner may request certain changes in
the insurance coverage under the Policy. Any request must be in writing and
received at the Company's Home Office. No change will take effect unless the
Cash Surrender Value, after the change, is sufficient to keep the Policy in
force for at least 3 months.
CHANGES IN THE SPECIFIED AMOUNT
Payment of additional premiums or changes in the Death Benefit Option may
require an increase to the Specified Amount. (The minimum increase in the
Specified Amount permitted by the Company is $10,000.) An approved increase
will have an effective date of the Monthly Anniversary Day on or next following
the date the Company approves the supplemental application. The Company
reserves the right to limit such increases to one per Policy Year, and to
require satisfactory evidence of insurability for any increase in the Specified
Amount. In addition, the rate class, rate class multiple and rate type for the
increase in Specified Amount must be identical to those on the Policy Date.
The Specified Amount cannot be decreased if, after the decrease, the policy
would fail to satisfy the definition of Life Insurance under Section 7702 of
the Code.
CHANGES IN THE DEATH BENEFIT OPTION
The Policy Owner may change the Death Benefit Option under the Policy. If the
change is from Option 1 to Option 2, the Specified Amount will be decreased by
the amount of the Cash Value. If the change is from Option 2 to Option 1, the
Specified Amount will be increased by the amount of the Cash Value. Evidence
of insurability is not required for a change from Option 2 to Option 1. The
Company reserves the right to require evidence of insurability for a change
from Option 1 to Option 2. The effective date of the change will be the
Monthly Anniversary Day on or next following the date the Company approves the
request for change. Only one change of option is permitted per Policy Year. A
change in Death Benefit Option will not be permitted if it results in the total
premiums paid exceeding the then current maximum premium limitations prescribed
by the Internal Revenue Service to qualify the Policy as a life insurance
contract.
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a Contingent Policy Owner or a new Policy Owner while
the Insured is living. Any change must be in a written form satisfactory to
the Company and recorded at the Company's Home Office. Once recorded, the
change will be effective when signed. The change will not affect any payment
made or action taken by the Company before it was recorded. The Company may
require that the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent 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) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at
the Company's Home Office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by the
Company before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving beneficiary, unless otherwise provided. Multiple
beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insured, the proceeds shall be paid to the
Policy Owner or the Policy Owner's estate.
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<PAGE> 29
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 by the Company at its Home Office. The Company is not responsible for
any assignment not submitted for recording, nor is the Company responsible for
the sufficiency or validity of any assignment.
The assignment will be subject to any indebtedness owed to the Company before
it was recorded.
INCONTESTABILITY
The Company will not contest a Death Benefit based on representations in any
written application when such benefit has been in force, during the lifetime of
the Insured, for two years.
ERROR IN AGE OR SEX
If the Insured's age, sex or both, as stated in the application, are incorrect,
the affected benefits will be adjusted to reflect the correct age or sex.
SUICIDE
If the Insured dies by suicide within two years from the Policy Date, the
Company will pay no more than the sum of the premiums, less any unpaid loan.
If the Insured dies by suicide within two years from the date an application is
accepted for an increase in the Specified Amount, the Company will pay no more
than the amount paid for such additional benefit.
NONPARTICIPATING POLICIES
The Policies are nonparticipating. This means that they do not participate in
any dividend distribution of the Company's surplus.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from contributions made on or
after August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with
legal counsel, the impact of Norris on any employment related insurance or
benefit program before purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where
the Policies may lawfully be sold. Such agents will be registered
representatives of broker dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
(NASD). The Policies will be distributed by the General Distributor,
Nationwide Financial Services, Inc., a wholly-owned subsidiary of Nationwide
Life Insurance Company.
Nationwide Financial Services, Inc., One Nationwide Plaza, Columbus, Ohio
43216, ("NFS") acts as general distributor for the Nationwide Multi-Flex
Variable Account, Nationwide DC Variable Account, Nationwide Variable
Account-II, Nationwide Variable Account-5, Nationwide Variable Account-6,
Nationwide Variable Account-8, Nationwide VA Separate Account-A, Nationwide VA
Separate Account-B, Nationwide VA Separate Account-C, Nationwide VL Separate
Account-A, Nationwide VLI Separate Account-2, Nationwide VLI Separate
Account-3, NACo Variable Account and the Nationwide Variable Account, all of
which are separate investment accounts of the Company or its affiliates. NFS
is a wholly owned subsidiary of the Company.
NFS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust, and
Nationwide Investing Foundation II, which are open-end management investment
companies.
Gross commissions paid by the Company on the sale of these Policies plus fees
for marketing services provided by the General Distributor are not more than
7.50% of the premiums paid.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
26
<PAGE> 30
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance policy for federal tax purposes. The Company
will monitor compliance with these tests. The Policy should thus receive the
same federal income tax treatment as fixed benefit life insurance. As a
result, the life insurance proceeds payable under a Policy are excludable from
gross income of the beneficiary under Section 101 of the Code.
The Policies described in this prospectus, meet the definition of "modified
endowment contracts" under Section 7702A of the Code. The Code defines
modified endowment contracts as those policies issued or materially changed
after June 21, 1988 on which the total premiums paid during the first seven
years exceed the amount that would have been paid if the policy provided for
paid up benefits after seven level annual premiums. The policies offered in
this prospectus typically fall within this definition. The Code provides for
taxation of surrenders, partial surrenders, loans, collateral assignments and
other pre-death distributions from modified endowment contracts in the same way
annuities are taxed. Any distribution is taxable to the extent the Cash Value
of the Policy exceeds, at the time of the distribution, the premiums paid into
the Policy. The Code generally provides for a 10% tax penalty on the taxable
portion of such distributions. That penalty is applicable unless the
distribution is (1) paid after the Policy Owner is 59 1/2 or disabled; or (2)
the distribution is part of an annuity to the Policy Owner as defined in the
Code.
Even though exchanges under Section 1035 of the Code qualify as material
changes, certain exchanges of pre-June 22, 1988 policies may retain their
non-modified endowment status. Therefore, the policies offered by this
prospectus may or may not be issued as modified endowment contracts. The
Company will monitor premiums paid and will notify the Policy Owner when the
policy's non-modified endowment status is in jeopardy. If a policy is not a
modified endowment contract, a cash distribution during the first fifteen years
after a policy is issued which causes a reduction in death benefits may still
become fully or partially taxable to the Owner pursuant to Section 7702(f) (7)
of the Code. The Policy Owner should carefully consider this potential effect
and seek further information before initiating any changes in the terms of the
policy. Under certain conditions, a policy may become a modified endowment as
a result of material changes or a reduction in benefits as defined by Section
7702A (c) of the Code.
In addition to meeting the tests required under Sections 7702, Section 817(h)
of the Code requires that the investments of separate accounts such as the
Variable Account be adequately diversified. Regulations under 817(h) provide
that a variable life policy which does not satisfy the diversification
standards will not be treated as life insurance unless the failure to satisfy
the regulations was inadvertent, the failure is corrected, and the Policy Owner
or the Company pays an amount to the Internal Revenue Service. The amount will
be based on the tax that would have been paid by the Policy Owner if the
income, for the period the policy was not diversified, had been received by the
Policy Owner. If the failure to diversify is not corrected in this manner, the
Policy Owner will be deemed the owner of the underlying securities and taxed on
the earnings of his or her account.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances. If the amount received by the
Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the
Policy, the excess will generally be treated as taxable income, regardless of
whether or not the Policy is a modified endowment contract.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the value of Accumulation Units. As a
result, such investment income and realized capital gains are automatically
applied to increase reserves under the Policies.
The Company does not initially expect to incur any federal income tax liability
that would be chargeable to the Variable Account. Based upon these
expectations, no charge is currently being made against the Variable Account
for federal income taxes. If, however, the Company determines that on a
separate company basis such taxes may be incurred, it reserves the right to
assess a charge for such taxes against the Variable Account.
27
<PAGE> 31
The Company may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as tax advice. Counsel
and other competent advisors should be consulted for more complete information.
This discussion is based on the Company's understanding of federal income tax
laws as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of continuation of these current
laws and interpretations.
THE COMPANY
The life insurance business, which includes product lines in health insurance
and annuities, is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company serves as depositor for the Nationwide Variable Account, Nationwide
Variable Account-II, Nationwide Variable Account-3, Nationwide Variable
Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6,
Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account-8,
MFS Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI
Separate Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate
Account-3, the NACo Variable Account and the Nationwide DC Variable Account,
each of which is a registered investment company, and each of which is a
separate investment account of the Company.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In
general, all states have statutory administrative powers. Such regulation
relates, among other things, to licensing of insurers and their agents, the
approval of policy forms, the methods of computing reserves, the form and
content of statutory financial statements, the amount of policyholders' and
stockholders' dividends, and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete
with the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the
other insurance companies in the group. In addition to its direct salaried
employees, the Company shares employees with Nationwide Mutual Insurance
Company and Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity
Insurance Company, Nationwide Property and Casualty Insurance Company, National
Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity
Company, Nationwide Indemnity Company and Nationwide General Insurance Company
and all of their affiliated companies comprise the Nationwide Insurance
Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Corporation, is the sole
shareholder of the Company.
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
Director
Name Since Principal Occupation
<S> <C> <C>
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Keith W. Eckel 1996 Partner and Manager, Fred W. Eckel Sons and Eckel Farms, Inc. (1)
Willard J. Engel 1994 General Manager, Lyon County Cooperative Oil Company (1)
</TABLE>
28
<PAGE> 32
<TABLE>
<S> <C> <C>
Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm; Operator, Melrose
Orchard
Charles L. Fuellgraf, Jr. *+ 1969 Chief Executive Officer, Fuellgraf Electric Company, Electrical
Construction and Engineering Services (1)
Joseph J. Gasper *+ 1996 President and Chief Operating Officer, Nationwide Life Insurance
Company and Nationwide Life and Annuity Insurance Company (2)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
D. Richard McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide Insurance
Enterprise (2)
David O. Miller *+ 1985 Farm Owner and Land Developer; President, Owen Potato Farm, Inc.;
Partner, M&M Enterprises (1)
C. Ray Noecker 1994 Farm Owner and Operator (1)
James F. Patterson + 1989 Vice President, Pattersons, Inc.; President, Patterson Farms,
Inc. (1)
Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef Farms; President and Chief
Executive Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Farm Owner and Operator; Owner, Sunnydale Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farms (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
- -------------------------------
<FN>
*Member, Executive Committee +Member, Investment
Committee
(1) Principal occupation for last five years.
(2) Prior to assuming their current positions, Messrs. McFerson and
Gasper held other executive management positions with the companies.
</TABLE>
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only
of the Company and Nationwide Life Insurance Company. Messrs. Gasper and
McFerson are directors of Nationwide Financial Services, Inc., a registered
broker-dealer.
Messrs. Gasper, Holloway, McFerson, Miller, Patterson and Shisler are directors
of Nationwide Corporation. Messrs. Fuellgraf, Gasper, McFerson, Ms. Thomas,
and Mr. Weihl are trustees of Nationwide Investing Foundation, a registered
investment company. Mr. McFerson is a trustee of Nationwide Separate Account
Trust, Financial Horizons Investment Trust, and Nationwide Investing Foundation
II, registered investment companies. Mr. Engel is a director of Western
Cooperative Transport.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME OFFICE HELD
<S> <C>
D. Richard McFerson Chairman and Chief Executive Officer-Nationwide Insurance
Enterprise
Joseph J. Gasper President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate Services and
Secretary
Robert A. Oakley Executive Vice President - Chief Financial Officer
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
James E. Brock Senior Vice President - Life Company Operations
W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary
</TABLE>
29
<PAGE> 33
<TABLE>
<S> <C>
Richard A. Karas Senior Vice President - Sales and Financial Services
Mark A. Folk Vice President and Treasurer
</TABLE>
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life and
Annuity Insurance Company. Each of the other officers listed above is also an
officer of each of the companies comprising the Nationwide Enterprise. Each of
the executive officers listed above has been associated with the registrant in
an executive capacity for more than the past five years, except Mr. Folk, who
joined the Registrant in 1993. From 1983-1993, Mr. Folk served as a partner at
the accounting firm KPMG Peat Marwick LLP.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable
contracts and policies with benefits which vary in accordance with the
investment experience of a separate account of the Company.
STATE REGULATION
The Company is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a
prescribed form is filed with the Insurance Department each year covering the
operation of the Company for the preceding year and its financial condition as
of the end of such year. Regulation by the Insurance Department includes
periodic examination to determine the Company's contract liabilities and
reserves so that the Insurance Department may certify the items are correct.
The Company's books and accounts are subject to review by the Insurance
Department at all times and a full examination of its operations is conducted
periodically by the National Association of Insurance Commissioners. Such
regulation does not, however, involve any supervision of management or
investment practices or policies. In addition, the Company is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner, at the last known address of record,
an annual statement showing the amount of the current Death Benefit, the Cash
Value, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each sub-account of the Variable Account, and any
Policy debt, as well as interest on the debt for the preceding year.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as change in Specified Amount, change in Death Benefit Option, changes in
future premium allocation, transfers among sub-accounts, premium payments,
loans, increase in loan principal, loan repayments, unpaid loan interest added
to principal, reinstatement and termination.
ADVERTISING
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts. Furthermore,
the Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs based on selected tax brackets or
discussions of alternative investment vehicles and general economic conditions.
30
<PAGE> 34
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation
incidental to the business to which the Company and the Variable Account are
parties or to which any of their property is the subject.
The General Distributor, Nationwide Financial Services, Inc., is not engaged in
any material litigation of any nature.
EXPERTS
The financial statements and schedules included herein have been included
herein in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the 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, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement
of the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216.
All the members of such firm are employed by the Nationwide Mutual Insurance
Company.
31
<PAGE> 35
APPENDIX 1
ILLUSTRATIONS OF WHEN ADDITIONAL
PREMIUM PAYMENTS ARE PERMITTED
Example 1: A male non-tobacco, age 35, purchases a Policy with an initial
premium of $25,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a Specified
Amount of $179,733. In the 12th and subsequent policy years, annual premiums
of $2,177 may be paid without violating the premium limitations prescribed by
the Internal Revenue Service to qualify the Policy as a life insurance
contract. Additional premiums which increase the Specified Amount may be made
at any time, subject to the $1,000 minimum. The Company reserves the right to
require satisfactory evidence of insurability with any premium payment which
increases the net amount at risk. In addition, premium payments may be made at
any time if they are required to continue the Policy in force.
Example 2: A male non-tobacco, age 55, purchases a Policy with an initial
premium of $100,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a Specified
Amount of $306,283. In the 11th and subsequent policy years, annual premiums
of $9,591 may be paid without violating the premium limitations prescribed by
the Internal Revenue Service to qualify the Policy as a life insurance
contract. Additional premiums which increase the Specified Amount may be made
at any time, subject to the $1,000 minimum. The Company reserves the right to
require satisfactory evidence of insurability with any premium payment which
increases the net amount at risk. In addition, premium payments may be made at
any time if they are required to continue the Policy in force.
32
<PAGE> 36
APPENDIX 2
ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate how Cash Values, Cash Surrender Values and Death Benefits under a
Policy would vary over time if the hypothetical gross investment rates of
return were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values, Cash Surrender Values and Death Benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Policies would go into default, at which time additional
premium payments would be required to continue the Policy in force. The
illustrations also assume there is no Policy debt, no additional premium
payments are made, no Cash Values are allocated to the Fixed Account, and their
are no changes in the Specified Amount or Death Benefit option.
The amounts shown for the Cash Value, Cash Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is
due to the daily charges made against the assets of the sub-accounts for
assuming mortality and expense risks, recovering premium taxes and providing
for administrative expenses. On a current basis, these charges are equivalent
to an annual effective rate of 1.30% in the first 10 policy years and 1.00%
thereafter. On a guaranteed basis, these charges are equivalent to a maximum
annual effective rate of 1.60% in the first 10 policy years and 1.30%
thereafter. In addition, the net investment returns also reflect the deduction
of underlying Mutual Fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.80%. This effective rate is based
on the average of the Fund expenses for the preceding year for all Mutual Fund
options available under the policy as of April 30, 1995.
Taking account of the current charges for mortality and expense risks,
recovering premium taxes and providing for administrative and underlying Mutual
Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net
investment experience at constant annual rates of - 2.10%, 3.90% and 9.90%,
respectively, in policy years one through ten, and -1.80%, 4.20% and 10.20%
thereafter. Taking account of guaranteed charges, gross annual rates of return
of 0%, 6% and 12% correspond to net investment experience at constant annual
rates of -2.40%, 3.60% and 9.60%, respectively, in policy years one through
ten, and -2.10%, 3.90% and 9.90% thereafter.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in
lower Cash Values and Death Benefits than those illustrated. Death Benefit
Option 1 has been assumed in all the illustrations.
In addition, the illustrations reflect the fact that the Company deducts an
annual administrative charge at the beginning of each Policy Year after the
first. The illustrations also reflect the fact that no charges for federal or
state income taxes are currently made against the Variable Account. If such a
charge is made in the future, it will require a higher gross investment return
than illustrated in order to produce the net after-tax returns shown in the
illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
33
<PAGE> 37
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,657 8,807 43,190 10,242 9,392 43,190 10,826 9,976 43,190
2 11,025 9,246 8,396 43,190 10,415 9,565 43,190 11,654 10,804 43,190
3 11,576 8,830 8,030 43,190 10,585 9,785 43,190 12,555 11,755 43,190
4 12,155 8,408 7,608 43,190 10,750 9,950 43,190 13,536 12,736 43,190
5 12,763 7,978 7,228 43,190 10,908 10,158 43,190 14,605 13,855 43,190
6 13,401 7,539 6,839 43,190 11,059 10,359 43,190 15,771 15,071 43,190
7 14,071 7,088 6,488 43,190 11,199 10,599 43,190 17,043 16,443 43,190
8 14,775 6,622 6,122 43,190 11,325 10,825 43,190 18,430 17,930 43,190
9 15,513 6,136 5,736 43,190 11,435 11,035 43,190 19,946 19,546 43,190
10 16,289 5,629 5,629 43,190 11,525 11,525 43,190 21,603 21,603 43,190
15 20,789 2,780 2,780 43,190 11,822 11,822 43,190 33,219 33,219 44,513
20 26,533 (*) (*) (*) 11,292 11,292 43,190 52,000 52,000 63,440
25 33,864 (*) (*) (*) 8,829 8,829 43,190 81,482 81,482 94,520
30 43,219 (*) (*) (*) 1,295 1,295 43,190 127,847 127,847 136,797
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$65 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
34
<PAGE> 38
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,616 8,766 43,190 10,199 9,349 43,190 10,781 9,931 43,190
2 11,025 9,110 8,260 43,190 10,268 9,418 43,190 11,495 10,645 43,190
3 11,576 8,600 7,800 43,190 10,327 9,527 43,190 12,267 11,467 43,190
4 12,155 8,084 7,284 43,190 10,374 9,574 43,190 13,101 12,301 43,190
5 12,763 7,561 6,811 43,190 10,407 9,657 43,190 14,004 13,254 43,190
6 13,401 7,029 6,329 43,190 10,424 9,724 43,190 14,981 14,281 43,190
7 14,071 6,483 5,883 43,190 10,420 9,820 43,190 16,039 15,439 43,190
8 14,775 5,920 5,420 43,190 10,393 9,893 43,190 17,185 16,685 43,190
9 15,513 5,336 4,936 43,190 10,337 9,937 43,190 18,426 18,026 43,190
10 16,289 4,726 4,726 43,190 10,248 10,248 43,190 19,772 19,772 43,190
15 20,789 1,168 1,168 43,190 9,283 9,283 43,190 29,002 29,002 43,190
20 26,533 (*) (*) (*) 6,352 6,352 43,190 43,855 43,855 53,504
25 33,864 (*) (*) (*) (*) (*) (*) 66,636 66,636 77,298
30 43,219 (*) (*) (*) (*) (*) (*) 101,661 101,661 108,777
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $120 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
35
<PAGE> 39
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,672 8,822 41,661 10,256 9,406 41,661 10,841 9,991 41,661
2 11,025 9,252 8,402 41,661 10,421 9,571 41,661 11,660 10,810 41,661
3 11,576 8,829 8,029 41,661 10,583 9,783 41,661 12,552 11,752 41,661
4 12,155 8,402 7,602 41,661 10,741 9,941 41,661 13,524 12,724 41,661
5 12,763 7,970 7,220 41,661 10,895 10,145 41,661 14,586 13,836 41,661
6 13,401 7,532 6,832 41,661 11,043 10,343 41,661 15,745 15,045 41,661
7 14,071 7,084 6,484 41,661 11,184 10,584 41,661 17,012 16,412 41,661
8 14,775 6,625 6,125 41,661 11,314 10,814 41,661 18,396 17,896 41,661
9 15,513 6,152 5,752 41,661 11,431 11,031 41,661 19,909 19,509 41,661
10 16,289 5,661 5,661 41,661 11,532 11,532 41,661 21,566 21,566 41,661
15 20,789 2,958 2,958 41,661 11,954 11,954 41,661 33,184 33,184 44,467
20 26,533 (*) (*) (*) 11,690 11,690 41,661 51,870 51,870 63,282
25 33,864 (*) (*) (*) 9,799 9,799 41,661 81,250 81,250 94,250
30 43,219 (*) (*) (*) 3,694 3,694 41,661 127,528 127,528 136,455
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$90 ADMINISTRATIVE EXPENSE CHARGE.
(3 NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
36
<PAGE> 40
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,623 8,773 41,661 10,206 9,356 41,661 10,788 9,938 41,661
2 11,025 9,109 8,259 41,661 10,267 9,417 41,661 11,494 10,644 41,661
3 11,576 8,592 7,792 41,661 10,319 9,519 41,661 12,258 11,458 41,661
4 12,155 8,071 7,271 41,661 10,359 9,559 41,661 13,084 12,284 41,661
5 12,763 7,543 6,793 41,661 10,385 9,635 41,661 13,979 13,229 41,661
6 13,401 7,006 6,306 41,661 10,396 9,696 41,661 14,948 14,248 41,661
7 14,071 6,457 5,857 41,661 10,387 9,787 41,661 15,997 15,397 41,661
8 14,775 5,892 5,392 41,661 10,355 9,855 41,661 17,135 16,635 41,661
9 15,513 5,306 4,906 41,661 10,295 9,895 41,661 18,369 17,969 41,661
10 16,289 4,697 4,697 41,661 10,204 10,204 41,661 19,708 19,708 41,661
15 20,789 1,165 1,165 41,661 9,252 9,252 41,661 28,920 28,920 41,661
20 26,533 (*) (*) (*) 6,412 6,412 41,661 43,694 43,694 53,307
25 33,864 (*) (*) (*) (*) (*) (*) 66,290 66,290 76,897
30 43,219 (*) (*) (*) (*) (*) (*) 101,032 101,032 108,104
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $135 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
37
<PAGE> 41
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,174 22,049 114,856 25,636 23,511 114,856 27,097 24,972 114,856
2 27,563 23,291 21,166 114,856 26,223 24,098 114,856 29,328 27,203 114,856
3 28,941 22,397 20,397 114,856 26,810 24,810 114,856 31,759 29,759 114,856
4 30,388 21,492 19,492 114,856 27,396 25,396 114,856 34,411 32,411 114,856
5 31,907 20,572 18,697 114,856 27,978 26,103 114,856 37,306 35,431 114,856
6 33,502 19,633 17,883 114,856 28,553 26,803 114,856 40,467 38,717 114,856
7 35,178 18,669 17,169 114,856 29,116 27,616 114,856 43,920 42,420 114,856
8 36,936 17,675 16,425 114,856 29,663 28,413 114,856 47,693 46,443 114,856
9 38,783 16,643 15,643 114,856 30,186 29,186 114,856 51,817 50,817 114,856
10 40,722 15,567 15,567 114,856 30,681 30,681 114,856 56,332 56,332 114,856
15 51,973 9,584 9,584 114,856 33,146 33,146 114,856 87,888 87,888 117,770
20 66,332 1,510 1,510 114,856 34,297 34,297 114,856 138,873 138,873 169,425
25 84,659 (*) (*) (*) 32,091 32,091 114,856 219,214 219,214 254,289
30 108,049 (*) (*) (*) 21,069 21,069 114,856 346,030 346,030 370,252
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
38
<PAGE> 42
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,010 21,885 114,856 25,465 23,340 114,856 26,920 24,795 114,856
2 27,563 22,932 20,807 114,856 25,837 23,712 114,856 28,914 26,789 114,856
3 28,941 21,839 19,839 114,856 26,189 24,189 114,856 31,070 29,070 114,856
4 30,388 20,726 18,726 114,856 26,515 24,515 114,856 33,402 31,402 114,856
5 31,907 19,589 17,714 114,856 26,813 24,938 114,856 35,927 34,052 114,856
6 33,502 18,421 16,671 114,856 27,075 25,325 114,856 38,663 36,913 114,856
7 35,178 17,215 15,715 114,856 27,293 25,793 114,856 41,626 40,126 114,856
8 36,936 15,959 14,709 114,856 27,457 26,207 114,856 44,836 43,586 114,856
9 38,783 14,642 13,642 114,856 27,555 26,555 114,856 48,317 47,317 114,856
10 40,722 13,254 13,254 114,856 27,577 27,577 114,856 52,095 52,095 114,856
15 51,973 4,962 4,962 114,856 26,531 26,531 114,856 78,002 78,002 114,856
20 66,332 (*) (*) (*) 20,838 20,838 114,856 119,657 119,657 145,981
25 84,659 (*) (*) (*) 4,679 4,679 114,856 183,457 183,457 212,810
30 108,049 (*) (*) (*) (*) (*) (*) 281,552 281,552 301,260
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $75 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE> 43
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,836 88,336 306,283 102,691 94,191 306,283 108,548 100,048 306,283
2 110,250 93,571 85,071 306,283 105,349 96,849 306,283 117,822 109,322 306,283
3 115,763 90,250 82,250 306,283 108,023 100,023 306,283 127,957 119,957 306,283
4 121,551 86,860 78,860 306,283 110,707 102,707 306,283 139,044 131,044 306,283
5 127,628 83,384 75,884 306,283 113,391 105,891 306,283 151,185 143,685 306,283
6 134,010 79,805 72,805 306,283 116,067 109,067 306,283 164,497 157,497 306,283
7 140,710 76,105 70,105 306,283 118,726 112,726 306,283 179,113 173,113 306,283
8 147,746 72,256 67,256 306,283 121,349 116,349 306,283 195,180 190,180 306,283
9 155,133 68,229 64,229 306,283 123,922 119,922 306,283 212,872 208,872 306,283
10 162,889 63,997 63,997 306,283 126,430 126,430 306,283 232,394 232,394 306,283
15 207,893 39,461 39,461 306,283 139,732 139,732 306,283 368,719 368,719 427,714
20 265,330 2,589 2,589 306,283 149,098 149,098 306,283 586,184 586,184 627,217
25 338,635 (*) (*) (*) 146,527 146,527 306,283 934,517 934,517 981,243
30 432,194 (*) (*) (*) 108,303 108,303 306,283 1,478,079 1,478,079 1,551,983
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE> 44
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,948 87,448 306,283 101,775 93,275 306,283 107,604 99,104 306,283
2 110,250 91,708 83,208 306,283 103,374 94,874 306,283 115,732 107,232 306,283
3 115,763 87,336 79,336 306,283 104,857 96,857 306,283 124,525 116,525 306,283
4 121,551 82,805 74,805 306,283 106,202 98,202 306,283 134,051 126,051 306,283
5 127,628 78,081 70,581 306,283 107,381 99,881 306,283 144,385 136,885 306,283
6 134,010 73,125 66,125 306,283 108,360 101,360 306,283 155,616 148,616 306,283
7 140,710 67,894 61,894 306,283 109,104 103,104 306,283 167,850 161,850 306,283
8 147,746 62,323 57,323 306,283 109,560 104,560 306,283 181,201 176,201 306,283
9 155,133 56,345 52,345 306,283 109,670 105,670 306,283 195,814 191,814 306,283
10 162,889 49,889 49,889 306,283 109,374 109,374 306,283 211,866 211,866 306,283
15 207,893 7,926 7,926 306,283 101,127 101,127 306,283 325,428 325,428 377,496
20 265,330 (*) (*) (*) 65,518 65,518 306,283 503,621 503,621 538,875
25 338,635 (*) (*) (*) (*) (*) (*) 783,619 783,619 822,800
30 432,194 (*) (*) (*) (*) (*) (*) 1,204,998 1,204,998 1,265,248
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $75 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE> 45
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,508 88,008 211,021 102,374 93,874 211,021 108,241 99,741 211,021
2 110,250 92,854 84,354 211,021 104,682 96,812 211,021 117,213 108,713 211,021
3 115,763 89,070 81,070 211,021 106,972 98,972 211,021 127,070 119,070 211,021
4 121,551 85,137 77,137 211,021 109,240 101,240 211,021 137,933 129,933 211,021
5 127,628 81,027 73,527 211,021 111,476 103,976 211,021 149,939 142,439 211,021
6 134,010 76,704 69,704 211,021 113,668 106,668 211,021 163,251 156,251 211,021
7 140,710 72,123 66,123 211,021 115,796 109,796 211,021 178,060 172,060 211,021
8 147,746 67,225 62,225 211,021 117,840 112,840 211,021 194,591 189,591 215,996
9 155,133 61,951 57,951 211,021 119,777 115,777 211,021 212,875 208,875 232,034
10 162,889 56,238 56,238 211,021 121,591 121,591 211,021 232,962 232,962 249,269
15 207,893 16,637 16,637 211,021 129,219 129,219 211,021 371,196 371,196 389,756
20 265,330 (*) (*) (*) 124,397 124,397 211,021 586,902 586,902 616,247
25 338,635 (*) (*) (*) 77,122 77,122 211,021 915,212 915,212 960,973
30 432,194 (*) (*) (*) (*) (*) (*) 1,430,336 1,430,336 1,444,639
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE> 46
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,130 86,630 211,021 100,970 92,470 211,021 106,812 98,312 211,021
2 110,250 89,907 81,407 211,021 101,644 93,144 211,021 114,088 105,588 211,021
3 115,763 84,356 76,356 211,021 102,066 94,066 211,021 121,987 113,987 211,021
4 121,551 78,419 70,419 211,021 102,196 94,196 211,021 130,609 122,609 211,021
5 127,628 72,016 64,516 211,021 101,980 94,480 211,021 140,072 132,572 211,021
6 134,010 65,041 58,041 211,021 101,345 94,345 211,021 150,520 143,520 211,021
7 140,710 57,359 51,359 211,021 100,195 94,195 211,021 162,134 156,134 211,021
8 147,746 48,791 43,791 211,021 98,404 93,404 211,021 175,149 170,149 211,021
9 155,133 39,127 35,127 211,021 95,825 91,825 211,021 189,878 185,878 211,021
10 162,889 28,128 28,128 211,021 92,288 92,288 211,021 206,608 206,608 221,071
15 207,893 (*) (*) (*) 53,214 53,214 211,021 321,185 321,185 337,245
20 265,330 (*) (*) (*) (*) (*) (*) 493,610 493,610 518,290
25 338,635 (*) (*) (*) (*) (*) (*) 744,737 744,737 781,974
30 432,194 (*) (*) (*) (*) (*) (*) 1,132,229 1,132,229 1,143,551
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $75 ADMINISTRATIVE EXPENSE CHARGE.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 47
<PAGE> 1
================================================================================
Independent Auditors' Report
The Board of Directors and Contract Owners of
Nationwide VLI Separate Account-3
Nationwide Life Insurance Company:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account-3 as of December 31,
1995, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and the
transfer agents of the underlying mutual funds. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VLI Separate Account-3 as of December 31, 1995, and the
results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1996
================================================================================
<PAGE> 2
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
1,175 shares (cost $19,722) .......................................... $ 20,334
Dreyfus Stock Index Fund (DryStkIx)
6,026 shares (cost $97,709) .......................................... 103,651
Fidelity VIP - Equity-Income Portfolio (FidEqInc)
3,771 shares (cost $69,019) .......................................... 72,665
Fidelity VIP - Growth Portfolio (FidGro)
4,895 shares (cost $147,327) ......................................... 142,939
Fidelity VIP - High Income Portfolio (FidHiInc)
1,099 shares (cost $12,824) .......................................... 13,247
Fidelity VIP - Overseas Portfolio (FidOSeas)
515 shares (cost $8,514) ............................................. 8,777
Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr)
4,090 shares (cost $61,030) .......................................... 64,579
Fidelity VIP-II - Contrafund Portfolio (FidContP)
2,604 shares (cost $35,749) .......................................... 35,887
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
251,487 shares (cost $2,811,872) ..................................... 3,390,050
Nationwide SAT - Government Bond Fund (NWGvtBd)
139,623 shares (cost $1,535,161) ..................................... 1,586,120
Nationwide SAT - Money Market Fund (NWMyMkt)
408,352 shares (cost $408,352) ....................................... 408,352
Nationwide SAT - Small Company Fund (NWSmCoFd)
213 shares (cost $2,349) ............................................. 2,432
Nationwide SAT - Total Return Fund (NWTotRet)
859,561 shares (cost $8,971,057) ..................................... 9,919,331
Neuberger & Berman - Balanced Portfolio (NBBal)
65,727 shares (cost $997,222) ........................................ 1,151,530
Neuberger & Berman - Growth Portfolio (NBGro)
1,415 shares (cost $36,869) .......................................... 36,582
Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat)
500 shares (cost $7,109) ............................................. 7,351
Neuberger & Berman Advisers Management Trust - Partners Portfolio (NBPart)
1,365 shares (cost $17,070) .......................................... 18,055
Oppenheimer - Bond Fund (OppBdFd)
618 shares (cost $7,177) ............................................. 7,312
Oppenheimer - Global Securities Fund (OppGlSec)
425 shares (cost $6,485) ............................................. 6,368
Oppenheimer - Multiple Strategies Fund (OppMult)
141 shares (cost $2,014) ............................................. 2,045
Strong VIP - Strong Discovery Fund II (StDisc2)
708 shares (cost $9,271) ............................................. 9,510
Strong VIP - Strong Special Fund II, Inc. (StSpec2)
2,018 shares (cost $33,076) .......................................... 34,394
TCI Portfolios, Inc. - TCI Advantage (TCIAdv)
124,250 shares (cost $670,471) ....................................... 769,107
TCI Portfolios, Inc. - TCI Balanced (TCIBal)
981 shares (cost $6,835) ............................................. 6,907
TCI Portfolios, Inc. - TCI Growth (TCIGro)
3,323 shares (cost $40,499) .......................................... 40,073
TCI Portfolios, Inc. - TCI International (TCIInt)
56 shares (cost $291) ................................................ 300
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
422 shares (cost $6,064) ............................................. 6,087
Van Eck - Worldwide Bond Fund (VEWrldBd)
45 shares (cost $498) ................................................ 500
Van Kampen American Capital - Real Estate Securities Fund (VKACRESec)
38 shares (cost $403) ................................................ 410
Warburg Pincus - International Equity Portfolio (WPIntEq)
246 shares (cost $2,565) ............................................. 2,621
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
4,081 shares (cost $44,454) .......................................... 51,056
-----------
Total assets ................................................... 17,918,572
ACCOUNTS PAYABLE ......................................................... 14,179
-----------
CONTRACT OWNERS' EQUITY .................................................. $17,904,393
===========
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Contract owners' equity represented by: Units Unit Value
----- ----------
<S> <C> <C> <C>
The Dreyfus Socially Responsible Growth Fund, Inc. ...... 1,412 $ 14.401809 $ 20,335
The Dreyfus Stock Index Fund ............................ 7,526 13.775382 103,674
Fidelity VIP - Equity-Income Portfolio .................. 3,343 22.215745 74,267
Fidelity VIP - Growth Portfolio ......................... 6,753 21.256059 143,542
Fidelity VIP - High Income Portfolio .................... 639 20.852993 13,325
Fidelity VIP - Overseas Portfolio ....................... 644 13.645033 8,787
Fidelity VIP-II - Asset Manager Portfolio ............... 4,040 15.982529 64,569
Fidelity VIP-II - Contrafund Portfolio .................. 3,236 11.099135 35,917
Nationwide SAT - Capital Appreciation Fund............... 230,417 14.713230 3,390,178
Nationwide SAT - Government Bond Fund.................... 105,852 14.984933 1,586,185
Nationwide SAT - Money Market Fund ...................... 34,837 11.714295 408,091
Nationwide SAT - Small Company Fund ..................... 213 11.420759 2,433
Nationwide SAT - Total Return Fund....................... 545,254 18.192762 9,919,676
Neuberger & Berman - Balanced Portfolio ................. 81,338 14.157643 1,151,554
Neuberger & Berman - Growth Portfolio ................... 2,305 15.962482 36,794
Neuberger & Berman - Limited Maturity Bond Portfolio .... 564 13.096811 7,387
Neuberger & Berman - Partners Portfolio ................. 1,328 13.591346 18,049
Oppenheimer - Bond Fund ................................. 482 15.164813 7,309
Oppenheimer - Global Securities Fund .................... 555 11.542134 6,406
Oppenheimer - Multiple Strategies Fund .................. 128 16.100377 2,061
Strong VIP - Strong Discovery Fund II ................... 582 16.514850 9,612
Strong VIP - Strong Special Fund II, Inc. ............... 1,891 18.408627 34,811
TCI Portfolios, Inc. - TCI Advantage .................... 32,338 13.112917 424,046
TCI Portfolios, Inc. - TCI Advantage (Depositor)......... 25,000 13.802855 345,071
TCI Portfolios, Inc. - TCI Balanced ..................... 524 13.155049 6,893
TCI Portfolios, Inc. - TCI Growth ....................... 2,481 16.149061 40,066
TCI Portfolios, Inc. - TCI International ................ 31 10.477472 325
Van Eck - Gold and Natural Resources Fund ............... 390 15.612002 6,089
Van Eck - Worldwide Bond Fund ........................... 39 13.253457 517
Van Kampen American Capital - Real Estate Securities Fund 38 10.792212 410
Warburg Pincus - International Equity Portfolio ......... 238 10.687672 2,544
Warburg Pincus - Small Company Growth Portfolio ......... 2,686 12.461074 33,470
======= ========= -----------
$17,904,393
===========
</TABLE>
See accompanying notes to financial statements.
================================================================================
<PAGE> 4
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ........... $ 1,084,513 494,868 145,831
------------ ---------- ----------
Gain (loss) on investments:
Proceeds from redemptions of mutual fund shares 2,252,228 4,179,645 3,254,854
Cost of mutual fund shares sold ............... (2,113,393) (4,147,943) (3,222,467)
------------ ---------- ----------
Realized gain (loss) on investments ........... 138,835 31,702 32,387
Change in unrealized gain (loss) on investments 2,274,433 (556,146) 107,861
------------ ---------- ----------
Net gain (loss) on investments ................ 2,413,268 (524,444) 140,248
------------ ---------- ----------
Net investment activity ................... 3,497,781 (29,576) 286,079
------------ ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners .. 4,661,075 8,317,542 6,745,862
Surrenders (note 2d) ............................. (427,125) (172,813) (114,800)
Death Benefits (note 4) .......................... (11,836) (17,276) --
Policy loans (net of repayments) (note 5) ........ (212,115) (85,214) (6,841)
------------ ---------- ----------
Net equity transactions ................... 4,009,999 8,042,239 6,624,221
------------ ---------- ----------
EXPENSES:
Deductions for surrender charges (note 2d) ...... (71,008) (59,849) (44,036)
Redemptions to pay cost of insurance charges
and administrative charges (notes 2b and 2c) .. (2,073,851) (2,524,466) (1,065,559)
Deductions for asset charges (note 3) ............ (119,641) (80,632) (24,233)
------------ ---------- ----------
Total expenses ............................ (2,264,500) (2,664,947) (1,133,828)
------------ ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............... 5,243,280 5,347,716 5,776,472
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ......... 12,661,113 7,313,397 1,536,925
------------ ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD ............... $ 17,904,393 12,661,113 7,313,397
============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
================================================================================
<PAGE> 5
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLI Separate Account-3 (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. On August 21,
1991, the Company (Depositor) transferred to the Account 50,000 shares of TCI
Portfolios, Inc.-TCI Advantage, for which it was credited with 25,000
accumulation units. The value of the accumulation units purchased by the Company
on August 21, 1991 was $250,000.
The Company offers Modified Single Premium and Flexible Premium Variable
Life Insurance Policies through the Account. The primary distribution for the
contracts is through Company Agents; however, other distributors may be
utilized.
(b) The Contracts
Only contracts with a front-end sales load, a surrender charge and
certain other fees have been purchased. See note 2 for a discussion of policy
charges and note 3 for asset charges.
Contract owners may invest in the following funds:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)(formerly Dreyfus Life and Annuity
Index Fund, Inc. (DLAI))
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity
VIP);
Fidelity VIP - Equity-Income Portfolio (FidEqInc)
Fidelity VIP - Growth Portfolio (FidGro)
Fidelity VIP - High Income Portfolio (FidHiInc)
Fidelity VIP - Overseas Portfolio (FidOSeas)
Portfolios of the Fidelity Variable Insurance Products Fund II
(Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr)
Fidelity VIP-II - Contrafund Portfolio (FidContP)
Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed
for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
Nationwide SAT - Government Bond Fund (NWGvtBd)
Nationwide SAT - Money Market Fund (NWMyMkt)
Nationwide SAT - Small Company Fund (NWSmCoFd)
Nationwide SAT - Total Return Fund (NWTotRet)
Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger
& Berman);
Neuberger & Berman - Balanced Portfolio (NBBal)
Neuberger & Berman - Growth Portfolio (NBGro)
Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat)
Neuberger & Berman - Partners Portfolio (NBPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer);
Oppenheimer - Bond Fund (OppBdFd)
Oppenheimer - Global Securities Fund (OppGlSec)
Oppenheimer - Multiple Strategies Fund (OppMult)
<PAGE> 6
Funds of the Strong Variable Insurance Products Funds (Strong VIP);
Strong VIP - Strong Discovery Fund II (StDisc2)
Strong VIP - Strong International Stock Fund II (StIntStk2)
Strong VIP - Strong Special Fund II, Inc. (StSpec2)
Portfolios of the TCI Portfolios, Inc. (TCI Portfolios);
TCI Portfolios - TCI Advantage (TCIAdv)
TCI Portfolios - TCI Balanced (TCIBal)
TCI Portfolios - TCI Growth (TCIGro)
TCI Portfolios - TCI International (TCIInt)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck) (formerly Van
Eck Investment Trust);
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
Van Eck - Worldwide Bond Fund (VEWrldBd) (formerly Van Eck - Global
Bond Fund (VEGlobBd))
Fund of the Van Kampen American Capital Life Investment Trust (Van Kampen
American Capital);
Van Kampen American Capital - Real Estate Securities Fund (VKACRESec)
Portfolios of the Warburg Pincus Trust (Warburg Pincus);
Warburg Pincus - International Equity Portfolio (WPIntEq)
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1995, contract owners have invested in all of the above
funds except Strong VIP - Strong International Stock Fund II (StIntStk2). The
contract owners' equity is affected by the investment results of each fund,
equity transactions by contract owners and certain policy charges (see notes 2
and 3). The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their contracts and
exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1995. 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 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 Premium
On flexible premium life insurance 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. Additionally, the Company deducts a
front-end sales load of up to 3.5% from each premium payment received. 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. The
amount of the charge is based upon age, sex, rate class and net amount at risk
(death benefit less total contract value).
<PAGE> 7
(c) Administrative Charges
For flexible premium contracts, the Company currently deducts a monthly
administrative charge of $25 during the first policy year and $5 per month
thereafter (may deduct up to $7.50, maximum) to recover policy maintenance,
accounting, record keeping and other administrative expenses. Additionally, the
Company deducts an increase charge of $2.04 per year per $1,000 applied to any
increase in the specified amount during the first 12 months after the increase
becomes effective.
The above charges are assessed against each contract by liquidating
units.
(d) Surrenders
Policy surrenders result in a redemption of the contract value from the
Separate 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 amount
of the charge is based upon a specified percentage of the initial surrender
charge which varies by issue age, sex and rate class. For flexible premium
contracts, the charge is 100% of the initial surrender charge in the first year,
declining to 30% of the initial surrender charge in the ninth year.
No surrender charge is assessed on any contract surrendered 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. No charges were deducted from the initial funding, or from
earnings thereon.
(3) Asset Charges
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. This charge is assessed through the unit value calculation.
(4) Death Benefits
Death benefits result in a redemption of the contract value from the
Separate Account and payment of the death benefit proceeds, less any outstanding
policy loans and policy charges, to the legal beneficiary. The excess of the
death benefit proceeds over the contract value on the date of death is paid by
the Company's general account.
(5) Policy Loans (Net of Repayments)
Contract provisions allow contract owners to borrow 90% of a policy's
cash surrender value. The contract is charged 6% on the outstanding loan and is
due and payable in advance on the policy anniversary.
At the time the loan is granted, the amount of the loan plus interest, if
any, 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. Interest credited is paid by the
Company's general account to the Account. Loan repayments result in a transfer
of collateral back to the Account.
(6) SCHEDULE I
Schedule I presents the components of the change in the unit values,
which are the basis for contract owners' equity. This schedule is presented in
the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to capital
gains and dividend distributions from the underlying mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Asset charges (This amount reflects the decrease in the unit value
due to the charges discussed in note 3.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
================================================================================
<PAGE> 8
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-3 SCHEDULE I
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DrySRGro DryStkIx FidEqInc FidGro FidHiInc FidOSeas FidAsMgr FidContP
-------- -------- -------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995***
Beginning unit value - Jan. 1 $13.083801 12.456650 19.991986 21.077777 19.897254 13.633767 15.029765 10.655665
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .396430 .239425 .229029 .000000 .000000 .000000 .000000 .143118
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .967071 1.122261 2.063681 .249916 1.022818 .055055 1.003384 .336322
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.045493) (.042954) (.068951) (.071634) (.067079) (.043789) (.050620) (.035970)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.401809 13.775382 22.215745 21.256059 20.852993 13.645033 15.982529 11.099135
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a) 10%(b) 11%(b) 11%(b) 1%(b) 5%(b) 0%(b) 6%(b) 4%(b)
==================================================================================================================================
1994
Beginning unit value - Jan.1 ** ** ** ** ** ** ** **
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss)
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a)
==================================================================================================================================
1993
Beginning unit value - Jan. 1 ** ** ** ** ** ** ** **
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss)
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a)
==================================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in
note 2; and (b) This investment option was not utilized for the
entire year indicated.
** This investment option was not available or was not utilized.
*** No other investment options were being utilized.
<PAGE> 9
NATIONWIDE VLI SEPARATE ACCOUNT-3 SCHEDULE I, CONTINUED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NWCapApp NWGvtBd NWMyMkt NWSmCoFd NWTotRet NBBal
-------- ------- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
1995***
Beginning unit value - Jan. 1 $ 11.465403 12.720514 11.176411 10.000000 14.205723 11.531273
- ---------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .653781 .903001 .629782 .017475 1.413734 .293664
- ---------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.696528 1.472503 .000000 1.418968 2.703396 2.438125
- ---------------------------------------------------------------------------------------------------------------------
Asset charges (.102482) (.111085) (.091898) (.015684) (.130091) (.105419)
- ---------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 14.713230 14.984933 11.714295 11.420759 18.192762 14.157643
- ---------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a) 28% 18% 5% 14%(b) 28% 23%
=====================================================================================================================
1994
Beginning unit value - Jan.1 $ 11.662121 13.250482 10.845265 ** 14.167308 12.027618
- ---------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .184927 .833925 .419275 .717782 .469287
- ---------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.289863) (1.261429) .000000 (.565055) (.872191)
- ---------------------------------------------------------------------------------------------------------------------
Asset charges (.091782) (.102464) (.088129) (.114312) (.093441)
- ---------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 11.465403 12.720514 11.176411 14.205723 11.531273
- ---------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a) (2)% (4)% 3% 0% (4)%
=====================================================================================================================
1993
Beginning unit value - Jan. 1 $ 10.725293 12.196370 10.639809 ** 12.875439 11.389202
- ---------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .261975 .781559 .291848 .527331 .175648
- ---------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .761628 .376228 .000000 .873117 .555361
- ---------------------------------------------------------------------------------------------------------------------
Asset charges (.086775) (.103675) (.086392) (.108579) (.092593)
- ---------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 11.662121 13.250482 10.845265 14.167308 12.027618
- ---------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a) 9% 9% 2% 10% 6%
=====================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in
note 2; and (b) This investment option was not utilized for the
entire year indicated.
** This investment option was not available or was not utilized.
*** No other investment options were being utilized.
<PAGE> 10
NATIONWIDE VLI SEPARATE ACCOUNT-3 SCHEDULE I, CONTINUED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NBGro NBLtdMat NBPart OppBdFd
----- -------- ------ -------
<S> <C> <C> <C> <C>
1995***
Beginning unit value - Jan. 1 $15.674452 12.612894 12.574475 14.319149
- ---------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .000000 .000000 .000000 .451093
- ---------------------------------------------------------------------------------------------
Unrealized gain (loss) .341270 .526078 1.059943 .442834
- ---------------------------------------------------------------------------------------------
Asset charges (.053240) (.042161) (.043072) (.048263)
- ---------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $15.962482 13.096811 13.591346 15.164813
- ---------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a) 2%(b) 4%(b) 8%(b) 6%(b)
=============================================================================================
1994
Beginning unit value - Jan.1 ** ** ** **
- ---------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends
- ---------------------------------------------------------------------------------------------
Unrealized gain (loss)
- ---------------------------------------------------------------------------------------------
Asset charges
- ---------------------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ---------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a)
=============================================================================================
1993
Beginning unit value - Jan. 1 ** ** ** **
- ---------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends
- ---------------------------------------------------------------------------------------------
Unrealized gain (loss)
- ---------------------------------------------------------------------------------------------
Asset charges
- ---------------------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ---------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a)
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
OppGlSec OppMult StDisc2 StSpec2 TCIAdv
-------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
1995***
Beginning unit value - Jan. 1 11.943012 15.453572 15.320395 17.177125 11.321934
- --------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .000000 .337996 .211565 .082118 .411556
- --------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.362402) .360634 1.035469 1.207608 1.477165
- --------------------------------------------------------------------------------------------------------------
Asset charges (.038476) (.051825) (.052579) (.058224) (.097738)
- --------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.542134 16.100377 16.514850 18.408627 13.112917
- --------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a) (3)%(b) 4%(b) 8%(b) 7%(b) 16%
==============================================================================================================
1994
Beginning unit value - Jan.1 ** ** ** ** $11.295721
- --------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .297670
- --------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.181209)
- --------------------------------------------------------------------------------------------------------------
Asset charges (.090248)
- --------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.321934
- --------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a) 0%
==============================================================================================================
1993
Beginning unit value - Jan. 1 ** ** ** ** $10.657984
- --------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .223352
- --------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .502395
- --------------------------------------------------------------------------------------------------------------
Asset charges (.088010)
- --------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.295721
- --------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value*(a) 6%
==============================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in
note 2; and (b) This investment option was not utilized for the
entire year indicated.
** This investment option was not available or was not utilized.
*** No other investment options were being utilized.
<PAGE> 11
NATIONWIDE VLI SEPARATE ACCOUNT-3 SCHEDULE I, CONTINUED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
TCIAdv+ TCIBal TCIGro TCIInt VEGoldNR
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
1995**
Beginning unit value - Jan. 1 $ 11.822996 12.526705 15.745499 10.216142 15.406908
- ------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends 0.431938 .187655 .000000 .000000 .075481
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.547921 .482910 .457100 .294719 .180118
- ------------------------------------------------------------------------------------------------------------------------
Asset charges 0.000000 (.042221) (.053538) (.033389) (.050505)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 13.802855 13.155049 16.149061 10.477472 15.612002
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (a) 17% 5%(b) 3%(b) 3%(b) 1%(b)
========================================================================================================================
1994
Beginning unit value - Jan.1 $ 11.701906 ** ** ** **
- ------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .309969
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.188879)
- ------------------------------------------------------------------------------------------------------------------------
Asset charges .000000
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 11.822996
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (a) 1%
========================================================================================================================
1993
Beginning unit value - Jan. 1 $ 10.953160 ** ** ** **
- ------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .230690
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .518056
- ------------------------------------------------------------------------------------------------------------------------
Asset charges .000000
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 11.701906
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (a) 7%
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEWrldBd VKACRESec WPIntEq WPSmCoGr
-------- --------- ------- --------
<S> <C> <C> <C> <C>
1995**
Beginning unit value - Jan. 1 $ 13.012850 10.203521 10.236484 10.233506
- -----------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends .245483 .092168 .077521 .000000
- -----------------------------------------------------------------------------------------------------
Unrealized gain (loss) .038021 .530496 .408042 2.264927
- -----------------------------------------------------------------------------------------------------
Asset charges (.042897) (.033973) (.034375) (.037359)
- -----------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 13.253457 10.792212 10.687672 12.461074
- -----------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (a) 2%(b) 6%(b) 4%(b) 22%(b)
=====================================================================================================
1994
Beginning unit value - Jan.1 ** ** ** **
- -----------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends
- -----------------------------------------------------------------------------------------------------
Unrealized gain (loss)
- -----------------------------------------------------------------------------------------------------
Asset charges
- -----------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31
- -----------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (a)
=====================================================================================================
1993
Beginning unit value - Jan. 1 ** ** ** **
- -----------------------------------------------------------------------------------------------------
Reinvested capital
gains and
dividends
- -----------------------------------------------------------------------------------------------------
Unrealized gain (loss)
- -----------------------------------------------------------------------------------------------------
Asset charges
- -----------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31
- -----------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (a)
=====================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in
note 2; and (b) This investment option was not utilized for the
entire year indicated.
** This investment option was not available or was not utilized.
*** No other investment options were being utilized.
+ For Depositor, see note 1a.
See note 6.
================================================================================
<PAGE> 48
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Nationwide Life Insurance Company:
We have audited the consolidated financial statements of Nationwide Life
Insurance Company (a wholly owned subsidiary of Nationwide Corporation) and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedules 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.
Participating insurance and the related surplus are discussed in note 12. The
Company and its counsel are of the opinion that the ultimate ownership of the
participating surplus in excess of the contemplated equitable policyholder
dividends belongs to the shareholder. The accompanying consolidated financial
statements are presented on such basis.
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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
In 1993, the Company adopted the provisions of SFAS No. 109, Accounting for
Income Taxes and SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions.
KPMG Peat Marwick LLP
Columbus, Ohio
February 26, 1996
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Balance Sheets
December 31, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities (cost $13,438,630 in 1995; $8,318,865 in 1994) $ 14,167,377 8,045,906
Equity securities (cost $27,362 in 1995; $18,372 in 1994) 33,718 24,713
Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310 in 1994) - 3,688,787
Mortgage loans on real estate 4,786,599 4,222,284
Real estate 239,089 252,681
Policy loans 370,908 340,491
Other long-term investments 67,280 63,914
Short-term investments (note 13) 45,732 131,643
----------- -----------
19,710,703 16,770,419
----------- -----------
Cash 10,485 7,436
Accrued investment income 239,881 220,540
Deferred policy acquisition costs 1,094,195 1,064,159
Deferred Federal income tax -- 36,515
Other assets 795,169 790,603
Assets held in Separate Accounts (note 8) 18,763,678 12,222,461
----------- -----------
$40,614,111 31,112,133
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims (notes 6 and 8) 18,200,128 16,321,461
Policyholders' dividend accumulations 353,554 338,058
Other policyholder funds 71,155 72,770
Accrued Federal income tax (note 7):
Current 34,064 13,126
Deferred 238,877 -
----------- -----------
272,941 13,126
----------- -----------
Other liabilities 284,143 235,778
Liabilities related to Separate Accounts (note 8) 18,763,678 12,222,461
----------- -----------
37,945,599 29,203,654
----------- -----------
Shareholder's equity (notes 3, 4, 5, 7, 12 and 13):
Capital shares, $1 par value. Authorized 5,000 shares, issued and
outstanding 3,815 shares 3,815 3,815
Additional paid-in capital 673,782 622,753
Retained earnings 1,606,607 1,401,579
Unrealized gains (losses) on securities available-for-sale, net 384,308 (119,668)
----------- -----------
2,668,512 1,908,479
----------- -----------
Commitments and contingencies (notes 9 and 15)
$40,614,111 31,112,133
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Traditional life insurance premiums $ 274,957 209,538 215,715
Accident and health insurance premiums 509,658 324,524 312,655
Universal life and investment product policy charges 307,676 239,021 188,057
Net investment income (note 5) 1,482,980 1,289,501 1,204,426
Realized gains (losses) on investments (notes 5 and 13) 836 (16,384) 113,673
---------- ---------- ----------
2,576,107 2,046,200 2,034,526
---------- ---------- ----------
Benefits and expenses:
Benefits and claims 1,656,287 1,279,763 1,236,906
Provision for policyholders' dividends on participating policies (note 12) 48,074 46,061 53,189
Amortization of deferred policy acquisition costs 93,044 94,744 102,134
Other operating costs and expenses 458,970 352,402 329,396
---------- ---------- ----------
2,256,375 1,772,970 1,721,625
---------- ---------- ----------
Income before Federal income tax expense and cumulative effect of
changes in accounting principles 319,732 273,230 312,901
---------- ---------- ----------
Federal income tax expense (note 7):
Current 103,464 79,847 75,124
Deferred 3,790 9,657 31,634
---------- ---------- ----------
107,254 89,504 106,758
---------- ---------- ----------
Income before cumulative effect of changes in accounting principles 212,478 183,726 206,143
Cumulative effect of changes in accounting principles, net (note 3) -- -- 5,365
---------- ---------- ----------
Net income $ 212,478 183,726 211,508
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ----------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1993:
Balance, beginning of year $ 3,815 311,753 1,024,150 90,524 1,430,242
Capital contributions -- 111,000 -- -- 111,000
Dividends paid to shareholder -- -- (17,805) -- (17,805)
Net income -- -- 211,508 -- 211,508
Unrealized losses on equity securities, net -- -- -- (83,777) (83,777)
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 422,753 1,217,853 6,747 1,651,168
========== ========== ========= ========== ==========
1994:
Balance, beginning of year 3,815 422,753 1,217,853 6,747 1,651,168
Capital contribution -- 200,000 -- -- 200,000
Net income -- -- 183,726 -- 183,726
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 3) -- -- -- 216,915 216,915
Unrealized losses on securities available-
for-sale, net -- -- -- (343,330) (343,330)
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 622,753 1,401,579 (119,668) 1,908,479
========== ========== ========== ========== ==========
1995:
Balance, beginning of year 3,815 622,753 1,401,579 (119,668) 1,908,479
Capital contribution (note 13) -- 51,029 -- (4,111) 46,918
Dividends paid to shareholder -- -- (7,450) -- (7,450)
Net income -- -- 212,478 -- 212,478
Unrealized gains on securities available-
for-sale, net -- -- -- 508,087 508,087
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 673,782 1,606,607 384,308 2,668,512
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 212,478 183,726 211,508
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (349,456) (264,434) (191,994)
Amortization of deferred policy acquisition costs 93,044 94,744 102,134
Amortization and depreciation 10,319 6,207 11,156
Realized losses (gains) on invested assets, net 717 15,949 (113,648)
Deferred Federal income tax expense (benefit) 4,023 (2,166) (6,006)
Increase in accrued investment income (19,341) (29,654) (4,218)
Increase in other assets (3,227) (112,566) (549,277)
Increase in policy liabilities 198,200 1,038,641 509,370
Increase in policyholders' dividend accumulations 15,496 15,372 17,316
Increase in accrued Federal income tax payable 20,938 832 16,838
Increase in other liabilities 48,365 17,826 26,958
Other, net (20,556) (19,303) (11,745)
----------- ----------- ------------
Net cash provided by operating activities 211,000 945,174 18,392
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 706,442 579,067 --
Proceeds from sale of securities available-for-sale 131,420 247,876 247,502
Proceeds from maturity of fixed maturities held-to-maturity 633,173 516,003 1,192,093
Proceeds from sale of fixed maturities -- -- 33,959
Proceeds from repayments of mortgage loans on real estate 215,134 220,744 146,047
Proceeds from sale of real estate 48,477 46,713 23,587
Proceeds from repayments of policy loans and sale of other invested assets 79,620 134,998 59,643
Cost of securities available-for-sale acquired (2,232,047) (2,569,672) (12,550)
Cost of fixed maturities held-to-maturity acquired (669,449) (675,835) (2,016,831)
Cost of mortgage loans on real estate acquired (821,078) (627,025) (475,336)
Cost of real estate acquired (10,970) (15,962) (8,827)
Policy loans issued and other invested assets acquired (92,904) (118,012) (76,491)
----------- ----------- ------------
Net cash used in investing activities (2,012,182) (2,261,105) (887,204)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from capital contributions 46,918 200,000 111,000
Dividends paid to shareholder (7,450) -- (17,805)
Increase in universal life and investment product account balances 3,202,135 3,640,958 2,249,740
Decrease in universal life and investment product account balances (1,523,283) (2,449,580) (1,458,504)
----------- ----------- -----------
Net cash provided by financing activities 1,718,320 1,391,378 884,431
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (82,862) 75,447 15,619
Cash and cash equivalents, beginning of year 139,079 63,632 48,013
----------- ----------- -----------
Cash and cash equivalents, end of year $ 56,217 139,079 63,632
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(000's omitted)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary of
Nationwide Corporation (Corp.). Wholly-owned subsidiaries of NLIC include
Nationwide Life and Annuity Insurance Company (NLAIC) (formerly known as
Financial Horizons Life Insurance Company), West Coast Life Insurance
Company (WCLIC), Employers Life Insurance Company of Wausau and
subsidiaries (ELICW), National Casualty Company (NCC) and Nationwide
Financial Services, Inc. (NFS). NLIC and its subsidiaries are
collectively referred to as "the Company."
NLIC, NLAIC, WCLIC and ELICW are life and accident and health insurers
and NCC is a property and casualty insurer. The Company is licensed in
all 50 states, the District of Columbia, the Virgin Islands and Puerto
Rico. The Company offers a full range of life insurance, health insurance
and annuity products through exclusive agents, brokers and other
distribution channels and is subject to competition from other insurers
throughout the United States. The Company is subject to regulation by the
Insurance Departments of states in which it is licensed, and undergoes
periodic examinations by those departments.
The following is a description of the most significant risks facing
life and health insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives designed to reduce insurer
profits, new legal theories or insurance company insolvencies through
guaranty fund assessments may create costs for the insurer beyond
those currently recorded in the consolidated financial statements. The
Company mitigates this risk by offering a wide range of products and
by operating throughout the United States, thus reducing its exposure
to any single product or jurisdiction, and also by employing
underwriting practices which identify and minimize the adverse impact
of this risk.
CREDIT RISK is 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
sound reinsurance and credit and collection policies and by
providing for any amounts deemed uncollectible.
INTEREST RATE RISK is 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.
(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 (GAAP) which
differ from statutory accounting practices prescribed or permitted by
regulatory authorities. See note 4.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.
The most significant estimates include those used in determining deferred
policy acquisition costs, valuation allowances for mortgage loans on real
estate and real estate investments and the liability for future policy benefits
and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
(a) CONSOLIDATION POLICY
The December 31, 1995 consolidated financial statements include the
accounts of NLIC and its wholly owned subsidiaries NLAIC, WCLIC, ELICW, NCC
and NFS. The December 31, 1994 and 1993 consolidated financial statements
include the accounts of NLIC, NLAIC, WCLIC, NCC and NFS. The December 31,
1994 consolidated balance sheet also includes the accounts of ELICW, which
was acquired by NLIC effective December 31, 1994. See Note 13. All
significant intercompany balances and transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities and
equity securities as either held-to-maturity, available-for-sale or
trading. Fixed maturity securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity and are stated at amortized cost. Fixed maturity securities not
classified as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the unrealized gains
and losses, net of adjustments to deferred policy acquisition costs and
deferred Federal income tax, reported as a separate component of
shareholder's equity. The adjustment to deferred policy acquisition costs
represents the change in amortization of deferred policy acquisition costs
that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed maturity
securities classified as held-to-maturity or trading as of
December 31, 1995.
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 are 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.
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.
In March, 1995, the Financial Accounting Standards Board (FASB) issued
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 - ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS 121). SFAS 121 requires impairment losses to be 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. SFAS 121 also addresses
the accounting for long-lived assets that are expected to be disposed of.
The statement is effective for fiscal years beginning after December 15,
1995 and earlier application is permitted. Previously issued consolidated
financial statements shall not be restated. The Company will adopt SFAS 121
in 1996 and the impact on the consolidated financial statements is not
expected to be material.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(c) REVENUES AND BENEFITS
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums and
benefits and consist primarily of whole life, limited-payment life, term
life 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.
UNIVERSAL LIFE AND INVESTMENT PRODUCTS: Universal life products include
universal life, variable universal life and other interest-sensitive life
insurance policies. Investment products consist primarily of individual and
group deferred annuities, annuities without life contingencies and
guaranteed investment contracts. Revenues for universal life and investment
products consist of 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 benefits and claims incurred in the period in
excess of related policy account balances and interest credited to policy
account balances.
ACCIDENT AND HEALTH INSURANCE: Accident and health insurance premiums
are recognized as revenue over the terms of the policies. Policy claims are
charged to expense in the period that the claims are incurred.
(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 agency expenses have been deferred. For traditional life and
individual health 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. For
universal life and investment 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).
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific investment
objectives. 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 for administrative services
and risks assumed.
(f) FUTURE POLICY BENEFITS
Future policy benefits for traditional life and individual health
insurance policies have been calculated using a net level premium method
based on estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the time the
policies were issued, rather than the assumptions prescribed by state
regulatory authorities. See note 6.
Future policy benefits for annuity policies in the accumulation phase,
universal life and variable universal life policies have been calculated
based on participants' contributions plus interest credited less applicable
contract charges.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Future policy benefits and claims for collectively renewable long-term
disability policies (primarily discounted at 5.2%) and group long-term
disability policies (primarily discounted at 5.5%) are the present value of
amounts not yet due on reported claims and an estimate of amounts to be
paid on incurred but unreported claims. The impact of reserve discounting
is not material. Future policy benefits and claims on other
group health insurance policies are not discounted.
(g) PARTICIPATING BUSINESS
Participating business represents approximately 45% (45% in 1994 and
48% in 1993) of the Company's ordinary life insurance in force, 72% (72% in
1994 and 1993) of the number of policies in force, and 39% (41% in 1994 and
45% in 1993) of life insurance premiums. The provision for policyholder
dividends is based on current dividend scales. Future dividends are
provided for ratably in future policy benefits based on dividend scales in
effect at the time the policies were issued. Dividend scales are approved
by the Board of Directors.
Income attributable to participating policies in excess of policyholder
dividends is accounted for as belonging to the shareholder. See note 12.
(h) FEDERAL INCOME TAX
NLIC, NLAIC, WCLIC and NCC file a consolidated Federal income tax
return with Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Corp. Through 1994, ELICW filed a consolidated Federal
income tax return with Employers Insurance of Wausau A Mutual Company.
Beginning in 1995, ELICW files a separate Federal income tax return.
In 1993, the Company adopted STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES, which required a change
from the deferred method of accounting for income tax of APB Opinion 11 to
the asset and liability method of accounting for income tax. Under the
asset and liability 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.
The Company has reported the cumulative effect of the change in method
of accounting for income tax in the 1993 consolidated statement of income.
See note 3.
(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) CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all short-term investments with original maturities of three
months or less to be cash equivalents.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(k) RECLASSIFICATION
Certain items in the 1994 and 1993 consolidated financial
statements have been reclassified to conform to the 1995
presentation.
(3) CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1994, the Company changed its method of
accounting for certain investments in debt and equity securities in
connection with the issuance of STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,593,844
and $7,024,736, respectively, as available-for-sale and recorded the
securities at fair value. Previously, these securities were recorded
at amortized cost. The effect as of January 1, 1994 has been recorded
as a direct credit to shareholder's equity as follows:
<TABLE>
<CAPTION>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 430,892
Adjustment to deferred policy acquisition costs (97,177)
Deferred Federal income tax (116,800)
---------
$ 216,915
=========
During 1993, the Company adopted accounting principles in connection
with the issuance of two accounting standards by the FASB. The effect
as of January 1, 1993, the date of adoption, has been recognized in
the 1993 consolidated statement of income as the cumulative effect of
changes in accounting principles, as follows:
Asset/liability method of recognizing income tax (note 2(h)) $ 26,344
Accrual method of recognizing postretirement benefits other
than pensions (net of tax benefit of $11,296) (note 11) (20,979)
--------
$ 5,365
========
</TABLE>
(4) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance
with GAAP. Annual Statements for NLIC and NLAIC, WCLIC, ELICW and NCC,
filed with the Department of Insurance of the State of Ohio (the
Department), California Department of Insurance, Wisconsin Insurance
Department and Michigan Bureau of Insurance, respectively, are prepared
on the basis of accounting practices prescribed or permitted by such
regulatory authorities. 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.
The statutory capital shares and surplus of NLIC as reported to
regulatory authorities as of December 31, 1995, 1994 and 1993 was
$1,363,031, $1,262,861 and $992,631, respectively. The statutory net
income of NLIC as reported to regulatory authorities for the years
ended December 31, 1995, 1994 and 1993 was $86,529, $76,532 and
$185,943, respectively.
<PAGE> 11
LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(5) INVESTMENTS
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturities $ 772,589 674,346 --
Equity securities 1,436 550 7,230
Fixed maturities held-to-maturity 232,692 193,009 800,255
Mortgage loans on real estate 410,965 376,783 364,810
Real estate 39,222 40,280 39,684
Short-term investments 12,249 6,990 5,080
Other 61,701 42,831 33,832
---------- ---------- ----------
Total investment income 1,530,854 1,334,789 1,250,891
Less investment expenses 47,874 45,288 46,465
---------- ---------- ----------
Net investment income $1,482,980 1,289,501 1,204,426
========== ========== ==========
</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>
1995 1994 1993
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 6,792 (7,120) --
Equity securities 3,435 1,427 129,728
Fixed maturities -- -- 20,225
Mortgage loans on real estate (7,312) (20,462) (28,241)
Real estate and other (2,079) 9,771 (8,039)
-------- -------- --------
$ 836 (16,384) 113,673
======== ======== ========
</TABLE>
The components of unrealized gains (losses) on securities
available-for-sale, net, were as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- -------------
<S> <C> <C>
Gross unrealized gains (losses) $ 735,103 (266,618)
Adjustment to deferred policy acquisition costs (143,851) 82,525
Deferred Federal income tax (206,944) 64,425
--------- ---------
$ 384,308 (119,668)
========= =========
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities held-to-maturity
follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- ------------- -------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 1,001,706 (703,851) --
Equity securities 15 (1,990) (128,837)
Fixed maturities held-to-maturity 86,477 (421,427) 223,392
----------- ----------- -----------
$ 1,088,198 (1,127,268) 94,555
=========== =========== ===========
</TABLE>
<PAGE> 12
LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of securities available-for-sale
were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 438,109 36,714 (53) 474,770
Obligations of states and political subdivisions 9,742 1,252 (1) 10,993
Debt securities issued by foreign governments 162,442 9,641 (66) 172,017
Corporate securities 8,902,494 524,796 (30,561) 9,396,729
Mortgage-backed securities 3,925,843 196,645 (9,620) 4,112,868
--------- ----------- ----------- -----------
Total fixed maturities 13,438,630 769,048 (40,301) 14,167,377
Equity securities 27,362 6,441 (85) 33,718
---------- ----------- ----------- -----------
$13,465,992 775,489 (40,386) 14,201,095
=========== =========== ============ ===========
</TABLE>
The amortized cost and estimated fair value of securities available-for-sale
and fixed maturities held-to-maturity were as follows as of December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 393,156 1,794 (18,941) 376,009
Obligations of states and political subdivisions 2,202 55 (21) 2,236
Debt securities issued by foreign governments 177,910 872 (9,205) 169,577
Corporate securities 4,201,738 50,405 (128,698) 4,123,445
Mortgage-backed securities 3,543,859 18,125 (187,345) 3,374,639
---------- ---------- ---------- ---------
Total fixed maturities 8,318,865 71,251 (344,210) 8,045,906
Equity securities 18,372 6,637 (296) 24,713
---------- ---------- ---------- ---------
$8,337,237 77,888 (344,506) 8,070,619
========== ========= ========== =========
FIXED MATURITY SECURITIES HELD-TO-MATURITY
Obligations of states and political subdivisions $ 11,613 92 (255) 11,450
Debt securities issued by foreign governments 16,131 111 (39) 16,203
Corporate securities 3,661,043 34,180 (120,566) 3,574,657
---------- ---------- ---------- ---------
$3,688,787 34,383 (120,860) 3,602,310
========== ========== ========== =========
</TABLE>
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1995, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
----------- ------------
<S> <C> <C>
FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE
- --------------------------------------------
Due in one year or less $ 641,490 647,639
Due after one year through five years 5,365,703 5,623,126
Due after five years through ten years 2,477,457 2,609,262
Due after ten years 1,028,137 1,174,482
----------- -----------
9,512,787 10,054,509
Mortgage-backed securities 3,925,843 4,112,868
----------- -----------
$13,438,630 14,167,377
=========== ===========
</TABLE>
Proceeds from the sale of securities available-for-sale during 1995 and 1994
were $131,420 and $247,876, respectively, while proceeds from sales of
investments in fixed maturity securities during 1993 were $33,959. Gross gains
of $7,197 ($3,406 in 1994 and $2,413 in 1993) and gross losses of $2,309
($21,866 in 1994 and $39 in 1993) were realized on those sales.
During 1995, the Company transferred fixed maturity securities classified as
held-to-maturity with amortized cost of $27,929 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted in
a gross unrealized loss of $4,285.
As permitted by the FASB's Special Report, A GUIDE TO IMPLEMENTATION OF
STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, issued in November, 1995, the Company transferred all of its fixed
maturity securities previously classified as held-to-maturity to
available-for-sale. As of December 14, 1995, the date of transfer, the fixed
maturity securities had amortized cost of $3,705,644, resulting in a gross
unrealized gain of $171,531.
Investments that were non-income producing for the twelve month period
preceding December 31, 1995 amounted to $28,958 ($11,513 for 1994) and
consisted of $8,228 (none in 1994) in fixed maturity securities, $14,740
($11,111 in 1994) in real estate and $5,990 ($402 in 1994) in other long-term
investments.
Real estate is presented at cost less accumulated depreciation of $30,931 in
1995 ($29,275 in 1994) and valuation allowances of $26,250 in 1995 ($27,330 in
1994).
Other long-term investments are presented net of valuation allowances of $457
as of December 31, 1995. There were no such valuation allowances as of December
31, 1994.
As of December 31, 1995, the recorded investment of mortgage loans on real
estate considered to be impaired (under STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN as amended
by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 118, ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURE) was $44,995,
which includes $23,975 of impaired mortgage loans on real estate for which the
related valuation allowance was $5,276 and $21,020 of impaired mortgage loans
on real estate for which there was no valuation allowance. During 1995, the
average recorded investment in impaired mortgage loans on real estate was
approximately $22,621 and interest income recognized on those loans was $416,
which is equal to interest income recognized using a cash-basis method of
income recognition.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Allowance, beginning year $ 47,892
Additions charged to operations 7,653
Direct write-downs charged against the allowance (4,850)
--------
Allowance, end of year $ 50,695
========
</TABLE>
Foresclosures of mortgage loans on real estate were $37,187 in 1994 and
mortgage loans on real estate in process of foreclosure or in-substance
foreclosed as of December 31, 1994 totaled $19,878, which approximated fair
value.
Fixed maturity securities with an amortized cost of $13,982 and $11,137 as
of December 31, 1995 and 1994, respectively, were on deposit with various
regulatory agencies as required by law.
(6) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts represents
approximately 82% and 81% of the total liability for future policy benefits
as of December 31, 1995 and 1994, respectively. The average interest rate
credited on investment product policies was approximately 6.5%, 6.5% and
7.0% for the years ended December 31, 1995, 1994 and 1993, respectively.
The liability for future policy benefits for traditional life insurance and
individual health insurance policies has been established based upon the
following assumptions:
INTEREST RATES: Interest rates vary as follows:
<TABLE>
<CAPTION>
Health
Year of issue Life Insurance insurance
-------------- ------------------------------------------------------------ ---------------
<S> <C> <C>
1995 7.6%, not graded - permanent contracts with loan provisions 4.5%
7.7%, not graded - all other contracts
1984-1994 6.0% to 10.5%, not graded 5.0% to 6.0%
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6% 3.5% to 6.0%
1965 and prior generally lower than post 1965 issues 3.5% to 4.0%
</TABLE>
WITHDRAWALS: Rates, which vary by issue age, type of coverage and
policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on published tables,
modified for the Company's actual experience.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Activity in the liability for unpaid claims and claim adjustment expenses is
summarized for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 637,998 592,180 760,209
Less reinsurance recoverables 438,761 430,720 547,683
--------- --------- ---------
Net balance, beginning of year 199,237 161,460 212,526
--------- --------- ---------
Incurred related to:
Current year 425,907 273,299 309,721
Prior years (17,203) (26,156) (26,248)
--------- --------- ---------
Total incurred 408,704 247,143 283,473
--------- --------- ---------
Paid related to:
Current year 290,605 175,700 208,978
Prior years 111,353 73,889 125,561
--------- --------- ---------
Total paid 401,958 249,589 334,539
--------- --------- ---------
Unpaid claims of acquired companies 2,542 40,223 --
--------- --------- ---------
Net balance, end of year 208,525 199,237 161,460
Plus reinsurance recoverables 491,321 438,761 430,720
--------- --------- ---------
Balance, end of year $ 699,846 637,998 592,180
========= ========= =========
</TABLE>
Reinsurance recoverables include amounts from affiliates, as discussed in
note 13, of $477,912, $430,936, $430,278 and $534,983 as of December 31,
1995, 1994, 1993 and 1992, respectively.
The provision for claims and claim adjustment expenses for prior years
decreased in each of the three years ended December 31, 1995 due to
lower-than-anticipated costs to settle accident and health insurance claims.
(7) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 179,916 124,044
Fixed maturity securities available-for-sale -- 95,536
Liabilities in Separate Accounts 129,120 94,783
Mortgage loans on real estate and real estate 26,062 25,632
Other policyholder funds 7,752 7,137
Other assets and other liabilities 47,215 57,528
--------- ---------
Total gross deferred tax assets 390,065 404,660
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 312,616 317,224
Fixed maturity securities available-for-sale 266,184 --
Equity securities available-for-sale and other
long-term investments 3,431 3,620
Other 46,711 47,301
--------- ---------
Total gross deferred tax liabilities 628,942 368,145
--------- ---------
$(238,877) 36,515
========= =========
</TABLE>
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company has determined that valuation allowances are not necessary as
of December 31, 1995, 1994 and 1993 based on its analysis of future
deductible amounts. 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. All future
deductible amounts can be offset by future taxable amounts or recovery of
Federal income tax paid within the statutory carryback period. In
addition, for future deductible amounts for securities available-for-sale,
affiliates of the Company which are included in the same consolidated
Federal income tax return hold investments that could be sold for capital
gains that could offset capital losses realized by the Company should
securities available-for-sale be sold at a loss.
<TABLE>
Total Federal income tax expense for the years ended December 31, 1995,
1994 and 1993 differs from the amount computed by applying the U.S.
Federal income tax rate to income before tax as follows:
<CAPTION>
1995 1994 1993
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
--------------- ----- -------------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $ 111,906 35.0 $ 95,631 35.0 $ 109,515 35.0
Tax exempt interest and dividends
received deduction (137) (0.1) (194) (0.1) (2,322) (0.7)
Current year increase in U.S. Federal
income tax rate -- -- -- -- 1,704 0.5
Other, net (4,515) (1.4) (5,933) (2.1) (2,139) (0.7)
--------- ---- --------- ---- --------- ----
Total (effective rate of each year) $ 107,254 33.5 $ 89,504 32.8 $ 106,758 34.1
========= ==== ========= ==== ========= ====
</TABLE>
Total Federal income tax paid was $75,309, $87,576 and $58,286 during the
years ended December 31, 1995, 1994 and 1993, respectively.
Prior to 1984, the Life Insurance Company Income Tax Act of 1959 as
amended by the Deficit Reduction Act of 1984 (DRA), permitted the deferral
from taxation of a portion of statutory income under certain
circumstances. In these situations, the deferred income was accumulated in
the Policyholders' Surplus Account (PSA). Management considers the
likelihood of distributions from the PSA to be remote; therefore, no
Federal income tax has been provided for such distributions in the
consolidated financial statements. The DRA eliminated any additional
deferrals to the PSA. Any distributions from the PSA, however, will
continue to be taxable at the then current tax rate. The balance of the
PSA was approximately $35,344 as of December 31, 1995.
(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107 - DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107) requires disclosure of fair
value information about existing on and off-balance sheet financial
instruments. SFAS 107 defines the fair value of a financial instrument 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 based on estimates 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. SFAS 107 excludes certain assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, estimated fair value of policy reserves on
life insurance contracts are 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:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying
amount reported in the consolidated balance sheets for these
instruments approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: 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.
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.
MORTGAGE LOANS ON REAL ESTATE: 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 mortgages in default is the estimated fair value of the
underlying collateral.
INVESTMENT CONTRACTS: 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.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are disclosures
for individual life, universal life 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.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER FUNDS:
The carrying amount reported in the consolidated balance sheets for
these instruments approximates their fair value.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts were
as follow as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Investments:
Securities available-for-sale:
Fixed maturities $14,167,377 14,167,377 8,045,906 8,045,906
Equity securities 33,718 33,718 24,713 24,713
Fixed maturities held-to-maturity -- -- 3,688,787 3,602,310
Mortgage loans on real estate 4,786,599 5,169,805 4,222,284 4,173,284
Policy loans 370,908 370,908 340,491 340,491
Short-term investments 45,732 45,732 131,643 131,643
Cash 10,485 10,485 7,436 7,436
Assets held in Separate Accounts 18,763,678 18,763,678 12,222,461 12,222,461
LIABILITIES
- -----------
Investment contracts 13,561,943 13,221,724 12,189,894 11,657,556
Policy reserves on life insurance contacts 3,695,814 3,659,074 3,170,085 2,934,384
Policyholders' dividend accumulations 353,554 353,554 338,058 338,058
Other policyholder funds 71,155 71,155 72,770 72,770
Liabilities related to Separate Accounts 18,763,678 18,224,933 12,222,461 11,807,331
</TABLE>
(9) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
--------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a party to
financial instruments with off-balance-sheet risk in the normal course of
business through management of its investment portfolio. These financial
instruments include commitments to extend credit in the form of loans. These
instruments involve, to varying degrees, elements of credit risk in excess
of amounts recognized on the consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are agreements
to lend to a borrower, and are subject to conditions established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a deposit. Commitments
extended by the Company are based on management's case-by-case credit
evaluation of the borrower and the borrower's loan collateral. The
underlying mortgage property represents the collateral if the commitment is
funded. The Company's policy for new mortgage loans on real estate is to
lend no more than 80% 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 $361,974 extending into 1996 were
outstanding as of December 31, 1995.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the United
States. The Company has a diversified portfolio with no more than 20% (22%
in 1994) in any geographic area and no more than 2% (2% in 1994) with any
one borrower.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The summary below depicts loans by remaining principal balance as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995:
East North Central $ 140,732 110,361 534,814 184,201 970,108
East South Central 23,978 15,653 183,790 84,588 308,009
Mountain -- 18,940 144,156 48,727 211,823
Middle Atlantic 124,079 72,201 183,562 18,383 398,225
New England 9,594 39,526 153,644 1 202,765
Pacific 190,628 239,687 395,914 107,650 933,879
South Atlantic 101,904 74,731 458,355 279,692 914,682
West North Central 134,866 14,205 81,521 37,586 268,178
West South Central 69,143 99,618 194,717 272,323 635,801
--------- --------- --------- --------- ---------
$ 794,924 684,922 2,330,473 1,033,151 4,843,470
========= ========= ========= =========
Less valuation allowances and unamortized discount 56,871
---------
Total mortgage loans on real estate, net $4,786,599
=========
</TABLE>
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1994:
East North Central $ 109,233 103,499 540,686 191,489 944,907
East South Central 24,298 10,803 127,845 76,897 239,843
Mountain 3,150 13,770 140,358 39,682 196,960
Middle Atlantic 61,299 53,285 140,847 30,111 285,542
New England 10,536 43,282 139,131 4 192,953
Pacific 195,393 210,930 397,911 68,768 873,002
South Atlantic 87,150 81,576 424,150 210,354 803,230
West North Central 127,760 11,766 80,854 4,738 225,118
West South Central 51,013 84,796 184,923 194,788 515,520
--------- --------- --------- --------- ---------
$ 669,832 613,707 2,176,705 816,831 4,277,075
========= ========= ========= =========
Less valuation allowances and unamortized discount 54,791
---------
Total mortgage loans on real estate, net $4,222,284
=========
</TABLE>
(10) PENSION PLAN
------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least one
thousand hours of service within a twelve-month period and who have met
certain age requirements. Benefits are based upon the highest average
annual salary of a specified number of consecutive years of the last ten
years of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost of
the enhanced benefit was borne by NMIC and certain of its property and
casualty insurance company affiliates.
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies
Pension Plan to form the Nationwide Insurance Enterprise Retirement
Plan. Immediately prior to the merger, the plans were amended to provide
consistent benefits for service after January 1, 1996. These amendments had
no significant impact on the accumulated benefit obligation or projected
benefit obligation as of December 31, 1995.
Pension costs charged to operations by the Company during the years ended
December 31, 1995, 1994 and 1993 were $14,105, $10,451 and $6,702,
respectively.
The Company's net accrued pension expense as of December 31, 1995 and
1994 was $1,376 and $1,836, respectively.
The net periodic pension cost for the Nationwide Insurance Companies and
Affiliates Retirement Plan as a whole for the years ended December 31,
1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 64,524 64,740 47,694
Interest cost on projected benefit obligation 95,283 73,951 70,543
Actual return on plan assets (249,294) (21,495) (105,002)
Net amortization and deferral 143,353 (62,150) 20,832
--------- --------- ---------
$ 53,866 55,046 34,067
========= ========= =========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate 7.50% 5.75% 6.75%
Rate of increase in future compensation levels 6.25% 4.50% 4.75%
Expected long-term rate of return on plan assets 8.75% 7.00% 7.50%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1995
(post-merger) and the Nationwide Insurance Companies and Affiliates
Retirement Plan as of December 31, 1995 (pre-merger) and 1994 follows:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested $ 1,236,730 1,002,079 914,850
Nonvested 26,503 8,998 7,570
----------- ----------- -----------
$ 1,263,233 1,011,077 922,420
=========== =========== ===========
Net accrued pension expense:
Projected benefit obligation for services rendered
to date $ 1,780,616 1,447,522 1,305,547
Plan assets at fair value 1,738,004 1,508,781 1,241,771
----------- ----------- -----------
Plan assets (less than) in excess of projected
benefit obligation (42,612) 61,259 (63,776)
Unrecognized prior service cost 42,845 42,850 46,201
Unrecognized net (gains) losses (63,130) (86,195) 39,408
Unrecognized net obligation (asset) at transition 41,305 (19,841) (21,994)
----------- ----------- -----------
$ (21,592) (1,927) (161)
=========== =========== ===========
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighed average discount rate 6.00% 6.00% 7.50%
Rate of increase in future compensation levels 4.25% 4.25% 6.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested
in group annuity contracts of NLIC and ELICW. Prior to the merger, the
assets of the Nationwide Insurance Companies and Affiliates Retirement
Plan were invested in a group annuity contract of NLIC.
(11) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
-------------------------------------------
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years of
service with the Company after reaching age 40. Postretirement health
care benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. In addition, there are caps
on the Company's portion of the per-participant cost of the postretirement
health care benefits. These caps can increase annually, but not more than
three percent. The Company's policy is to fund the cost of health care
benefits in amounts determined at the discretion of management. Plan
assets are invested primarily in group annuity contracts of NLIC.
Effective January 1, 1993, the Company adopted the provisions of STATEMENT
OF FINANCIAL ACCOUNTING STANDARDS NO. 106 - EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106), which requires the
accrual method of accounting for postretirement life and health care
insurance benefits based on actuarially determined costs to be recognized
over the period from the date of hire to the full eligibility date of
employees who are expected to qualify for such benefits.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation as of January 1, 1993. Accordingly, a
noncash charge of $32,275 ($20,979 net of related income tax benefit) was
recorded in the 1993 consolidated statement of income as a cumulative
effect of a change in accounting principle. See note 3. The adoption of
SFAS 106, including the cumulative effect of the change in accounting
principle, increased the expense for postretirement benefits by $35,277
to $36,544 in 1993. 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, 1995 and 1994 was $51,490 and $36,001, respectively, and the
net periodic postretirement benefit cost (NPPBC) for 1995 and 1994 was
$8,269 and $4,627, respectively.
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits attributed to employee service during the year $ 6,235 8,586 7,090
Interest cost on accumulated postretirement benefit obligation 14,151 14,011 13,928
Actual return on plan assets (2,657) (1,622) --
Amortization of unrecognized transition obligation of affiliates 2,966 568 568
Net amortization and deferral (1,619) 1,622 --
-------- -------- --------
$ 19,076 23,165 21,586
======== ======== ========
</TABLE>
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the plan as a whole as of
December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 88,680 76,677
Fully eligible, active plan participants 28,793 22,013
Other active plan participants 90,375 59,089
--------- ---------
Accumulated postretirement benefit obligation (APBO) 207,848 157,779
Plan assets at fair value 54,325 49,012
--------- ---------
Plan assets less than accumulated postretirement benefit obligation (153,523) (108,767)
Unrecognized transition obligation of affiliates 1,827 6,577
Unrecognized net gains (1,038) (41,497)
--------- ---------
$(152,734) (143,687)
========= =========
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1995 and 1994 and the NPPBC for 1995, 1994 and 1993 were
as follows:
<TABLE>
<CAPTION>
1995 1995 1994 1994 1993
APBO NPPBC APBO NPPBC NPPBC
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Discount rate 6.75% 8% 8% 7% 8%
Assumed health care cost trend rate:
Initial rate 11% 10% 11% 12% 14%
Ultimate rate 6% 6% 6% 6% 6%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1995 by $641 and the NPPBC for the year ended December 31,
1995 by $107.
(12) REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS AND DIVIDEND
RESTRICTIONS
-------------------------------------------------------------
Each insurance company'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 each of its
insurance subsidiaries exceed the minimum risk-based capital
requirements.
In accordance with the requirements of the New York statutes, the
Company has agreed with the Superintendent of Insurance of that state
that so long as participating policies and contracts are held by
residents of New York, no profits on participating policies and
contracts in excess of the larger of (a) ten percent of such profits or
(b) fifty cents per year per thousand dollars of participating life
insurance in force, exclusive of group term, as of the year-end shall
inure to the benefit of the shareholder. Such New York statutes
further provide that so long as such agreement is in effect, such
excess of profits shall be exhibited as "participating policyholders'
surplus" in annual statements filed with the Superintendent and shall
be used only for the payment or apportionment of dividends to
participating policyholders at least to the extent required by statute
or for the purpose of making up any loss on participating policies.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
In the opinion of counsel for the Company, the ultimate ownership of the
entire surplus, however classified, of the Company resides with the
shareholder, subject to the usual requirements under state laws and
regulations that certain deposits, reserves and minimum surplus be
maintained for the protection of the policyholders until all policy
contracts are discharged.
Based on the opinion of counsel with respect to the ownership of its
surplus, the Company is of the opinion that the earnings attributable to
participating policies in excess of the amounts paid as dividends to
policyholders belong to the shareholder rather than the policyholders,
and such earnings are so treated by the Company.
The amount of shareholder's equity other than capital shares was
$2,664,697, $1,904,664 and $1,647,353 as of December 31, 1995, 1994 and
1993, respectively. The amount thereof not presently available for
dividends to the shareholder due to the New York restrictions was
$1,503,241, $929,934 and $954,037 as of December 31, 1995, 1994 and 1993,
respectively.
Ohio law limits the payment of dividends to shareholders. The maximum
dividend that may be paid by the Company without prior approval of the
Director of the Department is limited to the greater of statutory gain
from operations of the preceding calendar year or 10% of statutory
shareholder's surplus as of the prior December 31. Therefore, $2,468,687
of shareholder's equity, as presented in the accompanying consolidated
financial statements, is so restricted as to dividend payments in 1996.
Each of NLIC's insurance company subsidiaries are limited in their
payment of dividends by the state insurance department of their
respective state of domicile. As of December 31, 1995, the maximum amount
of shareholder's equity available for dividend payment to NLIC in 1996 by
its insurance company subsidiaries without prior approval are:
<TABLE>
<S> <C>
Nationwide Life and Annuity Insurance Company $10,143
West Coast Life Insurance Company 13,153
Employers Life Insurance Company of Wausau 10,132
National Casualty Company --
-------
$33,428
=======
</TABLE>
(13) TRANSACTIONS WITH AFFILIATES
----------------------------
On March 1, 1995, Corp. contributed all of the outstanding shares of
Farmland Life Insurance Company (Farmland) to NLIC, which then merged
Farmland into WCLIC effective June 30, 1995. The contribution resulted in
a direct increase to consolidated shareholder's equity of $46,918. The
contribution of Farmland has been accounted for in a manner similar to a
pooling of interests and accordingly, Farmland's results are included in
the consolidated statements of income beginning January 1, 1995. However,
prior period consolidated financial statements have not been restated due
to the impact of Farmland being immaterial.
Effective December 31, 1994, NLIC purchased all of the outstanding shares
of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC
transferred fixed maturity securities and cash with a fair value of
$155,000 to WSC on December 28, 1994, which resulted in a realized loss
of $19,239 on the disposition of the securities. The purchase price
approximated both the historical cost basis and fair value of net assets
of ELICW. ELICW has and will continue to share home office, other
facilities, equipment and common management and administrative services
with WSC.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Corp. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1995 were
$57,969, $50,470 and $44,577, respectively.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company shares home office, other facilities, equipment and common
management and administrative services with affiliates.
The Company 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 1995 and
1994 were not material.
During 1993, the Company sold equity securities with a market value
$194,515 to NMIC, resulting in a realized gain of $122,823. With the
proceeds, the Company purchased securities with a market value of
$194,139 and cash of $376 from NMIC.
Intercompany reinsurance contracts exist between NLIC and NMIC, NLIC and
WCLIC, NLIC and NCC, WCLIC and NMIC and WCLIC and ELICW as of December
31, 1995. These contracts are immaterial to the consolidated financial
statements.
NCC participates in several 100% quota share reinsurance agreements with
NMIC and Nationwide Mutual Fire Insurance Company, the minority
shareholder of Corp. As a result of these agreements, the following
assets and (liabilities) are included in the consolidated financial
statements as of December 31, 1995 and 1994 for reinsurance ceded:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Reinsurance recoverable $ 590,379 541,289
Unearned premium reserves (112,467) (110,353)
Liability for unpaid claims and claim adjustment expense (477,912) (430,936)
</TABLE>
The ceding of reinsurance does not discharge the original insurer from
primary liability to its policyholder. The insurer which assumes the
coverage assumes the related liability and it is the practice of insurers
to treat insured risks, to the extent of reinsurance ceded, as though
they were risks for which the original insurer is not liable. Management
believes the financial strength of NMIC reduces to an acceptable level
any risk to NCC under these intercompany reinsurance agreements.
ELICW assumes certain accident and health insurance business from
Employers Insurance of Wausau A Mutual Company, an affiliate. During
1995, total premiums assumed by ELICW under the reinsurance
agreement were $150,622.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash Management
Company (CCMC), both affiliates, under which NCMC and CCMC act as common
agents in handling the purchase and sale of short-term securities for the
respective accounts of the participants. Amounts on deposit with NCMC and
CCMC were $21,644 and $92,531 as of December 31, 1995 and 1994,
respectively, and are included in short-term investments on the
accompanying consolidated balance sheets.
(14) BANK LINES OF CREDIT
--------------------
As of December 31, 1995 and 1994, NLIC had $120,000 of confirmed but
unused bank lines of credit which support a $100,000 commercial paper
borrowing authorization.
(15) CONTINGENCIES
-------------
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to be
material to the Company's financial position or results of operations.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(16) SEGMENT INFORMATION
-------------------
The Company operates in the long-term savings, life insurance and
accident and health insurance lines of business in the life insurance and
property and casualty insurance industries. Long-term savings operations
include both qualified and non-qualified annuity contracts issued to both
individuals and groups. Life insurance operations include whole life,
universal life, variable universal life and endowment and term life
insurance issued to individuals and groups. Accident and health insurance
operations also provide coverage to individuals and groups. Corporate
primarily includes investments, and the related investment income, which
are not specifically allocated to one of the three operating segments. In
addition, realized gains and losses on all general account investments
are reported as a component of the corporate segment.
During 1995, the Company changed its reporting segments to better reflect
the way the businesses are managed. Prior periods have been restated to
reflect these changes.
The following table summarizes the revenues and income (loss) before
Federal income tax expense and cumulative effect of changes in accounting
principles for the years ended December 31, 1995, 1994 and 1993 and
assets as of December 31, 1995, 1994 and 1993, by business segment.
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Long-term savings $ 1,406,241 1,125,013 1,048,045
Life insurance 502,885 452,795 432,343
Accident and health insurance 532,383 345,545 339,764
Corporate 134,598 122,847 214,374
------------ ------------ ------------
$ 2,576,107 2,046,200 2,034,526
============ ============ ============
Income (loss) before Federal income tax expense and
cumulative effect of changes in accounting principles:
Long-term savings 129,475 95,530 47,966
Life insurance 63,169 46,119 36,383
Accident and health insurance (12,521) 13,221 15,041
Corporate 139,609 118,360 213,511
------------ ------------ ------------
$ 319,732 273,230 312,901
============ ============ ============
Assets:
Long-term savings 34,634,892 25,815,273 20,695,598
Life insurance 3,675,581 3,231,651 2,897,574
Accident and health insurance 307,643 291,296 297,200
Corporate 1,995,995 1,773,913 1,515,989
------------ ------------ ------------
$ 40,614,111 31,112,133 25,406,361
============ ============ ============
</TABLE>
<PAGE> 49
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No, 7 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 82 pages,
Representations and Undertakings
Accountants' Consent
The Signatures,
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C>
1, Power of Attorney dated April 4, 1996 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-3, and hereby
adopted incorporated herein by reference,
3, Distribution Contracts Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account-3, and hereby
incorporated herein by reference,
4, Form of Security Included with the Registration Statement on Form S-6 for the
Nationwide VLI Separate Account-3 (File No, 33-44789) 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-3, and hereby
incorporated herein by reference,
6, Application form of Security Included with the Registration Statement on Form S-6 for the
Nationwide VLI Separate Account-3 (File No, 33-44789) and
hereby incorporated herein by reference,
7, Opinion of Counsel Included with the Registration Statement on Form S-6 for the
Nationwide VLI Separate Account-3 (File No, 33-44789) and
hereby incorporated herein by reference,
</TABLE>
83 of 86
<PAGE> 50
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 (the "Act"), The Registrant and the Company
elect to be governed by Rule 6e-3(T)(13)(i)(B) under the 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 Act afforded by Rule 6e-3(T),
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges") assumed by
the Company under the Policies, The Company represents that the risk charges
are within the range of industry practice for comparable policies and
reasonable in relation to all of the risks assumed by the issuer under the
Policies, Actuarial memoranda demonstrating the reasonableness of these
charges are maintained by the Company, and will be made available to the
Securities and Exchange Commission (the "Commission") on request,
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available to
the Commission on request a memorandum setting forth the basis for this
representation,
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses,
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and reports
as may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section,
84 of 86
<PAGE> 51
ACCOUNTANTS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of the Nationwide VLI Separate Account-3:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
Columbus, Ohio
April 26, 1996
85 of 86
<PAGE> 52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, NATIONWIDE VLI SEPARATE ACCOUNT-3, certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment No. 7 and has duly caused this Post-Effective
Amendment No. 7 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 26th day of April, 1996.
NATIONWIDE VLI SEPARATE ACCOUNT-3
---------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
Attest: (Sponsor)
W. SIDNEY DRUEN By: JOSEPH P. RATH
- --------------- -----------------------------
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President and Associate
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 7 has been signed below by the following persons in the
capacities indicated on the 26th day of April, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
LEWIS J. ALPHIN Director
- ----------------------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- ----------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ----------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- ----------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- ----------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief
- ---------------------------------------- Operating Office and Director
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board
- ---------------------------------------- and Director
Henry S. Holloway
D. RICHARD McFERSON Chairman and Chief Executive Officer-
- ---------------------------------------- Nationwide Insurance Enterprise and Director
D. Richard McFerson
DAVID O. MILLER Director
- ----------------------------------------
David O. Miller
C. RAY NOECKER Director
- ----------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ---------------------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ---------------------------------------- -------------------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- ----------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- ----------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ----------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- ----------------------------------------
Harold W. Weihl
</TABLE>
86 of 86
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, an Ohio
corporation, which has filed or will file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1993, as amended,
various Registration Statements and amendments thereto for the registration
under said Act of Individual Deferred Variable Annuity Contracts in connection
with the MFS Variable Account, Nationwide Variable Account, Nationwide Variable
Account-II, Nationwide Variable Account-3, Nationwide Variable Account-4,
Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide
Fidelity Advisor Variable Account, Nationwide Multi-Flex Variable Account and
Nationwide Variable Account-8; 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 the
Nationwide Multiple Maturity Separate Account, and the registration of Group
Flexible fund Retirement Contracts in connection with the Nationwide DC
Variable Account, Nationwide DCVA III, and the 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 the Nationwide VLI Separate Account, Nationwide
VLI Separate Account-2, Nationwide VLI Separate Account-3 of Nationwide Life
Insurance Company, hereby constitutes and appoints D. Richard McFerson, Joseph
J. Gasper, Gordon E. McCutchan, W. Sidney Druen, and Joseph P. Rath, and each
of them with power to act without the others, his/her attorney, with full power
of substitution and resubstitution, for and in his/her name, place and stead,
in any and all capacities, to approve, and sign such Registration Statements
and any and all amendments thereto, with power to affix the corporate seal of
said corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
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 4th day of April, 1996.
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------- -------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------- -------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard P. Engel /s/ Robert A. Oakley
- ------------------------------------- -------------------------------------
Willard P. Engel, Director Robert A. Oakley, Executive Vice
President and Chief Financial Officer
/s/ Fred C. Finney
- ------------------------------------- /s/ James F. Patterson
Fred C. Finney, Director -------------------------------------
James F. Patterson, Director
/s/ Charles L. Fuellgraf
- ------------------------------------- /s/ Arden L. Shisler
Charles L. Fuellgraf, Director -------------------------------------
Arden L. Shisler, Director
/s/ Joseph J. Gasper
- ------------------------------------- /s/ Robert L. Stewart
Joseph J. Gasper, President and Chief -------------------------------------
Operating Officer and Director Robert L. Stewart, Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------- -------------------------------------
Henry S. Holloway, Chairman of the Nancy C. Thomas, Director
Board, Director
/s/ Harold W. Weihl
/s/ D. Richard McFerson -------------------------------------
- ------------------------------------- Harold W. Weihl, Director
D. Richard McFerson, Chairman and
Chief Executive Officer-Nationwide
Insurance Enterprise and Director
