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Registration No. 33-44789
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 9
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
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NATIONWIDE VLI SEPARATE ACCOUNT-3
(EXACT NAME OF TRUST)
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NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus and the Financial Statement.
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) (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.
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities being registered: Modified Single Premium Variable Life
Insurance Policies
Approximate date of proposed offering: Continuously on and after May 1, 1998
[ ] Check box if it is proposed that this filing will become effective on (date)
at (time) pursuant to Rule 487.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
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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
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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43...........................................................................Not Applicable
44...........................................................................How The Cash Value Varies
45...........................................................................Not Applicable
46...........................................................................How The Cash Value Varies
47...........................................................................Not Applicable
48...........................................................................Custodian of Assets
49...........................................................................Not Applicable
50...........................................................................Not Applicable
51...........................................................................Summary of The Policies; Information
About The Policies
52...........................................................................Substitution of Securities
53...........................................................................Taxation of The Company
54...........................................................................Not Applicable
55...........................................................................Not Applicable
56...........................................................................Not Applicable
57...........................................................................Not Applicable
58...........................................................................Not Applicable
59...........................................................................Financial Statements
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NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
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 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 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 Underlying Mutual Fund options:
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AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
A MEMBER OF THE AMERICAN CENTURY(SM) -Balanced Portfolio
FAMILY OF INVESTMENTS: -Guardian Portfolio
- American Century VP Advantage -Growth Portfolio
- American Century VP Balanced -Limited Maturity Bond Portfolio
- American Century VP Capital Appreciation -Partners Portfolio
- American Century VP Income & Growth OPPENHEIMER VARIABLE ACCOUNT FUNDS:
- American Century VP International -Oppenheimer Bond Fund
- American Century VP Value -Oppenheimer Global Securities Fund
DREYFUS: -Oppenheimer Multiple Strategies Fund
-The Dreyfus Socially Responsible Growth Fund STRONG OPPORTUNITY FUND II, INC.
-Dreyfus Stock Index Fund, Inc. (FORMERLY, STRONG SPECIAL FUND II, INC.)
DREYFUS VARIABLE INVESTMENT FUND: STRONG VARIABLE INSURANCE FUNDS, INC.:
-Growth and Income Portfolio* -Discovery Fund II, Inc.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND -International Stock Fund II
("VIP"): VAN ECK WORLDWIDE INSURANCE TRUST
-VIP Equity-Income Portfolio -Worldwide Bond Fund
-VIP Growth Portfolio -Worldwide Emerging Markets Fund
-VIP High Income Portfolio* -Worldwide Hard Assets Fund
-VIP Overseas Portfolio VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: -Morgan Stanley Real Estate Securities Portfolio
("VIP II"): WARBURG PINCUS TRUST
-VIP II Asset Manager Portfolio -International Equity Portfolio
-VIP II Contrafund Portfolio -Post-Venture Capital Portfolio*
NATIONWIDE SEPARATE ACCOUNT TRUST (NSAT): -Small Company Growth Portfolio
-Capital Appreciation Fund
-Government Bond Fund
-Money Market Fund
-Nationwide Small Cap Value Fund
-Nationwide Small Company Fund
-Total Return Fund
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*The Dreyfus Variable Investment Fund - Growth and Income Portfolio, Fidelity
VIP High Income Portfolio and the Warburg Pincus Trust - Post-Venture Capital
Portfolio may invest in lower quality debt securities commonly referred to as
junk bonds.
**The contract is titled a "Flexible Premium Life Variable Insurance Policy" in
Texas.
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 page 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.
THE BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN EVERY
JURISDICTION. PLEASE REFER TO YOUR POLICY FOR SPECIFIC BENEFIT INFORMATION.
INVESTMENTS IN THESE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, ANY ADVISER OF THE UNDERLYING MUTUAL FUNDS IDENTIFIED
ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE POLICY
INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SEC MAINTAINS A WEBSITE, WWW.SEC.GOV, THAT CONTAINS MATERIAL INCORPORATED BY
REFERENCE RELATING TO THIS PROSPECTUS.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
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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.
NET ASSET VALUE- The value of one share of an Underlying Mutual Fund at the end
of a market day or at the close of the New York Stock Exchange. 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 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 Certificates
and 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.
SUB-ACCOUNTS- Separate and distinct divisions of the Variable Account, to which
specific Underlying Mutual Fund shares are allocated and for which Accumulation
Units are separately maintained.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
UNDERLYING MUTUAL FUND- A registered open-end management investment company in
which the assets of the Sub-Accounts will be invested.
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VALUATION DATE-Each day the New York Stock Exchange and the Home Office are open
for business or any other day during which there is a sufficient degree of
trading Underlying Mutual Fund shares, such that the current Cash Value might
be materially affected.
VALUATION PERIOD-A period commencing with the close of a Valuation Date and
ending at the close of business for the next succeeding Valuation Date.
VARIABLE ACCOUNT-A separate investment account of the Nationwide Life Insurance
Company. The Nationwide VLI Separate Account-3.
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TABLE OF CONTENTS
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GLOSSARY OF TERMS.....................................................................................................3
SUMMARY OF THE POLICIES...............................................................................................7
Variable Life Insurance......................................................................................7
The Variable Account and its Sub-Accounts....................................................................7
The Fixed Account............................................................................................7
Deductions and Charges.......................................................................................7
Premiums.....................................................................................................8
NATIONWIDE LIFE INSURANCE COMPANY.....................................................................................8
THE VARIABLE ACCOUNT..................................................................................................8
Investments of the Variable Account..........................................................................8
American Century Variable Portfolios, Inc., a member of the American Century(SM)
Family of Investments...................................................................................9
Dreyfus.....................................................................................................11
Dreyfus Variable Investment Fund............................................................................11
Fidelity Variable Insurance Products Fund...................................................................11
Fidelity Variable Insurance Products Fund II................................................................12
Nationwide Separate Account Trust (NSAT)....................................................................13
Neuberger & Berman Advisers Management Trust................................................................14
Oppenheimer Variable Account Funds..........................................................................14
Strong Opportunity Fund II, Inc. (Formerly, Strong Special Fund II, Inc.)...................................15
Strong Variable Insurance Products Funds, Inc...............................................................15
Van Eck Worldwide Insurance Trust...........................................................................15
Van Kampen American Capital Life Investment Trust...........................................................16
Warburg Pincus Trust........................................................................................16
Reinvestment................................................................................................16
Transfers...................................................................................................17
Dollar Cost Averaging.......................................................................................17
Substitution of Securities..................................................................................18
Voting Rights...............................................................................................18
INFORMATION ABOUT THE POLICIES.......................................................................................18
Underwriting and Issuance...................................................................................18
-Minimum Requirements for Issuance of a Policy..............................................................18
-Premium Payments...........................................................................................18
-Allocation of Cash Value...................................................................................19
-Short-Term Right to Cancel Policy..........................................................................19
POLICY CHARGES.......................................................................................................19
Deductions from Premiums....................................................................................19
Deductions from Cash Value..................................................................................19
-Charges on Surrender.......................................................................................20
-Annual Administrative Charge...............................................................................20
-Cost of Insurance Charge...................................................................................20
Deductions from the Sub-Accounts............................................................................21
-Mortality and Expense Risk Charge..........................................................................21
-Administrative Expense Charge..............................................................................21
-Premium Tax Recovery Charge................................................................................21
-Income Tax Charge..........................................................................................21
Expenses of the Underlying Mutual Funds.....................................................................22
HOW THE CASH VALUE VARIES............................................................................................24
How the Investment Experience is Determined.................................................................24
Net Investment Factor.......................................................................................24
Determining the Cash Value..................................................................................25
Valuation Date and Valuation Period.........................................................................25
SURRENDERING THE POLICY FOR CASH.....................................................................................25
Right to Surrender..........................................................................................25
Cash Surrender Value........................................................................................25
Partial Surrenders..........................................................................................25
Maturity Proceeds...........................................................................................26
Income Tax Withholding......................................................................................26
POLICY LOANS.........................................................................................................26
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Taking a Policy Loan........................................................................................26
Effect on Investment Performance............................................................................26
Interest....................................................................................................26
Effect on Death Benefit and Cash Value......................................................................27
Repayment...................................................................................................27
HOW THE DEATH BENEFIT VARIES.........................................................................................27
-Calculation of the Death Benefit...........................................................................27
-Proceeds Payable on Death..................................................................................28
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY.........................................................................28
CHANGE OF INVESTMENT POLICY..........................................................................................29
GRACE PERIOD.........................................................................................................29
REINSTATEMENT........................................................................................................29
THE FIXED ACCOUNT OPTION.............................................................................................29
CHANGES IN EXISTING INSURANCE COVERAGE...............................................................................30
Changes in the Specified Amount.............................................................................30
Changes in the Death Benefit Option.........................................................................30
OTHER POLICY PROVISIONS..............................................................................................30
Policy Owner................................................................................................30
Beneficiary.................................................................................................30
Assignment..................................................................................................31
Incontestability............................................................................................31
Error in Age or Sex.........................................................................................31
Suicide.....................................................................................................31
Nonparticipating Policies...................................................................................31
Riders......................................................................................................31
LEGAL CONSIDERATIONS.................................................................................................32
DISTRIBUTION OF THE POLICIES.........................................................................................32
CUSTODIAN OF ASSETS..................................................................................................32
TAX MATTERS..........................................................................................................32
Policy Proceeds.............................................................................................32
Federal Estate and Generation-Skipping Transfer Taxes.......................................................33
Non-Resident Aliens.........................................................................................34
Taxation of the Company.....................................................................................34
Tax Changes.................................................................................................34
THE COMPANY..........................................................................................................35
COMPANY MANAGEMENT...................................................................................................35
Directors of the Company....................................................................................35
Executive Officers of the Company...........................................................................37
OTHER CONTRACTS ISSUED BY THE COMPANY................................................................................37
STATE REGULATION.....................................................................................................38
REPORTS TO POLICY OWNERS.............................................................................................38
ADVERTISING..........................................................................................................38
YEAR 2000 COMPLIANCE ISSUES..........................................................................................38
LEGAL PROCEEDINGS....................................................................................................39
EXPERTS..............................................................................................................39
REGISTRATION STATEMENT...............................................................................................39
LEGAL OPINIONS.......................................................................................................39
APPENDIX 1...........................................................................................................40
APPENDIX 2...........................................................................................................41
PERFORMANCE TABLES...................................................................................................42
FINANCIAL STATEMENTS.................................................................................................52
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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.
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SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The Policies offered by the Company are similar in many ways to fixed-benefit
whole life insurance. As with fixed-benefit whole life insurance, the Policy
Owner pays a premium for life insurance coverage on the Insured. Also like
fixed-benefit whole life insurance, the Policies may provide for a Cash
Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy Years may be substantially lower than
the premiums paid.
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the death benefit and Cash
Value of the Policies may increase or decrease to reflect the investment
performance of the Sub-Accounts or the Fixed Account to which Cash Values are
allocated (see "How the Death Benefit Varies"). There is no guaranteed Cash
Surrender Value (see "How the Cash Value Varies"). If the Cash Surrender Value
is insufficient to pay Policy Charges, the Policy will lapse.
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Cash Value in the Variable Account at the time the Policy
is issued. The Policy Owner chooses the Sub-Accounts or the Fixed Account into
which the Cash Value will be allocated (see "Allocation of Cash Value"). During
the free-look period, however, the Cash Value is allocated to the NSAT-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. 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 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 Cash Value on
the Policy Date and each Monthly Anniversary Day. The Company deducts an annual
Policy administration charge from the 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;
these charges 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 (see
"Expenses of the Underlying Mutual Funds").
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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
Company, National Casualty 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 43215.
The Company offers a complete line of life insurance, annuities and retirement
products. It is admitted to do business in all states, the District of Columbia,
and Puerto Rico (for additional information, see "The Company").
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors on August 8, 1984 pursuant to Ohio law. The Company has caused the
Variable Account to be registered with the SEC as a unit investment trust
pursuant to the provisions of the Investment Company Act of 1940 (the "1940
Act"). Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio
43215 serves as trustee for the trust. Nationwide Advisory Services, Inc., One
Nationwide Plaza, Columbus, Ohio 43215 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 SEC.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The death benefit and Cash Value under the
Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
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 Sub-Accounts and the Fixed Account (see
"Allocation of Cash Value"). When the Policy is issued, the Cash Value not
allocated to the Fixed Account is placed in the NSAT-Money Market Fund 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 Underlying Mutual 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
NSAT-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) American Century Variable Portfolios, Inc., a member of the
American Centurysm Family of Investments, managed by American
Century Investment Management, Inc.;
2) Dreyfus Socially Responsible Growth Fund, Inc., managed by The
Dreyfus Corporation and NCM Capital Management Group, Inc.;
8
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3) Dreyfus Stock Index Fund, Inc., managed by The Dreyfus Corporation
and Mellon Equity Associates;
4) Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company;
5) Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company;
6) Nationwide Separate Account Trust, managed by Nationwide Advisory
Services, Inc.;
7) Neuberger & Berman Advisers Management Trust, managed by Neuberger
& Berman Management Incorporated;
8) Oppenheimer Variable Account Funds, managed by OppenheimerFunds,
Inc.;
9) Strong Opportunity Fund II, Inc., managed by Strong Capital
Management, Inc.;
10) Strong Variable Insurance Funds, Inc., managed by Strong Capital
Management, Inc.;
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 Asset Management, Inc.; and
13) Warburg Pincus Trust, managed by Warburg Pincus Asset Management,
Inc.
The Underlying Mutual Fund options are NOT available to the general public
directly. The Underlying Mutual Funds are available as investment options in
variable life insurance policies or variable annuity contracts issued by life
insurance companies or, in some cases, through participation in certain
qualified pension or retirement plans.
Some of the Underlying Mutual Funds have been established by investment advisers
which manage publicly traded mutual funds having similar names and investment
objectives. While some of the Underlying Mutual Funds may be similar to, and may
in fact be modeled after publicly traded mutual funds, Policy purchasers should
understand that the Underlying Mutual Funds are not otherwise directly related
to any publicly traded mutual fund. Consequently, the investment performance of
publicly traded mutual funds and any corresponding Underlying Mutual Funds may
differ substantially.
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund below. These Underlying Mutual Fund options are available
only to serve as the underlying investment vehicle for variable annuity
contracts and variable life insurance policies issued through separate accounts
of life insurance companies which may or may not be affiliated, also known as
"mixed and shared funding." There are certain risks associated with mixed and
shared funding, which 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. Prospectuses for the Underlying Mutual Funds must be read in
conjunction with this prospectus. A copy can be obtained without charge from the
Company by calling 1-800-547-7548, TDD 1-800-238-3035, or by writing P.O. Box
182150, Columbus, Ohio 43218-2150. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES WILL BE ACHIEVED.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURYSM
FAMILY OF INVESTMENTS American Century Variable 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 American CenturySM Family of Investments, American Century Variable
Portfolios is managed by American Century Investment Management, Inc.
- AMERICAN CENTURY VP 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) 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
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<PAGE> 13
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.
- AMERICAN CENTURY VP 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.
- AMERICAN CENTURY VP CAPITAL APPRECIATION
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.
- AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing in common stocks. The investment manager constructs the
portfolio to match the risk characteristics of the S & P 500 Stock Index
and then optimizes each portfolio to achieve the desired balance of risk
and return potential. This includes targeting a dividend yield that
exceeds that of the S & P 500 Stock Index. Such a management technique
known as "portfolio optimization" may cause the Fund to be more heavily
invested in some industries than in others. However, the Fund may not
invest more than 25% of its total assets in companies whose principal
business activities are in the same industry.
- AMERICAN CENTURY VP 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.
- AMERICAN CENTURY VP VALUE
Investment Objective: The investment objective of the Fund is long-term
capital growth; income is a secondary objective. Under normal market
conditions, the Fund expects to invest at least 80% of the value of its
total asset in equity securities, including common and preferred stock,
convertible preferred stock and convertible debt obligations. The equity
securities in which the Fund will invest will be primarily securities of
well-established companies with intermediate-to-large market
capitalizations that are believed by management to be undervalued at the
time of purchase.
(Although the Statement of Additional Information concerning American Century
Variable Portfolios, Inc. refers to redemptions of securities in kind under
certain conditions, all surrendering or redeeming Policy Owners will receive
cash from the Company.)
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<PAGE> 14
DREYFUS
- THE 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. The Dreyfus Corporation ("Dreyfus") serves as the Fund's investment
advisor. NCM Capital Management Group, 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.
- DREYFUS STOCK INDEX FUND, INC.
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. Dreyfus serves as
the Fund's manager while Mellon Equity Associates, an affiliate of
Dreyfus, serves as the Fund's index manager. Dreyfus is a wholly-owned
subsidiary of Mellon Bank N.A., which is a wholly-owned subsidiary of
Mellon Bank Corporation.
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 VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund (the "Fund") is an open-end, management
investment company. It was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts on October 29,1986 and commenced
operations August 31, 1990. The Dreyfus Corporation ("Dreyfus") serves as the
Fund's manager. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which
is a wholly-owned subsidiary of Mellon Bank Corporation.
- GROWTH AND INCOME PORTFOLIO
Investment Objective: To provide long-term capital growth, current income
and growth of income, consistent with reasonable investment risk. The
Portfolio invests in equity securities, debt securities and money market
instruments of domestic and foreign issuers. The proportion of the
Portfolio's assets invested in each type of security will vary from time
to time in accordance with Dreyfus' assessment of economic conditions and
investment opportunities. In purchasing equity securities, Dreyfus will
invest in common stocks, preferred stocks and securities convertible into
common stocks, particularly those which offer opportunities for capital
appreciation and growth of earnings, while paying current dividends. The
Portfolio will generally invest in investment-grade debt obligations,
except that it may invest up to 35% of the value of its net assets in
convertible debt securities rated not lower than Caa by Moody's Investor
Service, Inc. or CCC by Standard & Poor's Ratings Group, Fitch Investors
Service, L.P. or Duff & Phelps Credit Rating Co., or if unrated, deemed
to be of comparable quality by Dreyfus. These securities are considered
to have predominantly speculative characteristics with respect to
capacity to pay interest and repay principal and are considered to be of
poor standing. See "Investment Considerations and Risks-Lower Rated
Securities" in the Portfolio's prospectuses.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Fidelity Variable Insurance Products 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.
- VIP 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.
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<PAGE> 15
- VIP 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.
- VIP 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.
- VIP 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 ("VIP II")
Fidelity Variable Insurance Product Fund II 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.
- VIP II 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.
- VIP II 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.
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<PAGE> 16
NATIONWIDE SEPARATE ACCOUNT TRUST ("NSAT")
Nationwide Separate Account Trust ("NSAT") is a diversified, open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the five separate Mutual Funds listed below, each with its own investment
objective. Currently, shares of NSAT 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
NSAT are managed by Nationwide Advisory Services, Inc. ("NAS"), Three Nationwide
Plaza, Columbus, Ohio 43215, 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.
- 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.
- NATIONWIDE SMALL CAP VALUE FUND
Subadviser: Dreyfus
Investment Objective: Capital appreciation through investment in a
diversified portfolio of equity securities of companies with a median
market capitalization of approximately $1 billion. Under normal market
conditions, at least 75% of the Fund's total assets will be invested in
equity securities of companies with market capitalizations at the time of
purchase of between $200 million and $2.5 billion. The Fund will invest
in equity securities of domestic and foreign issuers characterized as
"value" companies according to criteria established by Dreyfus, the
Fund's subadviser.
- NATIONWIDE 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. NAS, 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 Dreyfus, Neuberger & Berman, L. P.,
Pictet International Management Limited, Van Eck Associates Corporation,
Strong Capital Management, Inc. and Warburg, Pincus Asset Management,
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, NAS 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.
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<PAGE> 17
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust (the "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.
- 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.
- GUARDIAN PORTFOLIO
Investment Objective: Capital appreciation and secondarily, current
income. The Portfolio and its corresponding series seek to achieve these
objectives by investing in common stocks of long-established,
high-quality companies. Neuberger & Berman Management uses a
value-oriented investment approach in selecting securities, looking for
low price-to-earnings ratios, strong balance sheets, solid management,
and consistent earnings.
- 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.
- 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.
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. OppenheimerFunds, Inc. is the Funds'
investment advisor.
- OPPENHEIMER BOND FUND
Investment Objective: Seeks a high level of current income by investing
at least 65% of its total assets in investment grade debt securities,
U.S. government securities and money market instruments. Investment grade
debt securities would include those rated in one of the four highest
ranking categories by any nationally-recognized rating organization or if
unrated or split-rated (rated investment grade and below investment grade
by different rating organizations), determined by OppenheimerFunds, Inc.
to be of comparable quality. The Fund may invest up to 35% of its total
assets in debt securities rated less than investment grade when
consistent with the Fund's investment objectives. The Fund seeks capital
growth as a secondary objective when consistent with its primary
objective.
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<PAGE> 18
- 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 OPPORTUNITY FUND II, INC. (FORMERLY, STRONG SPECIAL FUND II, INC.)
The Strong Opportunity Fund II, Inc. ("Opportunity Fund II") is a diversified,
open-end management company commonly called a Mutual Fund. The Opportunity 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. 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.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust (the "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.
- WORLDWIDE BOND FUND
Investment Objective: To seek high total return through a flexible policy
of investing globally, primarily in debt securities. The Fund does not
invest in junk bonds.
- WORLDWIDE EMERGING MARKETS FUND
Investment Objective: Seeks long-term capital appreciation by investing
primarily in equity securities in emerging markets around the world. The
Fund specifically emphasizes investment in countries that, compared to
the world's major economies, exhibit relatively low gross national
product per capita, as well as the potential for rapid economic growth.
- WORLDWIDE HARD ASSETS FUND
Investment Objective: To seek long-term capital appreciation by investing
globally, primarily in "Hard Assets Securities". Hard assets are
tangible, finite assets, such as real estate, energy, timber, and
industrial and precious metals. Income is a secondary consideration.
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VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust (the "Trust") is an
open-end diversified management investment company organized as a Massachusetts
business trust on June 3, 1985. The Trust offers shares in 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.
- MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
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 Asset
Management, Inc. ("Warburg").
- 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 Warburg 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.
- POST-VENTURE CAPITAL PORTFOLIO
Investment Objective: Long-term growth of capital by investing primarily
in equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy. Under normal
market conditions, the Portfolio will invest at least 65% of its total
assets in equity securities of "post-venture capital companies." A
post-venture capital company is one that has received venture capital
financing either: (a) during the early stages of the company's existence
or the early stages of the development of a new product or service; or
(b) as part of a restructuring or recapitalization of the company. The
Portfolio may invest up to 10% of its assets in venture capital and other
investment funds.
- 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.
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").
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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 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. Transfers from the Fixed Account must be made within 30 days after the
termination date of the interest rate guarantee period.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. This telephone exchange privilege is made available to Policy
Owners automatically without the Policy Owner's election. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include the following: requesting
identifying information, such as name, contract number, Social Security Number,
and/or personal identification number; tape recording all telephone
transactions; or providing written confirmation thereof to both the Policy Owner
and any agent of record, at the last address of record; or such other procedures
as the Company may deem reasonable. Although failure to follow reasonable
procedures may result in the Company's liability for any losses to unauthorized
or fraudulent telephone transfers, the Company will not be liable for following
instructions communicated by telephone which it reasonably believes to be
genuine. Any losses incurred pursuant to actions taken by the Company in
reliance on telephone instructions reasonably believed to be genuine shall be
borne by the Policy Owner.
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.
Policies described in this prospectus may, in some cases, be sold to individuals
who independently utilize the services of a firm or individual engaged in market
timing. Generally, such firms or individuals obtain authorization from multiple
Policy Owners to make transfers and exchanges among the Sub-Accounts on the
basis of perceived market trends. Because of the unusually large transfers of
funds associated with some of these transactions, the ability of the Company or
Underlying Mutual Funds to process such transactions may be compromised, and the
execution of such transactions may possibly disadvantage or work to the
detriment of other Policy Owners not utilizing market timing services.
Accordingly, the right to exchange Cash Surrender Values among the Sub-Accounts
may be subject to modification if such rights are exercised by a market timing
firm or any other third party authorized to initiate transfer or exchange
transactions on behalf of multiple Policy Owners. THE RIGHTS OF INDIVIDUAL
POLICY OWNERS TO EXCHANGE CASH SURRENDER VALUES, WHEN INSTRUCTIONS ARE SUBMITTED
DIRECTLY BY THE POLICY OWNER, OR BY THE POLICY OWNER'S REPRESENTATIVE OF RECORD
AS AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY
FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company
may, among other things, not accept: (1) the transfer or exchange instructions
of any agent acting under a power of attorney on behalf of more than one Policy
Owner; or (2) the transfer or exchange instructions of individual Policy Owners
who have executed preauthorized transfer of exchange forms which are submitted
by market timing firms or other third parties in behalf of more than one Policy
Owner at the same time. The Company will not impose any such restrictions or
otherwise modify exchange rights unless such action is reasonably intended to
prevent the use of such rights in manner that will disadvantage potentially
impair the contract rights of other Policy Owners.
DOLLAR COST AVERAGING
If the total Cash Value, less Policy Indebtedness, is $15,000 or more, the
Policy Owner may direct the Company to automatically transfer a specified amount
from the Fidelity VIP Fund-High Income Portfolio, the NSAT-Money Market Fund,
the NSAT-Government Bond Fund, the Neuberger & Berman AMT-Limited Maturity Bond
Portfolio or the Fixed Account to any other Sub-Account within the Variable
Account. Dollar Cost Averaging will occur on a monthly basis or on another
frequency permitted by the Company. Dollar Cost Averaging is a long-term
investment program which provides for regular, level investments over time.
There is no guarantee that Dollar Cost Averaging will result in a profit or
protect against loss. The minimum monthly transfer is $100. Monthly transfers
from the Fixed Account must be equal to or less than 1/30th of the Fixed Account
when the program is requested. Transfers will be processed until either the
value in the originating Sub-Account is exhausted or the Policy Owner instructs
the Home Office in writing to cancel the transfers.
The Company reserves the right to discontinue establishing new Dollar Cost
Averaging programs. The Company also reserves the right to assess a processing
fee for this service.
17
<PAGE> 21
SUBSTITUTION OF SECURITIES
If shares of the Underlying Mutual Fund options are no longer available for
investment by the Variable Account or if, in the judgment of the Company's
management, further investment in such Underlying Mutual Funds is inappropriate,
the Company may eliminate Sub-Accounts, combine two or more Sub-Accounts, or
substitute shares of 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 SEC and under such requirements as
it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value allocated
to the Sub-Accounts.
In accordance with its view of applicable law, the Company will vote the shares
of the Underlying Mutual Funds at regular and special meetings of the
shareholders. These shares will be voted in accordance with instructions
received from Policy Owners. If the 1940 Act or any regulation thereunder is
amended, or if the present interpretation changes permitting the Company to vote
the shares of the Underlying Mutual Funds in its own right, the Company may
elect to do so.
The Policy Owner is the person who has the voting interest under the Policy. The
number of Underlying Mutual Fund shares attributable to each Policy Owner is
determined by dividing the Policy Owner's interest in each respective
Sub-Account by the Net Asset Value of the Underlying Mutual Fund corresponding
to the Sub-Account. The number of shares which may be voted will be determined
as of a date to be chosen by the Company not more than 90 days prior to the
meeting of the Underlying Mutual Fund. Each person having a voting interest will
receive periodic reports relating to the Underlying Mutual Fund, proxy material
and a form with which to give such voting instructions.
Voting instructions will be solicited by written communication at least 21 days
prior to such meeting. Underlying Mutual Fund shares 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 with respect to all Policies
participating in the Variable Account.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
Underlying Mutual Fund shares in any manner necessary to enable the Underlying
Mutual Fund to: (1) make or refrain from making any change in the investments or
investment policies for any of the Underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the Underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance requlatory
authority.
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 age 80 or younger. Before issuing
any Policy, the Company will require satisfactory evidence of insurability,
which may include a medical examination.
- -Premium Payments
The initial premium for a Policy is payable in full at the Home Office. The
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.
18
<PAGE> 22
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 IRS 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 be 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 IRS 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 NSAT-Money
Market Fund value or the Fixed Account value 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
NSAT-Money Market Fund (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.
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%.
- -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 either the total premiums paid or the
Cash Value, less Indebtedness, as prescribed by the state in which the Policy
was issued, within seven days after it receives the Policy. The scope of this
right may vary by state. The Policy provision approved or used in a particular
state will be disclosed in any Policy issued.
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. Policy Charges are comprised of the following items:
19
<PAGE> 23
- -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 the Mortality and Expense Risk Charge.
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> <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 Advisory 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 sale 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
Value in each 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:
Total Net Premium Payments
<TABLE>
<CAPTION>
Greater than But Less Current Annual Guaranteed Maximum Annual
or Equal to than Administrative Charge Administrative Charge
----------- ---- --------------------- ---------------------
<S> <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.
20
<PAGE> 24
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 rate
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with higher mortality risks. 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 the Mortality and Expense
Risk Charge. The mortality risk assumed under the Policies is that the Insured
may not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, 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. 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 this charge. 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 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 charge for administrative costs will be approximately
equal to the related expenses.
This charge is deducted daily from the assets of the Sub-Accounts. 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 (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.
21
<PAGE> 25
EXPENSES OF THE UNDERLYING MUTUAL FUNDS
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. The
management fees and other expenses for each Underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the Underlying
Mutual Fund's average assets, are as follows:
UNDERLYING MUTUAL FUND EXPENSES
(After Expense Reimbursement)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Management Fees Other Total
Expenses Expenses
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc. - American Century VP 1.00% 0.00% 1.00%
Advantage
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - American Century VP 1.00% 0.00% 1.00%
Balanced
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - American Century VP 1.00% 0.00% 1.00%
Capital Appreciation
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - American Century VP 0.70% 0.00% 0.70%
Income & Growth
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - American Century VP 1.50% 0.00% 1.50%
International
- --------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolio's, Inc.-American Century VP 1.00% 0.00% 1.00%
Value
- --------------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund 0.75% 0.01% 0.76%
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 0.25% 0.03% 0.28%
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund-Growth and Income Portfolio 0.75% 0.05% 0.80%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 0.50% 0.07% 0.57%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 0.60% 0.07% 0.67%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 0.59% 0.12% 0.71%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 0.75% 0.15% 0.90%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 0.55% 0.09% 0.64%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 0.60% 0.08% 0.68%
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 0.52% 0.04% 0.56%
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.03% 0.53%
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.48% 0.03% 0.51%
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small Cap Value Fund 0.50% 0.55% 1.05%
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small Company Fund 1.00% 0.11% 1.11%
- --------------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.52% 0.02% 0.54%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT-Balanced Portfolio 0.85% 0.19% 1.04%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT-Growth Portfolio 0.83% 0.07% 0.90%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT-Guardian Portfolio 0.60% 0.40% 1.00%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT-Limited Maturity Bond Portfolio 0.65% 0.12% 0.77%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT-Partners Portfolio 0.80% 0.06% 0.86%
- --------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds- Oppenheimer Bond Fund 0.73% 0.05% 0.78%
- --------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds- Oppenheimer Global Securities 0.70% 0.06% 0.76%
Fund
- --------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds- Oppenheimer Multiple Strategies 0.72% 0.03% 0.75%
Fund
- --------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 1.00% 0.15% 1.15%
- --------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.-Discovery Fund II, Inc. 1.00% 0.18% 1.18%
- --------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.-International Stock Fund II 1.00% 0.51% 1.51%
- --------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Bond Fund 1.00% 0.12% 1.12%
Van Eck Worldwide Insurance Trust - Worldwide Emerging Markets Fund 0.80% 0.00% 0.80%
- --------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Hard Assets Fund 1.00% 0.17% 1.17%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Management Fees Other Total
Expenses Expenses
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Van Kampen American Capital Life Investment Trust- Morgan Stanley 1.00% 0.07% 1.07%
Real Estate Securities Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity Portfolio 1.00% 0.35% 1.35%
- --------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post-Venture Capital Portfolio 1.07% 0.33% 1.40%
- --------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company Growth Portfolio 0.90% 0.24% 1.14%
- --------------------------------------------------------------------------------------------------------------------------
</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 Accumulation Unit value. None of the above
Underlying Mutual Funds are subject to 12b-1 fees. The following Underlying
Mutual Funds are subject to fee waivers or expense reimbursement arrangements:
<TABLE>
<CAPTION>
- ------------------------------ -----------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAIVER
- ------------------------------ -----------------------------------------------------------------------------
<S> <C>
Fidelity VIP Equity Income The Management Fees, Other Expenses and Total Expenses are net of any fee
Portfolio waivers or expense reimbursements. The investment adviser has voluntarily
agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 0.50%, Other Expenses
would have equaled 0.08% and Total Portfolio Operating Expenses would have
equaled 0.58%
- ------------------------------ -----------------------------------------------------------------------------
Fidelity VIP Growth Portfolio The Management Fees, Other Expenses and Total Expenses
are net of any fee waivers or expense reimbursements. The investment adviser
has voluntarily agreed to reimburse a portion of the management fees and/or
other expenses resulting in a reduction of total expenses. Without such
waivers or reimbursements, Management Fees would have equaled 0.60%, Other
Expenses would have equaled 0.09% and Total Portfolio Operating Expenses
would have equaled 0.69%
- ------------------------------ -----------------------------------------------------------------------------
Fidelity VIP Overseas The Management Fees, Other Expenses and Total Expenses are net of any fee
Portfolio waivers or expense reimbursements. The investment adviser has voluntarily
agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 0.75%, Other Expenses
would have equaled 0.17% and Total Portfolio Operating Expenses would have
equaled 0.92%
- ------------------------------ -----------------------------------------------------------------------------
Fidelity VIP II Asset The Management Fees, Other Expenses and Total Expenses are net of any fee
Manager Portfolio waivers or expense reimbursements. The investment adviser has voluntarily
agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 0.55%, Other Expenses
would have equaled 0.10% and Total Portfolio Operating Expenses would have
equaled 0.65%
- ------------------------------ -----------------------------------------------------------------------------
Fidelity VIP II Contrafund The Management Fees, Other Expenses and Total Expenses are net of any fee
Portfolio waivers or expense reimbursements. The investment adviser has voluntarily
agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 0.60%, Other Expenses
would have equaled 0.11% and Total Portfolio Operating Expenses would have
equaled 0.71%
- ------------------------------ -----------------------------------------------------------------------------
NSAT - Nationwide Small Cap The Management Fees, Other Expenses and Total Expenses are net of any fee Value
Fund waivers or expenses reimbursements. The investment adviser has voluntarily
agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 0.90%, Other Expenses
would have equaled 5.41% and Total Portfolio Operating Expenses would have
equaled 6.31%
- ------------------------------ -----------------------------------------------------------------------------
Van Eck Worldwide Insurance The Management Fees, Other Expenses and Total Expenses are net of any fee
Trust - Worldwide Emerging waivers or expense reimbursements. The investment adviser has voluntarily
Markets Fund agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 1.00%, Other Expenses
would have equaled 0.34% and Total Portfolio Operating Expenses would have
equaled 1.34%
- ------------------------------ -----------------------------------------------------------------------------
Van Eck Worldwide Insurance The Management Fees, Other Expenses and Total Expenses are net of any fee
Trust - Worldwide Hard waivers or expense reimbursements. The investment adviser has voluntarily
Assets Fund agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 1.00%, Other Expenses
would have equaled 0.18% and Total Portfolio Operating Expenses would have
equaled 1.18%
-----------------------------------------------------------------------------
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
- ------------------------------ -----------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAIVER
- ------------------------------ -----------------------------------------------------------------------------
<S> <C>
Warburg Pincus Trust - The Management Fees, Other Expenses and Total Expenses are net of any fee
International Equity waivers or expense reimbursements. The investment adviser has voluntarily
Portfolio agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 1.00%, Other Expenses
would have equaled 0.36% and Total Portfolio Operating Expenses would have
equaled 1.36%
-----------------------------------------------------------------------------
Warburg Pincus Trust - Post- The Management Fees, Other Expenses and Total Expenses are net of any fee
Venture Capital Portfolio waivers or expense reimbursements. The investment adviser has voluntarily
agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 1.25%, Other Expenses
would have equaled 0.33% and Total Portfolio Operating Expenses would have
equaled 1.58%
-----------------------------------------------------------------------------
Warburg Pincus Trust - Small The Management Fees, Other Expenses and Total Expenses are net of any fee
Company Growth Portfolio waivers or expense reimbursements. The investment adviser has voluntarily
agreed to reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Without such waivers or
reimbursements, Management Fees would have equaled 0.90%, Other Expenses
would have equaled 0.25% and Total Portfolio Operating Expenses would have
equaled 1.15%
-----------------------------------------------------------------------------
</TABLE>
The information relating to the Underlying Mutual Fund expenses was provided by
the Underlying Mutual Fund and was not independently verified by the Company.
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 to 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 for 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 Underlying 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. Although the number of
Accumulation Units will not change as a result of investment experience, the
value of an Accumulation Unit may increase or decrease from Valuation Period to
Valuation Period.
NET INVESTMENT FACTOR
The net investment factor for any Valuation Period is determined by dividing (a)
by (b), and then 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; and
(2) the per share amount of any dividend or income
distributions made by the Underlying Mutual Fund held in
the Sub-Account if the ex-dividend date occurs during
the current Valuation Period.
(b) is the Net Asset Value per share of the Underlying Mutual Fund
held in the Sub-Account determined at the end of the immediately
preceding Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk
Charge, Administration Expense Charge and any charge for premium
tax recovery deducted from the Variable Account. Such factor is
equal to an annual rate of 1.30% for the first ten years and
then 1.00% thereafter of the daily net assets of the Variable
Account.
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<PAGE> 28
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 any
charge for premium tax recovery.
DETERMINING THE CASH VALUE
The Cash Value is the sum of the value of all Accumulation Units and amounts
credited to the Fixed Account. The number of Accumulation Units credited to each
Sub-Account is determined by dividing the net amount allocated to the
Sub-Account by the Accumulation Unit value for the Sub-Account for the Valuation
Period during which the premium is received by the Company. If part or all of
the Cash Value is surrendered, or charges or deductions are made against the
Cash Value, an appropriate number of Accumulation Units from the Variable
Account and an appropriate amount from the Fixed Account will be deducted in the
same proportion that the Policy Owner's interest in the Variable Account and the
Fixed Account bears to the total Cash Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited with
interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION DATE AND VALUATION PERIOD
A Valuation Date is each day that the New York Stock Exchange and the Home
Office are open for business or any other day during which there is sufficient
degree of trading of the Underlying Mutual Fund shares, such that the current
Net Asset Value of the Accumulation Units might be materially affected. A
Valuation Period is the period commencing at the close of a Valuation Date and
ending at the close of business for the next succeeding Valuation Date.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. 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 to the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
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.
When a partial surrender is made, the Cash Value is reduced by the amount of the
partial surrender. Under death benefit Option 1, the Specified Amount is reduced
by the amount of the partial surrender, unless the death benefit is based on the
applicable percentage of cash value. In such a case, a partial surrender will
decrease the Specified Amount by the amount by which the partial surrender
exceeds the difference between the death benefit and Specified Amount. Partial
surrender amounts must be first deducted from the values in the Sub-Accounts.
Partial surrenders will be deducted from the Fixed Account only to the extent
that insufficient values
25
<PAGE> 29
are available in the Sub-Accounts. Surrender Charges will be waived for any
partial surrenders which satisfy the above conditions. Certain partial
surrenders may result in currently taxable income and tax penalties (see "Tax
Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The maturity proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The maturity proceeds will
be equal to the amount of the 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 own 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 advisors, 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
Policy 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
proceeds, respectively.
Maximum Policy indebtedness in Texas is limited to 90% of the Cash Surrender
Value in the Variable Account Sub-Accounts and 100% of the Cash Surrender Value
in the Fixed Account, less interest due on the next Policy Anniversary.
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 Sub-Account at the time of the
loan. Policy loans will be transferred from the Fixed Account only when
insufficient amounts are available in the Sub-Accounts. The amount taken out of
the Variable Account will not be affected by the Variable Account's investment
experience while the loan is outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer.
Policy loans will be currently credited interest daily at an annual effective
rate of 5.0%. This rate is guaranteed never to be lower than 4%. The Company may
change the current interest crediting rate on Policy loans at any time at its
sole discretion. This earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary.
It will be allocated according to the fund allocation factors in effect at the
time of the transfer.
26
<PAGE> 30
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 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> <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
the 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.
27
<PAGE> 31
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 as 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.
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
ATTAINED PERCENTAGE ATTAINED PERCENTAGE ATTAINED PERCENTAGE
AGE OF CASH VALUE AGE OF CASH VALUE AGE OF CASH VALUE
<S> <C> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
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 Death Proceeds may be adjusted (see
"Incontestability", "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a 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 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").
28
<PAGE> 32
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 Owners or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, the Policy may be converted to a
substantially comparable Nationwide General Account Life Insurance Policy 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 Charge, 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
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
General Account. The 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.
Because of exemptive and exclusionary provisions, interests in the General
Account have not been registered under the 1933 Act and the General Account has
not been registered as an investment company under the 1940 Act. Accordingly,
neither the General Account nor any interests therein are subject to the
provisions of these Acts, and the Company has been advised that the staff of the
SEC has not reviewed the disclosures in this prospectus relating to the Fixed
Account. 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.
29
<PAGE> 33
The Company guarantees that the part of the Cash Value invested in the Fixed
Account 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 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 IRS to
qualify the Policy as a life insurance contract.
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in the 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 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, names no contingent Policy Owner,
and dies before the Insured, the Policy Owner's rights in the Policy belong to
the Policy Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named on the application or as subsequently
changed, subject to any assignment.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at the
Home Office. Once recorded, the change will be effective when signed. The change
will not affect any payment made or action taken by the Company before it was
recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary, unless otherwise provided. Multiple Beneficiaries
will be paid in equal shares, unless otherwise provided. If no named Beneficiary
survives the Insured, the proceeds will be paid to the Policy Owner or the
Policy Owner's estate.
30
<PAGE> 34
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; they do not participate in any dividend
distribution of the Company's surplus.
RIDERS
A rider may be added as an addition to the Policy.
Maturity Extension Endorsement: This rider provides the ability to extend the
Maturity Date of the Policy until the date of the Insured's death. Upon
election of this rider, several restrictions impact the ability to make
certain Policy changes, the Company automatically will make several
Policy changes to reduce its risk, and no further premium payments will
be accepted.
Spouse Rider: This rider provides a level amount of term insurance on the
spouse of the primary Insured. This rider also may be added after issue
of the base Policy. The Spouse Rider minimum face amount is $25,000 and
the maximum face amount is $500,000.
Child Rider: This rider provides term insurance on each insured child and may
be added after issue of the base Policy. The minimum amount of coverage
is $3,000 and the maximum is $25,000. Eligible application ages are 15
days up to and including age 17.
Waiver of Monthly Deductions Rider: This rider is available to Insureds ages
15-59 and provides for the waiver of total Policy monthly deductions by
the Company upon delivery of sufficient documentation of the primary
Insured's disability. Benefit duration under this rider is limited based
on the age at which disability occurs and the duration of the
disability.
Accidental Death Benefit Rider: This rider provides a death benefit payable in
addition to the face amount of the base Policy. The Accidental Death
Benefit Rider may be added after issue of the base Policy. The minimum
face amount is $1,000 and the maximum face amount for this rider is
$200,000. This rider is available to Insureds ages 5-65.
Base Insured Term Rider: This rider provides term insurance on the base
Insured ages 18-70. This rider is a non-commisionable supplement to the
base Policy and may be added after issue of the base Policy. Level or
automatically decreasing death benefits may be chosen by the
Policy Owner.
Accelerated Death Benefit Rider: This rider allows for up to 50% of the Policy's
net amount at risk to be paid to the Policy Owner if the Insured is
diagnosed with a terminal illness resulting in a life expectancy of 12
months or less.
Change of Insured Rider: The named Insured on the Policy may be exchanged for a
new Insured, subject to approval. The rider requires a written
application and satisfactory evidence of insurability. After the
exchange, the Cost of Insurance Charge will be based on the new
Insured's age and risk class.
Guaranteed Minimum Death Benefit Rider: This rider permits the purchase of an
extension in the duration of guaranteed death benefit and must be added
prior to issue of the base Policy.
31
<PAGE> 35
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 Advisory
Services, Inc., a wholly-owned subsidiary of Nationwide Life Insurance Company.
Nationwide Advisory Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus,
Ohio 43215, acts as General Distributor for the Nationwide Multi-Flex Variable
Account, Nationwide DC Variable Account, Nationwide DCVA-II, Nationwide
Variable Account-II, Nationwide Variable Account-5, Nationwide Variable
Account-6, Nationwide Variable Account-8, Nationwide Variable Account-9,
Nationwide VA Separate Account-A, Nationwide VA Separate Account-B, Nationwide
VA Separate Account-C, Nationwide VL Separate Account-A, Nationwide VL Separate
Account-B, Nationwide VL Separate Account-C, Nationwide VLI Separate Account
- -2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4, NACo
Variable Account and the Nationwide Variable Account, all of which are separate
investment accounts of the Company or its affiliates. NAS is a wholly owned
subsidiary of the Company.
NAS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust,
Nationwide Asset Allocation Trust, Nationwide Investing Foundation II, and
Nationwide Investing Foundation III, 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.
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 a manner similar to
the 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.
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<PAGE> 36
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 Policy Owner pursuant to Section 7702(f)(7) of
the Code. The Policy Owner should carefully consider this potential effect and
seek further information before initiating any changes in the terms of the
Policy. Under certain conditions, a policy may become a modified endowment as a
result of material changes or a reduction in benefits as defined by Section
7702A(c) of the Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations under 817(h) provide that a
variable life insurance policy which does not satisfy the diversification
standards will not be treated as life insurance unless the failure to satisfy
the regulations was inadvertent, the failure is corrected, and the policy owner
or the company pays an amount to the IRS. The amount will be based on the tax
that would have been paid by the policy owner if the income, for the period the
policy was not diversified, had been received by the policy owner. If the
failure to diversify is not corrected in this manner, the policy owner will be
deemed the owner of the underlying securities and taxed on the earnings of his
or her account.
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.
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
which cannot be waived. The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise if no taxpayer identification number
is provided to the Company, or if the IRS notifies the Company that back-up
withholding is required.
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.
FEDERAL ESTATE AND GENERATION - SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 1998, an estate of less than $625,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.
When the Insured dies, the death benefit will generally be included in the
Insured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the Insured's estate; or (2) the Insured held any "incident of
ownership" in the Policy at death or at any time within three years of death. An
"incident of ownership" is, in general, any right that may be exercised by the
owner of a Policy, such as the right to borrow on the Policy, or the right to
name a new Beneficiary.
If the Policy Owner (whether or not he or she is the Insured) transfers
ownership of the Policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such Policy Owner transfers the Policy to
someone two or more generations younger than the Policy Owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the Policy.
Similarly, if the Beneficiary is two or more generations younger than the
Insured, the payment of the Death Proceeds at the death of the Insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the IRS,
the Company may be required to withhold a portion of the Death Proceeds and pay
them directly to the IRS as the GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes. The tax rate is a flat rate equal to the maximum estate
tax rate (currently 55%), and there is a provision for an aggregate $1 million
exemption. Due to the complexity of these rules, the Policy Owner should consult
with their counsel or other competent advisors regarding these taxes.
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<PAGE> 37
NON-RESIDENT ALIENS
Pre-death distributions from modified endowment contracts to nonresident aliens
(NRAs) are generally subject to federal income tax and tax withholding at a
statutory rate of thirty percent (30%) of the amount of income that is
distributed. The Company is required to withhold such amount from the
distribution and remit it to the IRS. Distributions to certain NRAs may be
subject to lower, or in certain instances zero, tax and withholding rates, if
the United States has entered into an applicable treaty. However, in order to
obtain the benefits of such treaty provisions, the NRA must give to the Company
sufficient proof of his or her residency and citizenship in the form and manner
prescribed by the IRS. For distributions, the NRA must obtain an individual
taxpayer identification number from the IRS, and furnish that number to the
Company prior to the distribution. If the Company does not have the proper proof
of citizenship or residency and a proper individual taxpayer identification
number prior to any distribution, the Company will be required to withhold 30%
of the income, regardless of any treaty provision.
A pre-death distribution may not be subject to withholding where the recipient
sufficiently establishes to the Company that such payment is effectively
connected to the recipient's conduct of a trade or business in the United States
and that such payment is includable in the recipient's gross income for United
States federal income tax purposes. Any such distributions may be subject to
back-up withholding at the statutory rate (currently 31%) if no taxpayer
identification number, or an incorrect taxpayer identification number, is
provided.
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.
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.
TAX CHANGES
The foregoing discussion, which is based on the Company's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.
Recently, the Code has been subjected to numerous amendments and changes, and it
is reasonable to believe that it will continue to be revised. The United States
Congress has considered numerous legislative proposals that, if enacted, could
change the tax treatment of the Policies. It is reasonable to believe that such
proposals, and future proposals, may be enacted into law. In addition, the
Treasury Department may amend existing regulations, issue new regulations, or
adopt new interpretations of existing law that may be in variance with its
current positions on these matters. In addition, current state law (which is not
discussed herein) may affect the tax consequences of the Policies.
If the Policy Owner, Insured, Beneficiary or other person receiving any benefit
or interest in or from the Policy is not both a resident and citizen of the
United States, there may be a tax imposed by a foreign country, in addition to
any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the Policy, the
death benefit, or other distributions under the Policy. If there is currently a
treaty that provides favorable treatment for distributions from the Policy
and/or ownership of the Policy, that treaty may be amended and all or part of
the favorable treatment may be eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a Policy may be changed retroactively. There
is no way of predicting whether, when, and to what extent any such change may
take place. No representation is made as to the likelihood of the continuation
of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
INSURANCE CONTRACTS. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD
NOT TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
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<PAGE> 38
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,
Nationwide Variable Account-9, MFS Variable Account, Nationwide Multi-Flex
Variable Account, Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4,
the NACo Variable Account and the Nationwide DC Variable Account and the
Nationwide DCVA-II, each of which is a registered investment company, and each
of which is a separate investment account of the Company.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
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 and Nationwide Life and Annuity Insurance
Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual
Fire Insurance Company, Nationwide Property and Casualty Insurance Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide Insurance Enterprise.
The companies listed above have substantially common boards of directors and
officers. Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of
Nationwide Life Insurance Company. NFS serves as a holding company for other
financial institutions. Nationwide Life Insurance Company is the sole owner of
Nationwide Life and Annuity Insurance Company. Each of the directors and
officers listed below is a director or officer respectively of at least one or
more of the other major insurance affiliates of the Nationwide Insurance
Enterprise. Messrs. McFerson, Gasper, Woodward, Fuellgraf and Weihl and Ms.
Thomas are also trustees of one or more of the registered investment companies
distributed by Nationwide Advisory Services, a registered broker-dealer
affiliated with the Nationwide Insurance Enterprise.
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICERS WITH
PRINCIPAL BUSINESS ADDRESS DEPOSITOR PRINCIPAL OCCUPATION
-------------------------- --------- --------------------
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator (1)
519 Bethel Church Road
Mount Olive, NC 28365
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
</TABLE>
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<PAGE> 39
<TABLE>
<CAPTION>
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICERS WITH
PRINCIPAL BUSINESS ADDRESS DEPOSITOR PRINCIPAL OCCUPATION
-------------------------- --------- --------------------
<S> <C> <C>
Keith W. Eckel Director Partner, Fred W. Eckel Sons;
1647 Falls Road President, Eckel Farms, Inc. (1)
Clarks Summit, PA 18411
Willard J. Engel Director Retired General Manager, Lyon County
301 East Marshall Street Co-operative Oil Company (1)
Marshall, MN 44691
Fred C. Finney Director Owner and Operator, Moreland Fruit
1558 West Moreland Road Farm; Operator, Melrose Orchard (1)
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director Chief Executive Officer, Fuellgraf
600 South Washington Street Electric Company (1)
Butler, PA 16001
Joseph J. Gasper President and Chief Operating Officer President and Chief Operating Officer,
One Nationwide Plaza and Director Nationwide Life Insurance Company and
Columbus, OH 43215 Nationwide Life and Annuity Insurance
Company (2)
Dimon R. McFerson Chairman and Chief Executive Chairman and Chief Executive
One Nationwide Plaza Officer-Nationwide Insurance Enterprise Officer-Nationwide Insurance
Columbus, OH 43215 and Director Enterprise (2)
David O. Miller Chairman of the Board and Director President, Owen Potato Farm, Inc.;
115 Sprague Drive Partner, M&M Enterprises (1)
Hebron, OH 43025
Yvonne L. Montgomery Director Senior Vice President-General Manager
Suite 1600 Southern Customer Operations for U.S.
2859 Paces Ferry Road Customer Operations, Xerox Corporation
Atlanta, GA 30339 (2)
C. Ray Noecker Director Owner and Operator, Noecker Farms (1)
2770 Winchester Southern S.
Ashville, OH 43103
James F. Patterson Director Vice President, Pattersons, Inc.;
8765 Mulberry Road President, Patterson Farms, Inc. (1)
Chesterland, OH 44026
Arden L. Shisler Director President and Chief Executive Officer,
1356 North Wenger Road K&B Transport, Inc. (1)
Dalton, OH 44618
Robert L. Stewart Director Owner and Operator Sunnydale Farms and
88740 Fairview Road Mining (1)
Jewett, OH 43986
Nancy C. Thomas Director Farm Owner and Operator, Da-Ma-Lor
10835 Georgetown Street NE Farms (1)
Louisville, OH 44641
Harold W. Weihl Director Farm Owner and Operator, Weihl Farms
14282 King Road (1)
Bowling Green, OH 43402
</TABLE>
1) Principal Occupation for last 5 years
2) Prior to assuming this current position, held other executive management
positions with the same or affiliated companies.
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<PAGE> 40
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life and Annuity Insurance Company. Messrs. McFerson
and Gasper are directors of Nationwide Advisory Services, Inc., a registered
broker-dealer.
Messrs. McFerson, Miller, Patterson, Shisler and Fuellgraf are directors of
Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson, Ms. Thomas and
Mr. Weihl are trustees of Nationwide Investing Foundation and Nationwide
Investing Foundation III, registered investment companies. Messrs. McFerson,
Gasper and Woodward are trustees of Nationwide Separate Account Trust and
Nationwide Asset Allocation Trust, registered investment companies. Mr. McFerson
is trustee of Financial Horizons Investment Trust and Nationwide Investing
Foundation II, registered investment companies. Mr. Engel is a director of
Western Cooperative Transport.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
<S> <C>
Robert A. Oakley Executive Vice President-Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
W. Sidney Druen Senior Vice President and General Counsel and Assistant
One Nationwide Plaza Secretary
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary, Health and Annuities
One Nationwide Plaza
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales and Financial Services
One Nationwide Plaza
Columbus, OH 43215
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
Matthew S. Easley Vice President-Life Marketing and Administrative Services
One Nationwide Plaza
Columbus, OH 43215
Timothy E. Murphy Vice President-Strategic Marketing
One Nationwide Plaza
Columbus, OH 43215
R. Dennis Noice Vice President Retail Operations
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President-Product and Market Compliance
One Nationwide Plaza
Columbus, OH 43215
</TABLE>
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of the Company.
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<PAGE> 41
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, Cash Value,
Cash Surrender Value, premiums paid and monthly charges deducted since the last
report, the amounts invested in the Fixed Account and in the Variable Account
and in each Sub-Account, and any Policy 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 Policies. Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs based on selected tax brackets or
discussions of alternative investment vehicles and general economic conditions.
YEAR 2000 COMPLIANCE ISSUES
The Company has developed a plan to address issues related to the Year 2000. The
problem relates to many existing computer programs using only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Company has been evaluating its exposure to the Year
2000 issue through a review of all of its operating systems as well as
dependencies on the systems of others since 1996. The Company expects all system
changes and replacements needed to achieve Year 2000 compliance to be completed
by the end of 1998. Compliance testing will be completed in the first quarter of
1999. The Company charges all costs associated with these system changes as the
costs are incurred.
Operating expenses in 1997 include approximately $45 million on technology
projects, which includes costs related to Year 2000 and the development of a new
policy administration system for traditional life insurance products and other
system enhancements. The Company anticipates spending a comparable amount in
1998 on technology projects, including Year 2000 initiatives. These expenses do
not have an effect on the assets of the Variable Account and are not charged
through to the Contract Owner.
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<PAGE> 42
LEGAL PROCEEDINGS
The Company is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on the Company.
The General Distributor, NAS, is not engaged in any litigation of any material
nature.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In February 1997, Nationwide Life Insurance Company
was named as a defendant in a lawsuit filed in New York Supreme Court related to
the sale of whole life policies on a "vanishing premium" basis (John H. Snyder
v. Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks to
represent a national class of Nationwide Life policyholders and claims
unspecified compensatory and punitive damages. This lawsuit has not been
certified as a class action. In April, 1997, a motion to dismiss the Snyder
complaint in its entirety was filed by the defendants, and the plaintiff has
opposed such motion.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, commenced an action against Nationwide Life Insurance Company and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this action, plaintiffs seek to
represent a class of variable life insurance contract owners and variable
annuity contract owners whom they claim were allegedly misled when purchasing
these variable contracts into believing that some portion of their premiums were
invested in a publicly traded mutual fund when, in fact, the premium monies were
invested in a mutual fund whose shares may only be purchased by insurance
companies. The complaint seeks unspecified compensatory, treble and punitive
damages. In January 1998, both Nationwide Life Insurance Company and American
Century filed motions to dismiss the entire complaint. Plaintiffs' counsel have
opposed these motions and the federal court in Texas heard arguments on the
motions to dismiss in April, 1998. This lawsuit is in an early stage and has not
been certified as a class action. Nationwide Life Insurance Company intends to
defend this case vigorously.
There can be no assurance that any litigation relating to pricing and sales
practices will not have a material adverse effect on the Company in the future.
EXPERTS
The audited financial statements and schedules have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the SEC under the 1933 Act, as
amended, with respect to the Policies offered hereby. This prospectus does not
contain all the information set forth in the Registration Statement and
amendments thereto and exhibits filed as a part thereof, to all of which
reference is hereby made for further information concerning the Variable
Account, the Company, and the Policies offered hereby. Statements contained in
this prospectus as to the content of Policies and other legal instruments are
summaries. For a complete statement of the terms thereof, reference is made to
such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus,
Ohio 43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
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<PAGE> 43
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.
40
<PAGE> 44
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 0.90%. 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 March 13, 1998.
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 - 2.20%, 3.80% and 9.80%,
respectively, in policy years one through ten, and -1.90%, 4.10% and 10.10%
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 -2.50%, 3.50% and 9.50%, respectively, in policy years one through ten,
and -2.20%, 3.80% and 9.80% 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.
41
<PAGE> 45
<TABLE>
<CAPTION>
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,648 8,798 43,190 10,231 9,381 43,190 10,815 9,965 43,190
2 11,025 9,227 8,377 43,190 10,394 9,544 43,190 11,630 10,780 43,190
3 11,576 8,803 8,003 43,190 10,553 9,753 43,190 12,516 11,716 43,190
4 12,155 8,372 7,572 43,190 10,705 9,905 43,190 13,480 12,680 43,190
5 12,763 7,935 7,185 43,190 10,851 10,101 43,190 14,529 13,779 43,190
6 13,401 7,489 6,789 43,190 10,988 10,288 43,190 15,671 14,971 43,190
7 14,071 7,032 6,432 43,190 11,113 10,513 43,190 16,916 16,316 43,190
8 14,775 6,560 6,060 43,190 11,225 10,725 43,190 18,272 17,772 43,190
9 15,513 6,069 5,669 43,190 11,319 10,919 43,190 19,751 19,351 43,190
10 16,289 5,557 5,557 43,190 11,392 11,392 43,190 21,366 21,366 43,190
11 17,103 5,035 5,035 43,190 11,475 11,475 43,190 23,201 23,201 43,190
12 17,959 4,490 4,490 43,190 11,538 11,538 43,190 25,222 25,222 43,190
13 18,856 3,919 3,919 43,190 11,580 11,580 43,190 27,452 27,452 43,190
14 19,799 3,321 3,321 43,190 11,596 11,596 43,190 29,917 29,917 43,190
15 20,789 2,690 2,690 43,190 11,584 11,584 43,190 32,646 32,646 43,746
16 21,829 2,023 2,023 43,190 11,539 11,539 43,190 35,659 35,659 46,357
17 22,920 1,314 1,314 43,190 11,456 11,456 43,190 38,958 38,958 49,866
18 24,066 557 557 43,190 11,329 11,329 43,190 42,567 42,567 53,634
19 25,270 (*) (*) (*) 11,150 11,150 43,190 46,516 46,516 57,680
20 26,533 (*) (*) (*) 10,912 10,912 43,190 50,841 50,841 62,026
21 27,860 (*) (*) (*) 10,609 10,609 43,190 55,577 55,577 66,693
22 29,253 (*) (*) (*) 10,207 10,207 43,190 60,747 60,747 72,289
23 30,715 (*) (*) (*) 9,693 9,693 43,190 66,389 66,389 78,339
24 32,251 (*) (*) (*) 9,046 9,046 43,190 72,545 72,545 84,878
25 33,864 (*) (*) (*) 8,243 8,243 43,190 79,262 79,262 91,944
26 35,557 (*) (*) (*) 7,251 7,251 43,190 86,588 86,588 99,576
27 37,335 (*) (*) (*) 6,029 6,029 43,190 94,613 94,613 106,912
28 39,201 (*) (*) (*) 4,521 4,521 43,190 103,414 103,414 114,790
29 41,161 (*) (*) (*) 2,661 2,661 43,190 113,085 113,085 123,263
30 43,219 (*) (*) (*) 370 370 43,190 123,736 123,736 132,398
</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
<TABLE>
<CAPTION>
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,607 8,757 43,190 10,188 9,338 43,190 10,770 9,920 43,190
2 11,025 9,091 8,241 43,190 10,247 9,397 43,190 11,472 10,622 43,190
3 11,576 8,573 7,773 43,190 10,295 9,495 43,190 12,229 11,429 43,190
4 12,155 8,050 7,250 43,190 10,330 9,530 43,190 13,046 12,246 43,190
5 12,763 7,520 6,770 43,190 10,351 9,601 43,190 13,930 13,180 43,190
6 13,401 6,981 6,281 43,190 10,355 9,655 43,190 14,885 14,185 43,190
7 14,071 6,429 5,829 43,190 10,338 9,738 43,190 15,917 15,317 43,190
8 14,775 5,861 5,361 43,190 10,297 9,797 43,190 17,033 16,533 43,190
9 15,513 5,273 4,873 43,190 10,226 9,826 43,190 18,240 17,840 43,190
10 16,289 4,659 4,659 43,190 10,122 10,122 43,190 19,547 19,547 43,190
11 17,103 4,028 4,028 43,190 10,009 10,009 43,190 21,028 21,028 43,190
12 17,959 3,360 3,360 43,190 9,853 9,853 43,190 22,642 22,642 43,190
13 18,856 2,653 2,653 43,190 9,650 9,650 43,190 24,408 24,408 43,190
14 19,799 1,899 1,899 43,190 9,390 9,390 43,190 26,343 26,343 43,190
15 20,789 1,089 1,089 43,190 9,066 9,066 43,190 28,469 28,469 43,190
16 21,829 216 216 43,190 8,667 8,667 43,190 30,813 30,813 43,190
17 22,920 (*) (*) (*) 8,181 8,181 43,190 33,404 33,404 43,190
18 24,066 (*) (*) (*) 7,590 7,590 43,190 36,263 36,263 45,692
19 25,270 (*) (*) (*) 6,876 6,876 43,190 39,380 39,380 48,831
20 26,533 (*) (*) (*) 6,017 6,017 43,190 42,770 42,770 52,180
21 27,860 (*) (*) (*) 4,988 4,988 43,190 46,462 46,462 55,754
22 29,253 (*) (*) (*) 3,762 3,762 43,190 50,467 50,467 60,056
23 30,715 (*) (*) (*) 2,307 2,307 43,190 54,814 54,814 64,680
24 32,251 (*) (*) (*) 582 582 43,190 59,530 59,530 69,650
25 33,864 (*) (*) (*) (*) (*) (*) 64,645 64,645 74,988
26 35,557 (*) (*) (*) (*) (*) (*) 70,193 70,193 80,722
27 37,335 (*) (*) (*) (*) (*) (*) 76,248 76,248 86,161
28 39,201 (*) (*) (*) (*) (*) (*) 82,870 82,870 91,985
29 41,161 (*) (*) (*) (*) (*) (*) 90,128 90,128 98,240
30 43,219 (*) (*) (*) (*) (*) (*) 98,112 98,112 104,979
</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.
43
<PAGE> 47
<TABLE>
<CAPTION>
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,662 8,812 41,661 10,246 9,396 41,661 10,831 9,981 41,661
2 11,025 9,233 8,383 41,661 10,400 9,550 41,661 11,636 10,786 41,661
3 11,576 8,801 8,001 41,661 10,550 9,750 41,661 12,513 11,713 41,661
4 12,155 8,367 7,567 41,661 10,697 9,897 41,661 13,469 12,669 41,661
5 12,763 7,928 7,178 41,661 10,838 10,088 41,661 14,510 13,760 41,661
6 13,401 7,482 6,782 41,661 10,973 10,273 41,661 15,646 14,946 41,661
7 14,071 7,028 6,428 41,661 11,098 10,498 41,661 16,885 16,285 41,661
8 14,775 6,564 6,064 41,661 11,213 10,713 41,661 18,238 17,738 41,661
9 15,513 6,085 5,685 41,661 11,314 10,914 41,661 19,715 19,315 41,661
10 16,289 5,589 5,589 41,661 11,399 11,399 41,661 21,330 21,330 41,661
11 17,103 5,089 5,089 41,661 11,500 11,500 41,661 23,168 23,168 41,661
12 17,959 4,569 4,569 41,661 11,584 11,584 41,661 25,192 25,192 41,661
13 18,856 4,028 4,028 41,661 11,650 11,650 41,661 27,425 27,425 41,661
14 19,799 3,462 3,462 41,661 11,696 11,696 41,661 29,893 29,893 41,661
15 20,789 2,869 2,869 41,661 11,717 11,717 41,661 32,620 32,620 43,711
16 21,829 2,243 2,243 41,661 11,712 11,712 41,661 35,618 35,618 46,303
17 22,920 1,582 1,582 41,661 11,675 11,675 41,661 38,899 38,899 49,790
18 24,066 877 877 41,661 11,600 11,600 41,661 42,489 42,489 53,537
19 25,270 124 124 41,661 11,481 11,481 41,661 46,420 46,420 57,561
20 26,533 (*) (*) (*) 11,313 11,313 41,661 50,725 50,725 61,884
21 27,860 (*) (*) (*) 11,088 11,088 41,661 55,440 55,440 66,528
22 29,253 (*) (*) (*) 10,780 10,780 41,661 60,589 60,589 72,101
23 30,715 (*) (*) (*) 10,377 10,377 41,661 66,211 66,211 78,129
24 32,251 (*) (*) (*) 9,863 9,863 41,661 72,349 72,349 84,648
25 33,864 (*) (*) (*) 9,218 9,218 41,661 79,049 79,049 91,696
26 35,557 (*) (*) (*) 8,415 8,415 41,661 86,360 86,360 99,314
27 37,335 (*) (*) (*) 7,420 7,420 41,661 94,370 94,370 106,638
28 39,201 (*) (*) (*) 6,187 6,187 41,661 103,157 103,157 114,504
29 41,161 (*) (*) (*) 4,662 4,662 41,661 112,811 112,811 122,964
30 43,219 (*) (*) (*) 2,782 2,782 41,661 123,442 123,442 132,083
</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.
44
<PAGE> 48
<TABLE>
<CAPTION>
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,613 8,763 41,661 10,195 9,345 41,661 10,778 9,928 41,661
2 11,025 9,091 8,241 41,661 10,246 9,396 41,661 11,471 10,621 41,661
3 11,576 8,566 7,766 41,661 10,287 9,487 41,661 12,220 11,420 41,661
4 12,155 8,036 7,236 41,661 10,315 9,515 41,661 13,029 12,229 41,661
5 12,763 7,501 6,751 41,661 10,329 9,579 41,661 13,904 13,154 41,661
6 13,401 6,958 6,258 41,661 10,327 9,627 41,661 14,851 14,151 41,661
7 14,071 6,403 5,803 41,661 10,305 9,705 41,661 15,875 15,275 41,661
8 14,775 5,833 5,333 41,661 10,259 9,759 41,661 16,984 16,484 41,661
9 15,513 5,243 4,843 41,661 10,185 9,785 41,661 18,183 17,783 41,661
10 16,289 4,630 4,630 41,661 10,079 10,079 41,661 19,484 19,484 41,661
11 17,103 4,001 4,001 41,661 9,965 9,965 41,661 20,958 20,958 41,661
12 17,959 3,337 3,337 41,661 9,810 9,810 41,661 22,567 22,567 41,661
13 18,856 2,634 2,634 41,661 9,608 9,608 41,661 24,329 24,329 41,661
14 19,799 1,887 1,887 41,661 9,354 9,354 41,661 26,262 26,262 41,661
15 20,789 1,087 1,087 41,661 9,037 9,037 41,661 28,388 28,388 41,661
16 21,829 225 225 41,661 8,648 8,648 41,661 30,734 30,734 41,661
17 22,920 (*) (*) (*) 8,175 8,175 41,661 33,328 33,328 42,660
18 24,066 (*) (*) (*) 7,601 7,601 41,661 36,171 36,171 45,575
19 25,270 (*) (*) (*) 6,909 6,909 41,661 39,262 39,262 48,685
20 26,533 (*) (*) (*) 6,077 6,077 41,661 42,626 42,626 52,004
21 27,860 (*) (*) (*) 5,083 5,083 41,661 46,288 46,288 55,546
22 29,253 (*) (*) (*) 3,899 3,899 41,661 50,262 50,262 59,812
23 30,715 (*) (*) (*) 2,495 2,495 41,661 54,574 54,574 64,398
24 32,251 (*) (*) (*) 832 832 41,661 59,252 59,252 69,325
25 33,864 (*) (*) (*) (*) (*) (*) 64,327 64,327 74,620
26 35,557 (*) (*) (*) (*) (*) (*) 69,831 69,831 80,305
27 37,335 (*) (*) (*) (*) (*) (*) 75,838 75,838 85,697
28 39,201 (*) (*) (*) (*) (*) (*) 82,407 82,407 91,472
29 41,161 (*) (*) (*) (*) (*) (*) 89,608 89,608 97,672
30 43,219 (*) (*) (*) (*) (*) (*) 97,528 97,528 104,355
</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.
45
<PAGE> 49
<TABLE>
<CAPTION>
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,150 22,025 114,856 25,610 23,485 114,856 27,070 24,945 114,856
2 27,563 23,244 21,119 114,856 26,170 24,045 114,856 29,269 27,144 114,856
3 28,941 22,329 20,329 114,856 26,728 24,728 114,856 31,663 29,663 114,856
4 30,388 21,403 19,403 114,856 27,283 25,283 114,856 34,271 32,271 114,856
5 31,907 20,464 18,589 114,856 27,833 25,958 114,856 37,114 35,239 114,856
6 33,502 19,507 17,757 114,856 28,373 26,623 114,856 40,215 38,465 114,856
7 35,178 18,527 17,027 114,856 28,899 27,399 114,856 43,599 42,099 114,856
8 36,936 17,517 16,267 114,856 29,407 28,157 114,856 47,291 46,041 114,856
9 38,783 16,471 15,471 114,856 29,889 28,889 114,856 51,323 50,323 114,856
10 40,722 15,381 15,381 114,856 30,340 30,340 114,856 55,730 55,730 114,856
11 42,758 14,286 14,286 114,856 30,846 30,846 114,856 60,734 60,734 114,856
12 44,896 13,139 13,139 114,856 31,322 31,322 114,856 66,242 66,242 114,856
13 47,141 11,938 11,938 114,856 31,766 31,766 114,856 72,314 72,314 114,856
14 49,498 10,678 10,678 114,856 32,172 32,172 114,856 79,018 79,018 114,856
15 51,973 9,347 9,347 114,856 32,533 32,533 114,856 86,430 86,430 115,816
16 54,572 7,937 7,937 114,856 32,839 32,839 114,856 94,608 94,608 122,990
17 57,300 6,438 6,438 114,856 33,084 33,084 114,856 103,567 103,567 132,566
18 60,165 4,835 4,835 114,856 33,252 33,252 114,856 113,376 113,376 142,854
19 63,174 3,110 3,110 114,856 33,331 33,331 114,856 124,117 124,117 153,905
20 66,332 1,250 1,250 114,856 33,307 33,307 114,856 135,882 135,882 165,776
21 69,649 (*) (*) (*) 33,167 33,167 114,856 148,773 148,773 178,528
22 73,132 (*) (*) (*) 32,852 32,852 114,856 162,859 162,859 193,803
23 76,788 (*) (*) (*) 32,335 32,335 114,856 178,249 178,249 210,334
24 80,627 (*) (*) (*) 31,582 31,582 114,856 195,061 195,061 228,222
25 84,659 (*) (*) (*) 30,553 30,553 114,856 213,424 213,424 247,572
26 88,892 (*) (*) (*) 29,190 29,190 114,856 233,477 233,477 268,499
27 93,336 (*) (*) (*) 27,420 27,420 114,856 255,453 255,453 288,662
28 98,003 (*) (*) (*) 25,149 25,149 114,856 279,563 279,563 310,315
29 102,903 (*) (*) (*) 22,267 22,267 114,856 306,052 306,052 333,597
30 108,049 (*) (*) (*) 18,645 18,645 114,856 335,215 335,215 358,680
</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.
46
<PAGE> 50
<TABLE>
<CAPTION>
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 23,986 21,861 114,856 25,439 23,314 114,856 26,893 24,768 114,856
2 27,563 22,886 20,761 114,856 25,785 23,660 114,856 28,855 26,730 114,856
3 28,941 21,772 19,772 114,856 26,108 24,108 114,856 30,974 28,974 114,856
4 30,388 20,639 18,639 114,856 26,405 24,405 114,856 33,264 31,264 114,856
5 31,907 19,484 17,609 114,856 26,671 24,796 114,856 35,740 33,865 114,856
6 33,502 18,299 16,549 114,856 26,900 25,150 114,856 38,418 36,668 114,856
7 35,178 17,077 15,577 114,856 27,084 25,584 114,856 41,314 39,814 114,856
8 36,936 15,808 14,558 114,856 27,211 25,961 114,856 44,449 43,199 114,856
9 38,783 14,478 13,478 114,856 27,271 26,271 114,856 47,841 46,841 114,856
10 40,722 13,080 13,080 114,856 27,252 27,252 114,856 51,518 51,518 114,856
11 42,758 11,635 11,635 114,856 27,224 27,224 114,856 55,675 55,675 114,856
12 44,896 10,093 10,093 114,856 27,095 27,095 114,856 60,212 60,212 114,856
13 47,141 8,443 8,443 114,856 26,855 26,855 114,856 65,178 65,178 114,856
14 49,498 6,670 6,670 114,856 26,485 26,485 114,856 70,627 70,627 114,856
15 51,973 4,750 4,750 114,856 25,961 25,961 114,856 76,618 76,618 114,856
16 54,572 2,661 2,661 114,856 25,260 25,260 114,856 83,226 83,226 114,856
17 57,300 376 376 114,856 24,351 24,351 114,856 90,539 90,539 115,890
18 60,165 (*) (*) (*) 23,193 23,193 114,856 98,577 98,577 124,207
19 63,174 (*) (*) (*) 21,739 21,739 114,856 107,322 107,322 133,080
20 66,332 (*) (*) (*) 19,937 19,937 114,856 116,838 116,838 142,542
21 69,649 (*) (*) (*) 17,729 17,729 114,856 127,197 127,197 152,637
22 73,132 (*) (*) (*) 15,048 15,048 114,856 138,440 138,440 164,743
23 76,788 (*) (*) (*) 11,819 11,819 114,856 150,639 150,639 177,754
24 80,627 (*) (*) (*) 7,945 7,945 114,856 163,876 163,876 191,735
25 84,659 (*) (*) (*) 3,298 3,298 114,856 178,237 178,237 206,755
26 88,892 (*) (*) (*) (*) (*) (*) 193,811 193,811 222,883
27 93,336 (*) (*) (*) (*) (*) (*) 210,810 210,810 238,215
28 98,003 (*) (*) (*) (*) (*) (*) 229,396 229,396 254,630
29 102,903 (*) (*) (*) (*) (*) (*) 249,769 249,769 272,248
30 108,049 (*) (*) (*) (*) (*) (*) 272,174 272,174 291,226
</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.
47
<PAGE> 51
<TABLE>
<CAPTION>
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,739 88,239 306,283 102,589 94,089 306,283 108,440 99,940 306,283
2 110,250 93,383 84,883 306,283 105,137 96,637 306,283 117,585 109,085 306,283
3 115,763 89,974 81,974 306,283 107,694 99,694 306,283 127,568 119,568 306,283
4 121,551 86,501 78,501 306,283 110,252 102,252 306,283 138,476 130,476 306,283
5 127,628 82,946 75,446 306,283 112,803 105,303 306,283 150,407 142,907 306,283
6 134,010 79,293 72,293 306,283 115,336 108,336 306,283 163,474 156,474 306,283
7 140,710 75,523 69,523 306,283 117,841 111,841 306,283 177,802 171,802 306,283
8 147,746 71,608 66,608 306,283 120,302 115,302 306,283 193,535 188,535 306,283
9 155,133 67,519 63,519 306,283 122,700 118,700 306,283 210,839 206,839 306,283
10 162,889 63,229 63,229 306,283 125,021 125,021 306,283 229,907 229,907 306,283
11 171,034 58,892 58,892 306,283 127,633 127,633 306,283 251,719 251,719 306,283
12 179,586 54,277 54,277 306,283 130,163 130,163 306,283 275,838 275,838 328,247
13 188,565 49,358 49,358 306,283 132,599 132,599 306,283 302,264 302,264 356,672
14 197,993 44,099 44,099 306,283 134,926 134,926 306,283 331,200 331,200 387,504
15 207,893 38,450 38,450 306,283 137,120 137,120 306,283 362,883 362,883 420,944
16 218,287 32,346 32,346 306,283 139,149 139,149 306,283 397,573 397,573 457,209
17 229,202 25,701 25,701 306,283 140,972 140,972 306,283 435,649 435,649 492,283
18 240,662 18,410 18,410 306,283 142,534 142,534 306,283 477,469 477,469 529,991
19 252,695 10,359 10,359 306,283 143,780 143,780 306,283 523,444 523,444 570,554
20 265,330 1,439 1,439 306,283 144,661 144,661 306,283 574,048 574,048 614,231
21 278,596 (*) (*) (*) 145,132 145,132 306,283 629,829 629,829 661,320
22 292,526 (*) (*) (*) 144,926 144,926 306,283 690,887 690,887 725,432
23 307,152 (*) (*) (*) 143,931 143,931 306,283 757,697 757,697 795,582
24 322,510 (*) (*) (*) 142,010 142,010 306,283 830,766 830,766 872,304
25 338,635 (*) (*) (*) 138,970 138,970 306,283 910,637 910,637 956,169
26 355,567 (*) (*) (*) 134,551 134,551 306,283 997,885 997,885 1,047,779
27 373,346 (*) (*) (*) 128,402 128,402 306,283 1,093,114 1,093,114 1,147,770
28 392,013 (*) (*) (*) 120,049 120,049 306,283 1,196,957 1,196,957 1,256,805
29 411,614 (*) (*) (*) 108,884 108,884 306,283 1,310,077 1,310,077 1,375,581
30 432,194 (*) (*) (*) 94,130 94,130 306,283 1,433,178 1,433,178 1,504,837
</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.
48
<PAGE> 52
<TABLE>
<CAPTION>
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,852 87,352 306,283 101,673 93,173 306,283 107,496 98,996 306,283
2 110,250 91,521 83,021 306,283 103,163 94,663 306,283 115,497 106,997 306,283
3 115,763 87,064 79,064 306,283 104,532 96,532 306,283 124,141 116,141 306,283
4 121,551 82,453 74,453 306,283 105,756 97,756 306,283 133,492 125,492 306,283
5 127,628 77,655 70,155 306,283 106,805 99,305 306,283 143,622 136,122 306,283
6 134,010 72,629 65,629 306,283 107,648 100,648 306,283 154,616 147,616 306,283
7 140,710 67,333 61,333 306,283 108,247 102,247 306,283 166,572 160,572 306,283
8 147,746 61,704 56,704 306,283 108,548 103,548 306,283 179,600 174,600 306,283
9 155,133 55,671 51,671 306,283 108,493 104,493 306,283 193,836 189,836 306,283
10 162,889 49,165 49,165 306,283 108,021 108,021 306,283 209,448 209,448 306,283
11 171,034 42,244 42,244 306,283 107,394 107,394 306,283 227,322 227,322 306,283
12 179,586 34,672 34,672 306,283 106,231 106,231 306,283 247,172 247,172 306,283
13 188,565 26,361 26,361 306,283 104,455 104,455 306,283 269,279 269,279 317,749
14 197,993 17,197 17,197 306,283 101,967 101,967 306,283 293,468 293,468 343,358
15 207,893 7,028 7,028 306,283 98,637 98,637 306,283 319,774 319,774 370,937
16 218,287 (*) (*) (*) 94,291 94,291 306,283 348,374 348,374 400,630
17 229,202 (*) (*) (*) 88,701 88,701 306,283 379,619 379,619 428,970
18 240,662 (*) (*) (*) 81,573 81,573 306,283 413,798 413,798 459,316
19 252,695 (*) (*) (*) 72,547 72,547 306,283 451,258 451,258 491,871
20 265,330 (*) (*) (*) 61,209 61,209 306,283 492,415 492,415 526,884
21 278,596 (*) (*) (*) 47,072 47,072 306,283 537,777 537,777 564,666
22 292,526 (*) (*) (*) 29,542 29,542 306,283 587,126 587,126 616,482
23 307,152 (*) (*) (*) 7,877 7,877 306,283 640,781 640,781 672,820
24 322,510 (*) (*) (*) (*) (*) (*) 699,082 699,082 734,036
25 338,635 (*) (*) (*) (*) (*) (*) 762,382 762,382 800,501
26 355,567 (*) (*) (*) (*) (*) (*) 831,040 831,040 872,592
27 373,346 (*) (*) (*) (*) (*) (*) 905,421 905,421 950,692
28 392,013 (*) (*) (*) (*) (*) (*) 985,884 985,884 1,035,178
29 411,614 (*) (*) (*) (*) (*) (*) 1,072,794 1,072,794 1,126,434
30 432,194 (*) (*) (*) (*) (*) (*) 1,166,530 1,166,530 1,224,857
</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.
49
<PAGE> 53
<TABLE>
<CAPTION>
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,411 87,911 211,021 102,271 93,771 211,021 108,132 99,632 211,021
2 110,250 92,664 84,164 211,021 104,469 95,969 211,021 116,975 108,475 211,021
3 115,763 88,792 80,792 211,021 106,641 98,641 211,021 126,678 118,678 211,021
4 121,551 84,775 76,775 211,021 108,780 100,780 211,021 137,358 129,358 211,021
5 127,628 80,584 73,084 211,021 110,878 103,378 211,021 149,147 141,647 211,021
6 134,010 76,184 69,184 211,021 112,920 105,920 211,021 162,201 155,201 211,021
7 140,710 71,529 65,529 211,021 114,888 108,888 211,021 176,706 170,706 211,021
8 147,746 66,561 61,561 211,021 116,756 111,756 211,021 192,884 187,884 214,101
9 155,133 61,220 57,220 211,021 118,501 114,501 211,021 210,796 206,796 229,767
10 162,889 55,443 55,443 211,021 120,105 120,105 211,021 230,457 230,457 246,589
11 171,034 49,332 49,332 211,021 121,925 121,925 211,021 252,818 252,818 265,459
12 179,586 42,435 42,435 211,021 123,489 123,489 211,021 277,294 277,294 291,159
13 188,565 34,621 34,621 211,021 124,760 124,760 211,021 304,076 304,076 319,280
14 197,993 25,730 25,730 211,021 125,694 125,694 211,021 333,367 333,367 350,036
15 207,893 15,545 15,545 211,021 126,223 126,223 211,021 365,385 365,385 383,654
16 218,287 3,772 3,772 211,021 126,257 126,257 211,021 400,359 400,359 420,377
17 229,202 (*) (*) (*) 125,669 125,669 211,021 438,533 438,533 460,460
18 240,662 (*) (*) (*) 124,291 124,291 211,021 480,160 480,160 504,168
19 252,695 (*) (*) (*) 121,913 121,913 211,021 525,506 525,506 551,781
20 265,330 (*) (*) (*) 118,269 118,269 211,021 574,852 574,852 603,594
21 278,596 (*) (*) (*) 113,027 113,027 211,021 628,499 628,499 659,924
22 292,526 (*) (*) (*) 105,596 105,596 211,021 686,715 686,715 721,051
23 307,152 (*) (*) (*) 95,309 95,309 211,021 749,817 749,817 787,307
24 322,510 (*) (*) (*) 81,237 81,237 211,021 818,129 818,129 859,036
25 338,635 (*) (*) (*) 62,036 62,036 211,021 891,982 891,982 936,581
26 355,567 (*) (*) (*) 35,735 35,735 211,021 971,700 971,700 1,020,285
27 373,346 (*) (*) (*) (*) (*) (*) 1,059,640 1,059,640 1,102,026
28 392,013 (*) (*) (*) (*) (*) (*) 1,157,081 1,157,081 1,191,794
29 411,614 (*) (*) (*) (*) (*) (*) 1,265,587 1,265,587 1,290,898
30 432,194 (*) (*) (*) (*) (*) (*) 1,387,129 1,387,129 1,401,000
</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.
50
<PAGE> 54
<TABLE>
<CAPTION>
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,034 86,534 211,021 100,868 92,368 211,021 106,704 98,204 211,021
2 110,250 89,719 81,219 211,021 101,432 92,932 211,021 113,852 105,352 211,021
3 115,763 84,082 76,082 211,021 101,737 93,737 211,021 121,598 113,598 211,021
4 121,551 78,062 70,062 211,021 101,741 93,741 211,021 130,038 122,038 211,021
5 127,628 71,581 64,081 211,021 101,390 93,890 211,021 139,285 131,785 211,021
6 134,010 64,533 57,533 211,021 100,607 93,607 211,021 149,475 142,475 211,021
7 140,710 56,782 50,782 211,021 99,297 93,297 211,021 160,780 154,780 211,021
8 147,746 48,149 43,149 211,021 97,330 92,330 211,021 173,422 168,422 211,021
9 155,133 38,424 34,424 211,021 94,556 90,556 211,021 187,699 183,699 211,021
10 162,889 27,369 27,369 211,021 90,802 90,802 211,021 203,946 203,946 218,222
11 171,034 14,785 14,785 211,021 86,146 86,146 211,021 222,686 222,686 233,820
12 179,586 260 260 211,021 80,087 80,087 211,021 243,073 243,073 255,226
13 188,565 (*) (*) (*) 72,333 72,333 211,021 265,238 265,238 278,500
14 197,993 (*) (*) (*) 62,500 62,500 211,021 289,323 289,323 303,789
15 207,893 (*) (*) (*) 50,057 50,057 211,021 315,472 315,472 331,246
16 218,287 (*) (*) (*) 34,257 34,257 211,021 343,835 343,835 361,027
17 229,202 (*) (*) (*) 14,056 14,056 211,021 374,561 374,561 393,289
18 240,662 (*) (*) (*) (*) (*) (*) 407,800 407,800 428,190
19 252,695 (*) (*) (*) (*) (*) (*) 443,702 443,702 465,887
20 265,330 (*) (*) (*) (*) (*) (*) 482,423 482,423 506,544
21 278,596 (*) (*) (*) (*) (*) (*) 524,126 524,126 550,332
22 292,526 (*) (*) (*) (*) (*) (*) 568,982 568,982 597,431
23 307,152 (*) (*) (*) (*) (*) (*) 617,167 617,167 648,026
24 322,510 (*) (*) (*) (*) (*) (*) 668,864 668,864 702,308
25 338,635 (*) (*) (*) (*) (*) (*) 724,248 724,248 760,460
26 355,567 (*) (*) (*) (*) (*) (*) 783,477 783,477 822,651
27 373,346 (*) (*) (*) (*) (*) (*) 849,021 849,021 882,982
28 392,013 (*) (*) (*) (*) (*) (*) 921,956 921,956 949,615
29 411,614 (*) (*) (*) (*) (*) (*) 1,003,596 1,003,596 1,023,667
30 432,194 (*) (*) (*) (*) (*) (*) 1,095,621 1,095,621 1,106,577
</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.
51
<PAGE> 55
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide VLI Separate Account-3:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account-3 as of December 31,
1997, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the transfer agents of the
underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VLI Separate Account-3 as of December 31, 1997, and the
results of its operations and its changes in contract owners' equity and
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1998
<PAGE> 2
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
American Century VP - American Century VP Advantage (ACVPAdv)
129,722 shares (cost $719,633) ................................................ $ 856,167
American Century VP - American Century VP Balanced (ACVPBal)
2,433 shares (cost $17,449) ................................................... 20,045
American Century VP - American Century VP Capital Appreciation (ACVPCapAp)
7,094 shares (cost $74,200) ................................................... 68,673
American Century VP - American Century VP International (ACVPInt)
4,061 shares (cost $23,401) ................................................... 27,779
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
1,715 shares (cost $33,294) ................................................... 42,817
Dreyfus Stock Index Fund (DryStkIx)
12,831 shares (cost $258,979) ................................................. 330,411
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
374 shares (cost $10,434) ..................................................... 10,432
Dreyfus VIF - Growth and Income Portfolio (DryGrInc)
40 shares (cost $886) ......................................................... 838
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
20,469 shares (cost $416,354) ................................................. 496,978
Fidelity VIP - Growth Portfolio (FidVIPGr)
11,224 shares (cost $338,461) ................................................. 416,428
Fidelity VIP - High Income Portfolio (FidVIPHI)
4,309 shares (cost $52,212) ................................................... 58,519
Fidelity VIP - Overseas Portfolio (FidVIPOv)
905 shares (cost $16,108) ..................................................... 17,377
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
6,727 shares (cost $104,062) .................................................. 121,147
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
17,676 shares (cost $285,823) ................................................. 352,462
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
292,838 shares (cost $3,699,741) .............................................. 6,211,085
Nationwide SAT - Government Bond Fund (NSATGvtBd)
143,822 shares (cost $1,566,643) .............................................. 1,636,693
Nationwide SAT - Money Market Fund (NSATMyMkt)
352,888 shares (cost $352,888) ................................................ 352,888
Nationwide SAT - Small Company Fund (NSATSmCo)
3,833 shares (cost $53,202) ................................................... 60,756
Nationwide SAT - Total Return Fund (NSATTotRe)
994,142 shares (cost $11,255,329) ............................................. 16,284,051
Neuberger & Berman AMT - Balanced Portfolio (NBAMTBal)
78,073 shares (cost $1,203,317) ............................................... 1,389,702
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Neuberger & Berman AMT - Growth Portfolio (NBAMTGro)
1,895 shares (cost $50,274) ........................................................ 57,882
Neuberger & Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat)
709 shares (cost $9,831) ........................................................... 10,012
Neuberger & Berman AMT - Partners Portfolio (NBAMTPart)
6,502 shares (cost $106,327) ....................................................... 133,940
Oppenheimer VAF - Bond Fund (OppBdFd)
346 shares (cost $4,044) ........................................................... 4,115
Oppenheimer VAF - Global Securities Fund (OppGISec)
2,647 shares (cost $46,783) ........................................................ 56,568
Oppenheimer VAF - Growth Fund (OppGro)
15 shares (cost $501) .............................................................. 500
Oppenheimer VAF - Multiple Strategies Fund (OppMult)
455 shares (cost $6,950) ........................................................... 7,736
Strong Opportunity Fund II, Inc. (StOpp2)
5,303 shares (cost $97,249) ........................................................ 115,069
Strong VIF - Strong Discovery Fund II (StDisc2)
2,667 shares (cost $29,763) ........................................................ 32,090
Strong VIF - Strong International Stock Fund II (StIntStk2)
1,272 shares (cost $14,318) ........................................................ 11,855
Van Eck WIT - Worldwide Bond Fund (VEWrldBd)
146 shares (cost $1,557) ........................................................... 1,607
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
799 shares (cost $11,076) .......................................................... 8,786
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
1,025 shares (cost $16,909) ........................................................ 16,109
Van Kampen American Capital LIT -
Morgan Stanley Real Estate Securities Portfolio (MSRESec)
1,320 shares (cost $20,609) ........................................................ 20,921
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
2,296 shares (cost $27,098)......................................................... 24,081
Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr)
3,297 shares (cost $44,877) ........................................................ 54,335
------------
Total assets .................................................................... 29,310,854
ACCOUNTS PAYABLE ............................................................................ 248
------------
CONTRACT OWNERS' EQUITY (NOTE 8) ............................................................ $ 29,310,606
============
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 452,251 447,134 455,368
Mortality and expense charges (note 3) ........ (208,160) (159,468) (119,641)
------------ ----------- -----------
Net investment activity .................... 244,091 287,666 335,727
------------ ----------- -----------
Proceeds from mutual fund shares sold ......... 2,224,444 1,904,080 2,252,228
Cost of mutual funds sold ..................... (1,729,172) (1,696,815) (2,113,393)
------------ ----------- -----------
Realized gain on investments ............... 495,272 207,265 138,835
Change in unrealized gain on investments ...... 4,439,699 2,051,092 2,274,433
------------ ----------- -----------
Net gain on investments .................... 4,934,971 2,258,357 2,413,268
------------ ----------- -----------
Reinvested capital gains ...................... 845,589 830,186 629,145
------------ ----------- -----------
Net increase in contract owners'
equity resulting from operations ..... 6,024,651 3,376,209 3,378,140
------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners 4,453,849 4,940,306 4,661,075
Surrenders .................................... (747,816) (641,251) (427,125)
Death benefits (note 4) ....................... (28,333) (6,306) (11,836)
Policy loans (net of repayments) (note 5) ..... (891,821) (635,496) (212,115)
Deductions for surrender charges (note 2d) .... (166,341) (145,828) (71,008)
Redemptions to pay cost of insurance charges
and administration charges (notes 2b and 2c) (2,036,264) (2,089,346) (2,073,851)
------------ ----------- -----------
Net increase in equity transactions ..... 583,274 1,422,079 1,865,140
------------ ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ 6,607,925 4,798,288 5,243,280
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... 22,702,681 17,904,393 12,661,113
------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ $ 29,310,606 22,702,681 17,904,393
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLI Separate Account-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 American Century VP - American Century VP
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 offered for purchase. See note 2 for a
discussion of policy charges and note 3 for asset charges.
Contract owners may invest in the following funds:
Portfolios of the American Century Variable Portfolios, Inc. (American
Century VP) (formerly TCI Portfolios, Inc.);
American Century VP - American Century VP Advantage (ACVPAdv)
(formerly TCI Portfolios - TCI Advantage)
American Century VP - American Century VP Balanced (ACVPBal)
(formerly TCI Portfolios - TCI Balanced)
American Century VP - American Century VP Capital Appreciation
(ACVPCapAp) (formerly TCI Portfolios - TCI Growth)
American Century VP - American Century VP International (ACVPInt)
(formerly TCI Portfolios - TCI International)
American Century VP - American Century VP Value (ACVPValue)
(formerly TCI Portfolios - TCI Value)
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)
Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
Dreyfus VIF - Growth and Income Portfolio (DryGrInc)
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity
VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - Growth Portfolio (FidVIPGr)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Fidelity VIP - Overseas Portfolio (FidVIPOv)
Portfolios of the Fidelity Variable Insurance Products Fund II
(Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
Portfolio of the Fidelity Variable Insurance Products Fund III
(Fidelity VIP-III);
Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp)
<PAGE> 6
Portfolio of the Morgan Stanley Universal Funds, Inc. (Morgan Stanley);
Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Small Company Fund (NSATSmCo)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolios of the Neuberger & Berman Advisers Management Trust
(Neuberger & Berman AMT);
Neuberger & Berman AMT - Balanced Portfolio (NBAMTBal)
Neuberger & Berman AMT - Growth Portfolio (NBAMTGro)
Neuberger & Berman AMT - Limited Maturity Bond Portfolio
(NBAMTLMat)
Neuberger & Berman AMT - Partners Portfolio (NBAMTPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer VAF);
Oppenheimer VAF - Bond Fund (OppBdFd)
Oppenheimer VAF - Global Securities Fund (OppGlSec)
Oppenheimer VAF - Growth Fund (OppGro)
Oppenheimer VAF - Multiple Strategies Fund (OppMult)
Strong Opportunity Fund II, Inc. (StOpp2) (formerly Strong Special Fund
II, Inc.)
Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF);
Strong VIF - Strong Discovery Fund II (StDisc2)
Strong VIF - Strong International Stock Fund II (StIntStk2)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT);
Van Eck WIT - Worldwide Bond Fund (VEWrldBd)
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
(formerly Van Eck WIT - Gold and Natural Resources Fund)
Portfolio of the Van Kampen American Capital Life Investment Trust (Van
Kampen American Capital LIT);
Van Kampen American Capital LIT - Morgan Stanley Real Estate
Securities Portfolio (MSRESec)
(formerly Van Kampen American Capital LIT - Real Estate
Securities Fund)
Portfolios of the Warburg Pincus Trust;
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap)
Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1997, contract owners have invested in all of the above
funds except for American Century VP - American Century VP Value,
Fidelity VIP-III - Growth Opportunities Portfolio, Morgan Stanley -
Emerging Markets Debt Portfolio and Warburg Pincus Trust - Post Venture
Capital Portfolio. The contract owners' equity is affected by the
investment results of each fund, equity transactions by contract owners
and certain policy charges (see notes 2 and 3). The accompanying
financial statements include only contract owners' purchase payments
pertaining to the variable portions of their contracts and exclude any
purchase payments for fixed dollar benefits, the latter being included
in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income.
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1997. The cost of investments
sold is determined on the 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.
<PAGE> 7
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if
any, at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(f) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform with
the current period presentation.
(2) POLICY CHARGES
(a) Deductions from 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).
(c) Administrative Charges
For flexible premium contracts, the Company currently deducts a monthly
administrative charge of $12.50 during the first policy year and $5 per
month thereafter (may deduct up to $7.50, maximum) to recover policy
maintenance, accounting, record keeping and other administrative
expenses. Additionally, the Company deducts an increase charge of $2.04
per year per $1,000 applied to any increase in the specified amount
during the first 12 months after the increase becomes effective.
The above charges are assessed against each contract by liquidating
units.
(d) Surrender Charges
Policy surrenders result in a redemption of the contract value from the
Account and payment of the surrender proceeds to the contract owner or
designee. The surrender proceeds consist of the contract value, less
any outstanding policy loans, and less a surrender charge, if
applicable. The 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. On each policy anniversary beginning with the 10th, this charge
is reduced to 0.50% on an annual basis provided that the cash surrender
value of the contract is $25,000 or more on such anniversary. This charge
is assessed through the unit value calculation.
(4) DEATH BENEFITS
Death benefits result in a redemption of the contract value from the
Account and payment of the death benefit proceeds, less any outstanding
policy loans and policy charges, to the legal beneficiary. The excess of
the death benefit proceeds over the contract value on the date of death is
paid by the Company's general account.
<PAGE> 8
(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 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 including interest back to the Account.
(6) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
(7) SCHEDULE I
Schedule I presents the components of the change in the unit values,
which are the basis for contract owners' equity. This schedule is
presented in the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gain and dividend distributions from the underlying
mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit
value resulting from the market appreciation (depreciation) of
the underlying mutual funds.)
- Asset charges
(This amount reflects the decrease in the unit value due to
the charge discussed in note 3.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
<PAGE> 9
(8) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1997.
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
-------- ---------- --------
<S> <C> <C> <C> <C>
American Century VP -
American Century VP Advantage ............. 27,087 $15.906088 $ 430,848 12%
American Century VP -
American Century VP Advantage
Initial Funding by Depositor (note 1a) .. 25,000 17.013707 425,343 13%
American Century VP -
American Century VP Balanced .............. 1,192 16.822481 20,052 15%
American Century VP -
American Century VP Capital Appreciation .. 4,670 14.709822 68,695 (4)%
American Century VP -
American Century VP International ......... 1,983 13.994328 27,751 18%
The Dreyfus Socially Responsible
Growth Fund, Inc. ......................... 1,942 22.067304 42,855 27%
Dreyfus Stock Index Fund ................... 14,960 22.086039 330,407 32%
Dreyfus VIF - Capital Appreciation Portfolio 1,021 10.216196 10,431 2%(a)
Dreyfus VIF - Growth and Income Portfolio .. 73 11.514756 841 15%
Fidelity VIP - Equity-Income Portfolio ..... 15,527 32.007773 496,985 27%
Fidelity VIP - Growth Portfolio ............ 14,055 29.627929 416,421 22%
Fidelity VIP - High Income Portfolio ....... 2,126 27.535006 58,539 17%
Fidelity VIP - Overseas Portfolio .......... 1,025 16.959418 17,383 11%
Fidelity VIP-II - Asset Manager Portfolio .. 5,568 21.747656 121,091 20%
Fidelity VIP-II - Contrafund Portfolio ..... 21,431 16.448700 352,512 23%
Nationwide SAT - Capital Appreciation Fund . 252,861 24.563746 6,211,213 33%
Nationwide SAT - Government Bond Fund ...... 97,797 16.735906 1,636,721 9%
Nationwide SAT - Money Market Fund ......... 27,608 12.754301 352,121 4%
Nationwide SAT - Small Company Fund ........ 3,751 16.199871 60,766 16%
Nationwide SAT - Total Return Fund ......... 576,775 28.233403 16,284,321 28%
Neuberger & Berman AMT - Balanced Portfolio 78,124 17.788645 1,389,720 19%
Neuberger & Berman AMT - Growth Portfolio .. 2,617 22.117203 57,881 28%
Neuberger & Berman AMT -
Limited Maturity Bond Portfolio ........... 698 14.349688 10,016 6%
</TABLE>
(Continued)
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C>
Neuberger & Berman AMT - Partners Portfolio ... 5,889 22.746051 133,951 30%
Oppenheimer VAF - Bond Fund ................... 239 17.086434 4,084 8%
Oppenheimer VAF - Global Securities Fund ...... 3,451 16.380762 56,530 22%
Oppenheimer VAF - Growth Fund ................. 48 10.452595 502 5%(a)
Oppenheimer VAF - Multiple Strategies Fund .... 360 21.450954 7,722 16%
Strong Opportunity Fund II, Inc. .............. 4,286 26.851737 115,087 24%
Strong VIF - Strong Discovery Fund II ......... 1,759 18.249145 32,100 11%
Strong VIF - Strong International Stock Fund II 1,233 9.615755 11,856 (14)%
Van Eck WIT - Worldwide Bond Fund ............. 117 13.690999 1,602 2%
Van Eck WIT -
Worldwide Emerging Markets Fund .............. 992 8.838307 8,768 (12)%
Van Eck WIT - Worldwide Hard Assets Fund ...... 904 17.834480 16,122 (2)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio ......................... 1,156 18.130321 20,959 21%
Warburg Pincus Trust -
International Equity Portfolio ............... 2,130 11.306660 24,083 (3)%
Warburg Pincus Trust -
Small Company Growth Portfolio ............... 3,363 16.154327 54,327 15%
====== ========== ------------
$ 29,310,606
============
</TABLE>
(a) This investment option was not being utilized for the entire period.
<PAGE> 11
Schedule I
NATIONWIDE VLI SEPARATE ACCOUNT-3
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
ACVPAdv ACVPAdv+ ACVPBal ACVPCapAp ACVPInt
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997***
Beginning unit value - Jan. 1 $ 14.210999 15.079515 14.642920 15.327392 11.890858
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .999595 1.062482 .824605 .309262 .408237
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... .816206 .871710 1.481680 (.805571) 1.802759
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.120712) .000000 (.126724) (.121261) (.107526)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 15.906088 17.013707 16.822481 14.709822 13.994328
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 12% 13% 15% (4)% 18%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 13.112917 13.802855 13.155049 16.149061 10.477472
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .945920 .998314 .622373 1.812196 .249286
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... .260998 .278346 .976138 (2.505020) 1.252389
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.108836) .000000 (.110640) (.128845) (.088289)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 14.210999 15.079515 14.642920 15.327392 11.890858
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 8% 9% 11% (5)% 13%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 $ 11.321934 11.822996 12.526705 15.745499 10.216142
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .411556 .431938 .187655 .000000 .000000
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 1.477165 1.547921 .482910 .457100 .294719
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.097738) .000000 (.042221) (.053538) (.033389)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 13.112917 13.802855 13.155049 16.149061 10.477472
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 16% 17% 5%(b) 3%(b) 3%(b)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DrySRGro DryStkIx DryCapAp DryGrInc FidVIPEI
----------- ------------ ------------ ------------ ------------
<S> <S> <C> <C> <C> <C>
1997***
Beginning unit value - Jan. 1 17.319589 16.744674 10.000000 9.988034 25.185570
----------- ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .711304 .963779 .084621 .953991 2.596690
----------- ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 4.197125 4.535869 .168989 .659188 4.456322
----------- ------------ ------------ ------------ ------------
Asset charges ................ (.160714) (.158283) (.037414) (.086457) (.230809)
----------- ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 22.067304 22.086039 10.216196 11.514756 32.007773
----------- ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 27% 32% 2%(b) 15% 27%
=========== =========== ============ =========== ============
1996
Beginning unit value - Jan. 1 14.401809 13.775382 ** ** 22.215745
----------- ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .747630 .596225 1.025291
----------- ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 2.296912 2.494042 2.132663
----------- ------------ ------------ ------------ ------------
Asset charges ................ (.126762) (.120975) (.188129)
----------- ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 17.319588 16.744674 25.185570
----------- ------------ ------------ ----------- ------------
Percentage increase (decrease)
in unit value*(a) ............ 20% 22% 13%
=========== ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 13.083801 12.456650 ** ** 19.991986
---------- ------------ ---------- ----------- -------------
Reinvested capital gains
and dividends ................ .396430 .239425 .229029
----------- ------------ --------- ----------- ------------
Unrealized gain (loss) ....... .967071 1.122261 2.063681
---------- ------------ ---------- ------------ ------------
Asset charges ................ (.45493) (.042954) (.068951)
----------- ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 14.401809 13.775382 22.215745
---------- ------------ ------------ ------------ ------------
10%(b) 11%(b) 11%(b)
========== ============ ============ ============ ============
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 utilized or was not available.
*** No other investment options were being utilized.
+ For Depositor, see note 1a.
<PAGE> 12
Schedule I, continued
NATIONWIDE VLI SEPARATE ACCOUNT-3
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
FidVIPGr FidVIPHI FidVIPOv FidVIPAM FidVIPCon
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997***
Beginning unit value - Jan. 1 $ 24.186560 23.588786 15.324813 18.169993 13.356323
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .892486 1.882562 1.332926 2.219812 .411003
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 4.767095 2.267847 .436152 1.518239 2.801162
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.218212) (.204189) (.134473) (.160388) (.119788)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 29.627929 27.535006 16.959418 21.747656 16.448700
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 22% 17% 11% 20% 23%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 21.256059 20.852993 13.645033 15.982529 11.099135
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ 1.527554 1.902180 .335875 1.051899 .104631
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 1.587071 1.012148 1.459385 1.270941 2.248711
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.184124) (.178535) (.115480) (.135376) (.096154)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 24.186560 23.588786 15.324813 18.169993 13.356323
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 14% 13% 12% 14% 20%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 $ 21.077777 19.897254 13.633767 15.029765 10.655665
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .000000 .000000 .000000 .000000 .143118
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... .249916 1.022818 .055055 1.003384 .336322
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.071634) (.067079) (.043789) (.050620) (.035970)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 21.256059 20.852993 13.645033 15.982529 11.099135
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 1%(b) 5%(b) 0%(b) 6%(b) 4%(b)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NSATCapAp NSATGvtBd NSATMyMkt NSATSmCo NSATTotRe
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997***
Beginning unit value - Jan. 1 18.410667 15.383251 12.214743 13.915643 21.988773
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .749108 .983193 .640005 .442290 1.284328
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 5.577539 .496554 .000000 1.962570 5.164704
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.173568) (.127092) (.100447) (.120632) (.204402)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 24.563746 16.735906 12.754301 16.199871 28.233403
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 33% 9% 4% 16% 28%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 14.713230 14.984933 11.714295 11.420759 18.192762
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .766553 .930103 .596995 .133983 1.217547
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 3.061949 (.412550) .000000 2.463983 2.737018
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.131065) (.119235) (.096547) (.103082) (.158554)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 18.410667 15.383251 12.214743 13.915643 21.988773
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 25% 3% 4% 22% 21%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 11.465403 12.720514 11.176411 10.000000 14.205723
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .653781 .903001 .629782 .017475 1.413734
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 2.696528 1.472503 .000000 1.418968 2.703396
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.102482) (.111085) (.091898) (.015684) (.130091)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 14.713230 14.984933 11.714295 11.420759 18.192762
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 28% 18% 5% 14%(b) 28%
============ ============ ============ ============ ============
</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 utilized or was not available.
*** No other investment options were being utilized.
<PAGE> 13
Schedule I, continued
NATIONWIDE VLI SEPARATE ACCOUNT-3
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
NBAMTBal NBAMTGro NBAMTLMat NBAMTPart OppBdFd
------------ ------------ ------------ ------------ ------------
1997***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $ 15.011230 17.282005 13.551318 17.469360 15.764821
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ 1.007641 1.519798 .799524 .868124 1.051063
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 1.902952 3.476793 .110278 4.571636 .400626
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.133178) (.161393) (.111432) (.163069) (.130076)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 17.788645 22.117203 14.349688 22.746051 17.086434
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 19% 28% 6% 30% 8%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 14.157643 15.962482 13.096811 13.591346 15.164813
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ 2.170851 1.448641 1.102543 .554011 .975830
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... (1.201214) .003774 (.542247) 3.446498 (.253799)
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.116050) (.132892) (.105789) (.122495) (.122023)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 15.011230 17.282005 13.551318 17.469360 15.764821
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 6% 8% 3% 29% 4%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 $ 11.531273 15.674452 12.612894 12.574475 14.319149
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .293664 .000000 .000000 .000000 .451093
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 2.438125 .341270 .526078 1.059943 .442834
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.105419) (.053240) (.042161) (.043072) (.048263)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 14.157643 15.962482 13.096811 13.591346 15.164813
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 23% 2%(b) 4%(b) 8%(b) 6%(b)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
OppGISec OppGro OppMult StOpp2 StDisc2
------------ ------------ ------------ ------------ ------------
1997***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 13.457220 10.000000 18.446363 21.575419 16.514861
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .171449 .000000 1.424675 2.199285 .000000
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 2.875192 .491618 1.740590 3.271150 1.874039
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.123099) (.039023) (.160674) (.194117) (.139755)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 16.380762 10.452595 21.450954 26.851737 18.249145
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 22% 5%(b) 16% 24% 11%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 11.542134 ** 16.100377 18.408627 16.514850
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .000000 1.226905 .866384 3.367146
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 2.014545 1.256649 2.458870 (3.238459)
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.099459) (.137568) (.158462) (.128676)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 13.457220 18.446363 21.575419 16.514861
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 17% 15% 17% 0%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 11.943012 ** 15.453572 17.177125 15.320395
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .000000 .337996 .082118 .211565
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... (.362402) .360634 1.207608 1.035469
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.038476) (.051825) (.058224) (.052579)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. 11.542134 16.100377 18.408627 16.514850
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ (3)%(b) 4%(b) 7%(b) 8%(b)
============ ============ ============ ============ ============
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note
2; and
(b) This investment option was not utilized for the entire year
indicated.
** This investment option was not utilized or was not available.
*** No other investment options were being utilized.
<PAGE> 14
Schedule I, continued
NATIONWIDE VLI SEPARATE ACCOUNT-3
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
StIntStk2 VEWrldBd VEWrldEMkt VEWrldHAs MSRESec
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997***
Beginning unit value - Jan. 1 $ 11.208230 13.479157 10.078948 18.284590 15.045195
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .471812 .436884 .040323 .797803 2.048475
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... (1.974108) (.118284) (1.191572) (1.099846) 1.165854
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.090179) (.106758) (.089392) (.148067) (.129203)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 9.615755 13.690999 8.838307 17.834480 18.130321
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ (14)% 2% (12)% (2)% 21%
============ ============ ============ ============ ============
1996
Beginning unit value - Jan. 1 $ 10.236021 13.253457 ** 15.612002 10.792212
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .051144 .361660 .331277 .289441
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... 1.009533 (.030793) 2.482492 4.059026
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.088468) (.105167) (.141181) (.095484)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 11.208230 13.479157 18.284590 15.045195
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 9% 2% 17% 39%
============ ============ ============ ============ ============
1995
Beginning unit value - Jan. 1 ** $ 13.012850 ** 15.406908 10.203521
------------ ------------ ------------ ------------ ------------
Reinvested capital gains
and dividends ................ .245483 .075481 .092168
------------ ------------ ------------ ------------ ------------
Unrealized gain (loss) ....... .038021 .180118 .530496
------------ ------------ ------------ ------------ ------------
Asset charges ................ (.042897) (.050505) (.033973)
------------ ------------ ------------ ------------ ------------
Ending unit value - Dec. 31 .. $ 13.253457 15.612002 10.792212
------------ ------------ ------------ ------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 2%(b) 1%(b) 6%(b)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
WPIntEq WPSmCoGr
------------ ------------
<S> <C> <C>
1997***
Beginning unit value - Jan. 1 11.660648 14.080553
------------ ------------
Reinvested capital gains
and dividends ................ .724094 .000000
------------ ------------
Unrealized gain (loss) ....... (.979169) 2.190720
------------ ------------
Asset charges ................ (.098913) (.116946)
------------ ------------
Ending unit value - Dec. 31 .. 11.306660 16.154327
------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ (3)% 15%
============ ============
1996
Beginning unit value - Jan. 1 10.687672 12.461074
------------ ------------
Reinvested capital gains
and dividends ................ .227366 .000000
------------ ------------
Unrealized gain (loss) ....... .836487 1.727810
------------ ------------
Asset charges ................ (.090877) (.108331)
------------ ------------
Ending unit value - Dec. 31 .. 11.660648 14.080553
------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 9% 13%
============ ============
1995
Beginning unit value - Jan. 1 10.236484 10.233506
------------ ------------
Reinvested capital gains
and dividends ................ .077521 .000000
------------ ------------
Unrealized gain (loss) ....... .408042 2.264927
------------ ------------
Asset charges ................ (.034375) (.037359)
------------ ------------
Ending unit value - Dec. 31 .. 10.687672 12.461074
------------ ------------
Percentage increase (decrease)
in unit value*(a) ............ 4%(b) 22%(b)
============ ============
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not utilized or was not available.
*** No other investment options were being utilized.
See note 7.
<PAGE> 56
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 30, 1998
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
ASSETS 1997 1996
------
----------------- ---------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $13,204.1 $12,304.6
Equity securities 80.4 59.1
Mortgage loans on real estate, net 5,181.6 5,272.1
Real estate, net 311.4 265.8
Policy loans 415.3 371.8
Other long-term investments 25.2 28.7
Short-term investments 358.4 4.8
---------- ---------
19,576.4 18,306.9
---------- ---------
Cash 175.6 43.8
Accrued investment income 210.5 210.2
Deferred policy acquisition costs 1,665.4 1,366.5
Investment in subsidiaries classified as discontinued operations - 485.7
Other assets 438.4 426.5
Assets held in Separate Accounts 37,724.4 26,926.7
---------- ---------
$59,790.7 $47,766.3
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims $18,702.8 $17,600.6
Other liabilities 885.6 1,101.1
Liabilities related to Separate Accounts 37,724.4 26,926.7
---------- ---------
57,312.8 45,628.4
---------- ---------
Commitments and contingencies (notes 7 and 13)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 527.9
Retained earnings 1,312.3 1,432.6
Unrealized gains on securities available-for-sale, net 247.1 173.6
---------- ---------
2,477.9 2,137.9
---------- ---------
$59,790.7 $47,766.3
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Investment product and universal life insurance product policy charges $ 545.2 $ 400.9 $ 286.6
Traditional life insurance premiums 205.4 198.6 199.1
Net investment income 1,409.2 1,357.8 1,294.0
Realized gains (losses) on investments 11.1 (0.3) (1.7)
Other 46.5 35.9 20.7
---------- ---------- ----------
2,217.4 1,992.9 1,798.7
---------- ---------- ----------
Benefits and expenses:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Other benefits and claims 178.2 178.3 165.2
Policyholder dividends on participating policies 40.6 41.0 39.9
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Other operating expenses 384.9 342.4 273.0
---------- ---------- ----------
1,787.5 1,677.4 1,511.1
---------- ---------- ----------
Income from continuing operations before federal income tax expense 429.9 315.5 287.6
Federal income tax expense 150.2 110.9 99.8
---------- ---------- ----------
Income from continuing operations 279.7 204.6 187.8
Income from discontinued operations (less federal income tax expense
of $4.5 and $7.4 in 1996 and 1995, respectively) - 11.3 24.7
---------- ---------- ----------
Net income $ 279.7 $ 215.9 $ 212.5
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(in millions of dollars)
<TABLE>
<CAPTION>
Unrealized
gains
(losses)
Additional on securities Total
Common paid-in Retained available- shareholder's
stock capital earnings for-sale, net equity
----------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $3.8 $ 606.2 $1,378.2 $(119.7) $1,868.5
Capital contribution - 51.0 - (4.1) 46.9
Net income - - 212.5 - 212.5
Dividends to shareholder - - (7.5) - (7.5)
Unrealized gains on securities available-
for-sale, net - - - 508.1 508.1
-------- -------- -------- -------- ---------
December 31, 1995 3.8 657.2 1,583.2 384.3 2628.5
Net income - - 215.9 - 215.9
Dividends to shareholder - (129.3) (366.5) (39.8) (535.6)
Unrealized losses on securities available-
for-sale, net - - - (170.9) (170.9)
-------- -------- -------- -------- ---------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Capital contribution - 836.8 - - 836.8
Net income - - 279.7 - 279.7
Dividends to shareholder - (450.0) (400.0) - (850.0)
Unrealized gains on securities available-
for-sale, net - - - 73.5 73.5
-------- -------- -------- -------- ---------
December 31, 1997 $3.8 $ 914.7 $1,312.3 $ 247.1 $2,477.9
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1997 1996 1995
------------------------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 279.7 $ 215.9 $ 212.5
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Capitalization of deferred policy acquisition costs (487.9) (422.6) (321.3)
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Amortization and depreciation (2.0) 7.0 10.2
Realized (gains) losses on invested assets, net (11.1) (0.3) 3.3
(Increase) decrease in accrued investment income (0.3) 2.8 (16.9)
(Increase) decrease in other assets (12.7) (38.9) 39.9
(Decrease) increase in policy liabilities (23.1) (151.0) 123.9
Increase in other liabilities 230.6 191.4 27.0
Other, net (10.9) (61.7) 1.8
----------- --------- --------
Net cash provided by operating activities 1,146.1 858.3 1,113.4
----------- --------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 993.4 1,162.8 634.6
Proceeds from sale of securities available-for-sale 574.5 299.6 107.3
Proceeds from maturity of fixed maturity securities held-to-maturity - - 564.4
Proceeds from repayments of mortgage loans on real estate 437.3 309.0 207.8
Proceeds from sale of real estate 34.8 18.5 48.3
Proceeds from repayments of policy loans and sale of other invested assets 22.7 22.8 53.6
Cost of securities available-for-sale acquired (2,828.1) (1,573.6) (1,942.4)
Cost of fixed maturity securities held-to-maturity acquired - - (593.6)
Cost of mortgage loans on real estate acquired (752.2) (972.8) (796.0)
Cost of real estate acquired (24.9) (7.9) (10.9)
Policy loans issued and other invested assets acquired (62.5) (57.7) (75.9)
Short-term investments, net (354.8) 28.0 77.8
----------- --------- --------
Net cash used in investing activities (1,959.8) (771.3) (1,725.0)
----------- --------- --------
Cash flows from financing activities:
Proceeds from capital contributions 836.8 - -
Cash dividends paid - (50.0) (7.5)
Increase in investment product and universal life insurance
product account balances 2,488.5 1,781.8 1,883.7
Decrease in investment product and universal life insurance
product account balances (2,379.8) (1,784.5) (1,258.7)
----------- --------- --------
Net cash provided by (used in) financing activities 945.5 (52.7) 617.5
----------- --------- --------
Net increase in cash 131.8 34.3 5.9
Cash, beginning of year 43.8 9.5 3.6
----------- --------- --------
Cash, end of year $ 175.6 $ 43.8 $ 9.5
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 11 and 15. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are
classified and reported as discontinued operations are not
consolidated but rather are reported as "Investment in
subsidiaries classified as discontinued operations" in the
accompanying consolidated balance sheets and "Income from
discontinued operations" in the accompanying consolidated
statements of income. All significant intercompany balances and
transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1997 or 1996.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities. Universal life insurance products
include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of
insurance, policy administration and surrender charges that have
been earned and assessed against policy account balances during
the period. Policy benefits and claims that are charged to expense
include interest credited to policy account balances and benefits
and claims incurred in the period in excess of related policy
account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
(d) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses
on fixed maturity securities available-for-sale as described in
note 2(b). For traditional life insurance products, these deferred
policy acquisition costs are predominantly being amortized with
interest over the premium paying period of the related policies in
proportion to the ratio of actual annual premium revenue to the
anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for
computing liabilities for future policy benefits.
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $365.5 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the Separate Accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) FUTURE POLICY BENEFITS
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
Future policy benefits for traditional life insurance policies
have been calculated using a net level premium method based on
estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the
time the policies were issued, rather than the assumptions
prescribed by state regulatory authorities. See note 4.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) PARTICIPATING BUSINESS
Participating business represents approximately 50% in 1997 (52%
in 1996 and 54% in 1995) of the Company's life insurance in force,
77% in 1997 (78% in 1996 and 79% in 1995) of the number of life
insurance policies in force, and 27% in 1997 (40% in 1996 and 47%
in 1995) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) FEDERAL INCOME TAX
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 11 and 15.
(j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - REPORTING
COMPREHENSIVE INCOME was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. The statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income includes all changes in equity during a
period except those resulting from investments by shareholders and
distributions to shareholders and includes net income.
Comprehensive income would be reported in addition to earnings
amounts currently presented. The Company will adopt the statement
and begin reporting comprehensive income in the first quarter of
1998.
(k) RECLASSIFICATION
Certain items in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997
presentation.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) INVESTMENTS
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1997 and
1996 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ - $ 313.7
Obligations of states and political subdivisions 1.6 - - 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
------------ --------- --------- -----------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
------------ --------- --------- -----------
$ 12,800.7 $ 498.3 $ (14.5) $ 13,284.5
============ ========= ========= ===========
December 31, 1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 275.7 $ 4.8 $ (1.3) $ 279.2
Obligations of states and political subdivisions 6.2 0.5 - 6.7
Debt securities issued by foreign governments 100.7 2.1 (0.9) 101.9
Corporate securities 7,999.3 285.9 (33.7) 8,251.5
Mortgage-backed securities 3,589.0 91.4 (15.1) 3,665.3
------------ --------- --------- -----------
Total fixed maturity securities 11,970.9 384.7 (51.0) 12,304.6
Equity securities 43.9 15.6 (0.4) 59.1
------------ --------- --------- -----------
$ 12,014.8 $ 400.3 $ (51.4) $ 12,363.7
============ ========= ========= ===========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1997, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
-------------- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 419.2 $ 422.1
Due after one year through five years 4,573.5 4,708.4
Due after five years through ten years 2,772.6 2,879.7
Due after ten years 1,333.4 1,443.6
----------- -----------
9,098.7 9,453.8
Mortgage-backed securities 3,634.2 3,750.3
----------- -----------
$ 12,732.9 $ 13,204.1
=========== ===========
</TABLE>
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- ----------
<S> <C> <C>
Gross unrealized gains $ 483.8 $349.0
Adjustment to deferred policy acquisition costs (103.7) (81.9)
Deferred federal income tax (133.0) (93.5)
-------- -------
$ 247.1 $173.6
======== =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------- -----------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $137.5 $(289.2) $876.3
Equity securities (2.7) 8.9 -
Fixed maturity securities held-to-maturity - - 75.6
------- ------- -------
$134.8 $(280.3) $ 951.9
======= ======= =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1997,
1996 and 1995 were $574.5 million, $299.6 million and $107.3 million,
respectively. During 1997, gross gains of $9.9 million ($6.6 million
and $4.8 million in 1996 and 1995, respectively) and gross losses of
$18.0 million ($6.9 million and $2.1 million in 1996 and 1995,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25.4 million to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of those
fixed maturity securities resulted in a gross unrealized loss of $3.5
million.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November
1995, the Company transferred nearly all of its fixed maturity
securities previously classified as held-to-maturity to
available-for-sale. As of December 14, 1995, the date of transfer, the
fixed maturity securities had amortized cost of $3.32 billion,
resulting in a gross unrealized gain of $155.9 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million ($51.8 million as
of December 31, 1996), which includes $3.9 million ($41.7 million as of
December 31, 1996) of impaired mortgage loans on real estate for which
the related valuation allowance was $0.1 million ($8.5 million as of
December 31, 1996) and $16.0 million ($10.1 million as of December 31,
1996) of impaired mortgage loans on real estate for which there was no
valuation allowance. During 1997, the average recorded investment in
impaired mortgage loans on real estate was approximately $31.8 million
($39.7 million in 1996) and interest income recognized on those loans
was $1.0 million ($2.1 million in 1996), which is equal to interest
income recognized using a cash-basis method of income recognition.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
------------- -------------
<S> <C> <C>
Allowance, beginning of year $51.0 $49.1
(Reductions) additions charged to operations (1.2) 4.5
Direct write-downs charged against the allowance (7.3) (2.6)
------ ------
Allowance, end of year $42.5 $51.0
====== ======
</TABLE>
Real estate is presented at cost less accumulated depreciation of $45.1
million as of December 31, 1997 ($30.3 million as of December 31, 1996)
and valuation allowances of $11.1 million as of December 31, 1997
($15.2 million as of December 31, 1996).
Investments that were non-income producing for the twelve month period
preceding December 31, 1997 amounted to $19.4 million ($26.8 million
for 1996) and consisted of $3.0 million ($0.2 million in 1996) in
securities available-for-sale, $16.4 million ($20.6 million in 1996) in
real estate and none ($5.9 million in 1996) in other long-term
investments.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 911.6 $ 917.1 $ 685.8
Equity securities 0.8 1.3 1.3
Fixed maturity securities held-to-maturity - - 201.8
Mortgage loans on real estate 457.7 432.8 395.5
Real estate 42.9 44.3 38.3
Short-term investments 22.7 4.2 10.6
Other 21.0 4.0 7.2
-------- -------- --------
Total investment income 1,456.7 1,403.7 1,340.5
Less investment expenses 47.5 45.9 46.5
-------- -------- --------
Net investment income $1,409.2 $1,357.8 $1,294.0
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ 3.6 $(3.5) $ 4.2
Equity securities 2.7 3.2 3.4
Mortgage loans on real estate 1.6 (4.1) (7.1)
Real estate and other 3.2 4.1 (2.2)
------ ------ ------
$11.1 $(0.3) $(1.7)
====== ====== ======
</TABLE>
Fixed maturity securities with an amortized cost of $6.2 million as
of December 31, 1997 and 1996 were on deposit with various
regulatory agencies as required by law.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts
represents approximately 86% and 87% of the total liability for future
policy benefits as of December 31, 1997 and 1996, respectively. The
average interest rate credited on investment product policies was
approximately 6.1%, 6.3% and 6.6% for the years ended December 31,
1997, 1996 and 1995, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
INTEREST RATES: Interest rates vary by issue year and were 6.9%
and 6.6% in 1997 and 1996, respectively. Interest rates have
generally ranged from 6.0% to 10.5% for previous issue years.
WITHDRAWALS: Rates, which vary by issue age, type of coverage and
policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on published
tables, modified for the Company's actual experience.
The Company has entered into a reinsurance contract to cede a portion
of its general account individual annuity business to The Franklin Life
Insurance Company (Franklin). Total recoveries due from Franklin were
$220.2 million and $240.5 million as of December 31, 1997 and 1996,
respectively. The contract is immaterial to the Company's results of
operations. The ceding of risk does not discharge the original insurer
from its primary obligation to the policyholder. Under the terms of the
contract, Franklin has established a trust as collateral for the
recoveries. The trust assets are invested in investment grade
securities, the market value of which must at all times be greater than
or equal to 102% of the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as
described in note 11. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(5) FEDERAL INCOME TAX
The Company's current federal income tax liability was $60.1 million
and $30.2 million as of December 31, 1997 and 1996, respectively.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $200.1 $183.0
Liabilities in Separate Accounts 242.0 188.4
Mortgage loans on real estate and real estate 19.0 23.4
Other assets and other liabilities 59.2 53.7
------- ------
Total gross deferred tax assets 520.3 448.5
Less valuation allowance (7.0) (7.0)
------- ------
Net deferred tax assets 513.3 441.5
------- ------
Deferred tax liabilities:
Deferred policy acquisition costs 480.5 399.3
Fixed maturity securities 193.3 133.2
Deferred tax on realized investment gains 40.1 37.6
Equity securities and other long-term investments 7.5 8.2
Other 22.2 25.4
------- ------
Total gross deferred tax liabilities 743.6 603.7
------- ------
Net deferred tax liability $230.3 $162.2
======= ======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1997, 1996 and 1995.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable $121.7 $116.5 $88.7
Deferred tax expense (benefit) 28.5 (5.6) 11.1
------ ------ ------
$150.2 $110.9 $99.8
====== ====== ======
</TABLE>
Total federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
(in millions of dollars) Amount % Amount % Amount %
---------------------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $150.5 35.0 $110.4 35.0 $100.6 35.0
Tax exempt interest and dividends
received deduction - 0.0 (0.2) (0.1) - 0.0
Other, net (0.3) (0.1) 0.7 0.3 (0.8) (0.3)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $150.2 34.9 $110.9 35.2 $ 99.8 34.7
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $91.8 million, $115.8 million and
$51.8 million during the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
FIXED MATURITY AND EQUITY SECURITIES: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
MORTGAGE LOANS ON REAL ESTATE, NET: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
POLICY LOANS, SHORT-TERM INVESTMENTS AND CASH: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender
charges.
INVESTMENT CONTRACTS: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 13.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $13,204.1 $13,204.1 $12,304.6 $12,304.6
Equity securities 80.4 80.4 59.1 59.1
Mortgage loans on real estate, net 5,181.6 5,509.7 5,272.1 5,397.9
Policy loans 415.3 415.3 371.8 371.8
Short-term investments 358.4 358.4 4.8 4.8
Cash 175.6 175.6 43.8 43.8
Assets held in Separate Accounts 37,724.4 37,724.4 26,926.7 26,926.7
Liabilities:
Investment contracts 14,708.2 14,322.1 13,914.4 13,484.5
Policy reserves on life insurance contracts 3,345.4 3,182.4 3,392.8 3,197.5
Liabilities related to Separate Accounts 37,724.4 36,747.0 26,926.7 26,164.2
</TABLE>
(7) RISK DISCLOSURES
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduce demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
CREDIT RISK: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $341.4 million
extending into 1998 were outstanding as of December 31, 1997. The
Company also had $63.9 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1997.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 20% (21% in 1996) in any geographic area and no more than 2% (2%
in 1996) with any one borrower as of December 31, 1997. As of December
31, 1997, 46% (44% in 1996) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1997 and 1996. See note 4.
(8) PENSION PLAN
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. Benefits are based upon the highest average annual
salary of a specified number of consecutive years of the last ten years
of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost
of the enhanced benefit was borne by NMIC and certain of its property
and casualty insurance company affiliates.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau Insurance
Companies Pension Plan to form the Nationwide Insurance Enterprise
Retirement Plan (the Retirement Plan). Immediately prior to the merger,
the plans were amended to provide consistent benefits for service after
January 1, 1996. These amendments had no significant impact on the
accumulated benefit obligation or projected benefit obligation as of
December 31, 1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1997, 1996 and 1995 were $7.5 million, $7.4
million and $10.5 million, respectively.
The Company had no net accrued pension expense as of December 31, 1997
($1.1 million as of December 31, 1996).
The net periodic pension cost for the Retirement Plan as a whole for
the years ended December 31, 1997 and 1996 and for the Nationwide
Insurance Companies and Affiliates Retirement Plan as a whole for the
year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 77.3 $ 75.5 $ 64.5
Interest cost on projected benefit obligation 118.6 105.5 95.3
Actual return on plan assets (328.0) (210.6) (249.3)
Net amortization and deferral 196.4 101.8 143.4
-------- -------- --------
$ 64.3 $ 72.2 $ 53.9
======== ======== ========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate 6.50% 6.00% 7.50%
Rate of increase in future compensation levels 4.75% 4.25% 6.25%
Expected long-term rate of return on plan assets 7.25% 6.75% 8.75%
</TABLE>
Information regarding the funded status of the Retirement Plan as a
whole as of December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,547.5 $1,338.6
Nonvested 13.5 11.1
-------- ---------
$1,561.0 $1,349.7
======== =========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $2,033.8 $1,847.8
Plan assets at fair value 2,212.9 1,947.9
--------- ---------
Plan assets in excess of projected benefit obligation 179.1 100.1
Unrecognized prior service cost 34.7 37.9
Unrecognized net gains (330.7) (202.0)
Unrecognized net asset at transition 33.3 37.2
--------- ---------
$ (83.6) $ (26.8)
========= =========
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Weighted average discount rate 6.00% 6.50%
Rate of increase in future compensation levels 4.25% 4.75%
</TABLE>
Assets of the Retirement Plan are invested in group annuity contracts
of NLIC and Employers Life Insurance Company of Wausau (ELICW).
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1997 and 1996 was $36.5 million and $34.9 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1997, 1996 and
1995 was $3.0 million, $3.3 million and $3.1 million, respectively.
Information regarding the funded status of the plan as a whole as of
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 93.3 $ 93.0
Fully eligible, active plan participants 31.6 23.7
Other active plan participants 113.0 84.0
-------- --------
Accumulated postretirement benefit obligation 237.9 200.7
Plan assets at fair value 69.2 63.0
-------- --------
Plan assets less than accumulated postretirement benefit obligation (168.7) (137.7)
Unrecognized transition obligation of affiliates 1.5 1.7
Unrecognized net losses (gains) 1.6 (23.2)
-------- --------
$(165.6) $(159.2)
======== ========
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year) $ 7.0 $ 6.5 $ 6.2
Interest cost on accumulated postretirement
benefit obligation 14.0 13.7 14.2
Actual return on plan assets (3.6) (4.3) (2.7)
Amortization of unrecognized transition
obligation of affiliates 0.2 0.2 3.0
Net amortization and deferral (0.5) 1.8 (1.6)
------- ------ ------
$17.1 $17.9 $19.1
======= ====== ======
</TABLE>
Actuarial assumptions used for the measurement of the APBO and the
NPPBC for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
APBO:
Discount rate 6.70% 7.25% 6.75%
Assumed health care cost trend rate:
Initial rate 12.13% 11.00% 11.00%
Ultimate rate 6.12% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
NPPBC:
Discount rate 7.25% 6.65% 8.00%
Long term rate of return on plan
assets, net of tax 5.89% 4.80% 8.00%
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 10.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the plan as a whole, a one percentage point increase in the assumed
health care cost trend rate would increase the APBO as of December 31,
1997 by $0.4 million and have no impact on the NPPBC for the year ended
December 31, 1997.
(10) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The statutory capital and surplus of NLIC as of December 31, 1997, 1996
and 1995 was $1.13 billion, $1.00 billion and $1.36 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1997, 1996 and 1995 was $111.7 million, $73.2 million and
$86.5 million, respectively.
As a result of the $850.0 million dividend paid on February 24, 1997,
any dividend paid by NLIC during the twelve-month period immediately
following the $850.0 million dividend would be an extraordinary
dividend under Ohio insurance laws. Accordingly, no such dividend could
be paid without prior regulatory approval. The Company has no reason to
believe that any reasonably foreseeable dividend to be paid by NLIC
would not receive the required approval.
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(11) TRANSACTIONS WITH AFFILIATES
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1997, 1996 and 1995, the
Company made lease payments to NMIC and its subsidiaries of $8.4
million, $9.1 million and $9.0 million, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $85.8 million, $101.6 million and $107.1
million in 1997, 1996 and 1995, respectively. The allocations are based
on techniques and procedures in accordance with insurance regulatory
guidelines. Measures used to allocate expenses among companies include
individual employee estimates of time spent, special cost studies,
salary expense, commissions expense and other methods agreed to by the
participating companies that are within industry guidelines and
practices. The Company believes these allocation methods are
reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated
on a stand alone basis. Amounts payable to NMIC from the Company under
the cost sharing agreement were $20.5 million and $15.1 million as of
December 31, 1997 and 1996, respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1997 and
1996 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements exist between NLIC and,
respectively, NMIC and ELICW whereby all of NLIC's accident and health
and group life insurance business is ceded on a modified coinsurance
basis. NLIC entered into the reinsurance agreements during 1996 because
the accident and health and group life insurance business was unrelated
to the Company's long-term savings and retirement products.
Accordingly, the accident and health and group life insurance business
has been accounted for as discontinued operations for all periods
presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company's retention of such risk. The agreements
will remain in force until all policy obligations are settled. However,
with respect to the agreement between NLIC and NMIC, either party may
terminate the contract on January 1 of any year with prior notice. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW
-------------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Premiums $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other revenue $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and other expenses $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $211.0 million and $4.8 million as of
December 31, 1997 and 1996, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding
shares of common stock of Farmland Life Insurance Company (Farmland) to
NLIC. Farmland merged into WCLIC effective June 30, 1995. The
contribution resulted in a direct increase to consolidated
shareholder's equity of $46.9 million. As discussed in note 15, WCLIC
is accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1997 were $66.1
million, $76.9 million and $57.3 million, respectively.
(12) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million loan over
a five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several and
not joint liability with respect to any amount drawn by either NLIC or
NMIC. NLIC and NMIC pay facility and usage fees to the financial
institutions to maintain the revolving credit facility. All previously
existing line of credit agreements were canceled. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(13) CONTINGENCIES
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to
be material to the Company's financial position or results of
operations.
(14) SEGMENT INFORMATION
The Company has three product segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists
of annuity contracts that provide the customer with the opportunity to
invest in mutual funds managed by the Company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. The Fixed Annuities segment consists of annuity
contracts that generate a return for the customer at a specified
interest rate, fixed for a prescribed period, with returns accumulating
on a tax-deferred basis. The Fixed Annuities segment also includes the
fixed option under the Company's variable annuity contracts. The Life
Insurance segment consists of insurance products that provide a death
benefit and may also allow the customer to build cash value on a
tax-deferred basis. In addition, the Company reports corporate expenses
and investments, and the related investment income supporting capital
not specifically allocated to its product segments in a Corporate and
Other segment. In addition, all realized gains and losses and
investment management fees and other revenue earned from mutual funds,
other than the portion allocated to the variable annuities and life
insurance segments, are reported in the Corporate and Other segment.
The following table summarizes revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1997, 1996 and 1995 and assets as of December 31, 1997,
1996 and 1995, by segment.
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 404.0 $ 284.6 $ 189.1
Fixed Annuities 1,141.4 1,092.6 1,052.0
Life Insurance 473.1 435.6 409.1
Corporate and Other 198.9 180.1 148.5
----------- ---------- ----------
$ 2,217.4 $ 1,992.9 $ 1,798.7
=========== ========== ==========
Income from continuing operations before federal income tax
expense:
Variable Annuities $ 150.9 $ 90.3 $ 50.8
Fixed Annuities 169.5 135.4 137.0
Life Insurance 70.9 67.2 67.6
Corporate and Other 38.6 22.6 32.2
----------- ---------- ----------
$ 429.9 $ 315.5 $ 287.6
=========== ========== ==========
Assets:
Variable Annuities $ 35,278.7 $ 25,069.7 $ 17,333.0
Fixed Annuities 14,436.3 13,994.7 13,250.4
Life Insurance 3,901.4 3,353.3 3,027.4
Corporate and Other 6,174.3 5,348.6 4,896.8
----------- ---------- ----------
$ 59,790.7 $ 47,766.3 $ 38,507.6
=========== ========== ==========
</TABLE>
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(15) DISCONTINUED OPERATIONS
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, NLIC effected certain transactions with respect to certain
subsidiaries and lines of business that were unrelated to long-term
savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend
payable to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of three subsidiaries: ELICW, NCC
and WCLIC. ELICW writes group accident and health and group life
insurance business and maintains it offices in Wausau, Wisconsin. NCC
is a property and casualty company with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC and
WCLIC have been accounted for as discontinued operations in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
Also, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 11 for a
complete discussion of the reinsurance agreements. The Company has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated
companies. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company did not recognize any gain or loss on the disposal of the
accident and health and group life insurance business. The assets,
liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for
financial reporting purposes from the remaining assets, liabilities,
results of operations and activities of the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Revenues $ - $ 668.9 $ 776.9
Net income $ - $ 11.3 $ 24.7
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Assets, consisting primarily of investments $247.3 $3,288.5 $3,206.7
Liabilities, consisting primarily of policy benefits and claims $247.3 $2,802.8 $2,700.0
</TABLE>
<PAGE> 57
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No, 9 to Form S-6 Registration Statement comprises
the following papers and documents:
The facing sheet,
Cross-reference to items required by Form N-8B-2,
The prospectus consisting of 89 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 1, 1998. Attached hereto.
2, Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form S-6 for the
authorizing the establishment of the Registrant, adopted Nationwide VLI Separate Account-3 (File No, 33-44789) and
hereby incorporated herein by reference.
3, Distribution Contracts 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.
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>
<PAGE> 58
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,
(f) Represents that the fees and charges deducted under the Policy in the
aggregate are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by the Company.
<PAGE> 59
INDEPENDENT AUDITORS' 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 prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 29, 1998
<PAGE> 60
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. 8 and has duly caused this Post-Effective Amendment No. 9 to be signed on
its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Columbus, and State of Ohio,
on this 29th day of April, 1998.
NATIONWIDE VLI SEPARATE ACCOUNT-3
-----------------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
-----------------------------------------
Attest: (Sponsor)
W. SIDNEY DRUEN By: JOSEPH P. RATH
- --------------------- ----------------------------------------------
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President - Product and Market Compliance
-----------------------------
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 9 has been signed below by the following persons in the capacities
indicated on the 29th day of April, 1998.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- -------------------------------------------------
Lewis J. Alphin
A. I. BELL Director
- ------------------------------------------------- --------
A. I. Bell
KEITH W. ECKEL Director
- -------------------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -------------------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- -------------------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- -------------------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President and Chief
- -------------------------------------------------
Joseph J. Gasper Operating Office and Director
DIMON R. McFERSON Chairman and Chief Executive Officer
- -------------------------------------------------
Dimon R. McFerson Nationwide Insurance Enterprise and Director
DAVID O. MILLER Chairman of the Board and Director
- -------------------------------------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- -------------------------------------------------
Yvonne L. Montgomery
C. RAY NOECKER Director
- -------------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ------------------------------------------------- ----------------------------
James F. Patterson Joseph P. Rath
ARDEN L. SHISLER Director Attorney-in-Fact
- -------------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -------------------------------------------------
Harold W. Weihl
</TABLE>
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, and if applicable, of the Investment
Company Act of 1940, as amended, various Registration Statements and amendments
thereto for the registration under said Act of Individual Deferred Variable
Annuity Contracts in connection with MFS Variable Account, Nationwide Variable
Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide Variable
Account-9, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B,
Nationwide VA Separate Account-C and Nationwide VA Separate Account-Q; and the
registration of fixed interest rate options subject to a market value adjustment
offered under some or all of the aforementioned individual Variable Annuity
Contracts in connection with Nationwide Multiple Maturity Separate Account and
Nationwide Multiple Maturity Separate Account-A, and the registration of Group
Flexible Fund Retirement Contracts in connection with Nationwide DC Variable
Account, Nationwide DCVA-II, and NACo Variable Account; and the registration of
Group Common Stock Variable Annuity Contracts in connection with Separate
Account No. 1; and the registration of variable life insurance policies in
connection with Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4,
Nationwide VL Separate Account-A and Nationwide VL Separate Account-B,
Nationwide VL Separate Account-C, hereby constitutes and appoints Dimon R.
McFerson, Joseph J. Gasper, W. Sidney Druen, Mark R. Thresher, and Joseph P.
Rath, and each of them with power to act without the others, his/her attorney,
with full power of substitution and resubstitution, for and in his/her name,
place and stead, in any and all capacities, to approve, and sign such
Registration Statements and any and all amendments thereto, with power to affix
the corporate seal of said corporation thereto and to attest said seal and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the U.S. Securities and Exchange Commission, hereby granting
unto said attorneys, and each of them, full power and authority to do and
perform all and every act and thing requisite to all intents and purposes as
he/she might or could do in person, hereby ratifying and confirming that which
said attorneys, or any of them, may lawfully do or cause to be done by virtue
hereof. This instrument may be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 1st day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ Yvonne L. Montgomery
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director Yvonne L. Montgomery, Director
/s/ A. I. Bell /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
A. I. Bell, Director C. Ray Noecker, Director
/s/ Keith W. Eckel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Keith W. Eckel, Director Robert A. Oakley, Executive Vice President - Chief
Financial Officer
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Charles L. Fuellgraf /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Robert L. Stewart, Director
/s/ Joseph J. Gasper /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Nancy C. Thomas, Director
and Director
/s/ Dimon R. McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon R. McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
/s/ David O. Miller
- -------------------------------------------------
David O. Miller, Chairman of the Board, Director
</TABLE>
