<PAGE> 1
Registration No. 33-44789
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NO 11
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------
NATIONWIDE VLI SEPARATE ACCOUNT-3
(EXACT NAME OF TRUST)
-------------------
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 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 September 27, 1999 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 September 27,
1999
[ ] Check box if it is proposed that this filing will become effective on (date)
at (time) pursuant to Rule 487.
================================================================================
1 of 122
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
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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<PAGE> 3
N-8B-2 ITEM CAPTION IN PROSPECTUS
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
3 of 122
<PAGE> 4
SUPPLEMENT DATED SEPTEMBER 27, 1999 TO
PROSPECTUS DATED MAY 1, 1999 FOR
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS
NATIONWIDE VLI SEPARATE ACCOUNT - 3
THIS SUPPLEMENT UPDATES CERTAIN INFORMATION CONTAINED IN YOUR PROSPECTUS. PLEASE
READ IT AND KEEP IT WITH YOUR PROSPECTUS FOR FUTURE REFERENCE.
1. AN APPLICATION HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
("SEC") FOR AN ORDER PERMITTING THE SUBSTITUTION OF THE SHARES OF THE
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. - AMERICAN CENTURY VP ADVANTAGE
("VP ADVANTAGE") CURRENTLY HELD IN SUB-ACCOUNTS BY CONTRACT OWNERS WITH
SHARES OF THE AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. - AMERICAN CENTURY
VP BALANCED ("VP BALANCED"). UNTIL AN ORDER IS GRANTED BY THE SEC, BOTH
INVESTMENT OPTIONS WILL BE AVAILABLE TO ALL CONTRACT OWNERS AS UNDERLYING
INVESTMENT OPTIONS. IF AN ORDER IS GRANTED, INFORMATION WILL BE SENT TO ALL
CONTRACT OWNERS REGARDING THE "EXCHANGE DATE" ON WHICH VP ADVANTAGE WILL BE
ELIMINATED AS AN INVESTMENT OPTION AND VP BALANCED WILL BE SUBSTITUTED FOR
VP ADVANTAGE.
2. EFFECTIVE JULY 6, 1999, ALL REFERENCES TO WARBURG PINCUS ASSET MANAGEMENT,
INC. IN YOUR PROSPECTUS CHANGED TO:
Credit Suisse Asset Management, LLC
3. THE FOLLOWING UNDERLYING MUTUAL FUNDS ARE NO LONGER AVAILABLE AS INVESTMENT
OPTIONS FOR POLICIES ISSUED ON OR AFTER SEPTEMBER 27, 1999:
American Century Variable Portfolios, Inc. - American Century VP Capital
Appreciation
Strong Variable Insurance Funds, Inc. - Strong Discovery Fund II, Inc.
Strong Variable Insurance Funds, Inc. - International Stock Fund II
Warburg Pincus Trust - International Equity Portfolio
Warburg Pincus Trust - Post-Venture Capital Portfolio
CURRENT POLICIES ARE NOT AFFECTED BY THIS CHANGE.
4. EFFECTIVE SEPTEMBER 1, 1999 "APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL
FUNDS" LOCATED ON PAGES 43 THROUGH 51 OF YOUR PROSPECTUS IS AMENDED AS
FOLLOWS:
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end
management investment company created under the laws of Massachusetts. NSAT
offers shares in the mutual funds listed below, each with its own
investment objectives. Shares of NSAT will be sold primarily to separate
accounts to fund the benefits under variable life insurance policies and
variable annuity contracts issued by life insurance companies. Effective
September 1, 1999, the investment advisory services previously performed by
Nationwide Advisory Services ("NAS") were transferred to Villanova Mutual
Fund Capital Trust ("VMF"), an affiliate of NAS and an indirect subsidiary
of Nationwide Financial Services, Inc. The portfolio managers and
subadvisers for each of the Funds continue to manage the Funds after the
transfer to VMF.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY
Modified Single Premium Variable Life Insurance Policies
Issued by Nationwide Life Insurance Company through its Nationwide VLI Separate
Account-3
The date of this prospectus is May 1, 1999
- --------------------------------------------------------------------------------
This prospectus contains basic information you should know about the policies
before investing. Please read it and keep it for future reference
THE FOLLOWING UNDERLYING MUTUAL FUNDS ARE AVAILABLE UNDER THE POLICIES:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
A MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS
- - American Century VP Advantage
- - American Century VP Balanced
- - American Century VP Capital Appreciation
- - American Century VP Income & Growth
- - American Century VP International
- - American Century VP Value
DREYFUS
- - Dreyfus Stock Index Fund, Inc
- - The Dreyfus Socially Responsible Growth
Fund, Inc.
DREYFUS VARIABLE INVESTMENT FUND
- - Growth & Income Portfolio*
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- - VIP Equity-Income Portfolio
- - VIP Growth Portfolio
- - VIP High Income Portfolio*
- - VIP Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- - VIP II Asset Manager Portfolio
- - VIP II Contrafund Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST:
- - Capital Appreciation Fund
- - Government Bond Fund
- - Money Market Fund
- - Total Return Fund
- - Nationwide Small Cap Value Fund (subadvisers: The Dreyfus Corporation)
- - Nationwide Small Company Fund (subadviser: The Dreyfus Corporation,
Neuberger Berman, LLC, Lazard Asset Management, Strong Capital Management,
Inc. and Warburg Pincus Asset Management, Inc.)
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- - AMT Balanced Portfolio
- - AMT Limited Maturity Bond Portfolio
- - AMT Growth Portfolio
- - AMT Guardian Portfolio
- - AMT Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
- - Oppenheimer Bond Fund/VA
- - Oppenheimer Global Securities Fund/VA
- - Oppenheimer Multiple Strategies Fund/VA
STRONG OPPORTUNITY FUND II, INC. (FORMERLY STRONG SPECIAL FUND II, INC.)
STRONG VARIABLE INSURANCE FUNDS, INC.
- - Strong Discovery Fund II, Inc.
- - International Stock Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
- - Worldwide Bond Fund
- - Worldwide Emerging Markets Fund
- - Worldwide Hard Assets Fund
VAN KAMPEN LIFE INVESTMENT TRUST:
- - Morgan Stanley Real Estate Securities Portfolio
WARBURG PINCUS TRUST
- - International Equity Portfolio
- - Post-Venture Capital Portfolio*
- - Small Company Growth Portfolio
*These underlying mutual funds invest in lower quality debt securities commonly
referred to as junk bonds.
In Texas the policies are titled, "Flexible Premium Variable Life Insurance
Policies."
1
<PAGE> 6
To obtain copies of any underlying mutual fund prospectus, please call:
1-800-547-7548
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182150
COLUMBUS, OHIO 43218-2150
Material incorporated by reference to this prospectus can be found on the SEC
website at:
www.sec.gov
THIS POLICY IS NOT:
- - A BANK DEPOSIT;
- - ENDORSED BY A BANK OR GOVERNMENT AGENCY;
- - FEDERALLY INSURED; OR
- - AVAILABLE IN EVERY STATE.
The life insurance policies offered by this prospectus are modified single
premium variable life insurance policies. They provide life insurance coverage
on the insured named in the policy. For policies issued in New York under a
group contract, references through out this prospectus to "policy(ies)" will
mean "certificate(s)" and "policy owner(s)" will mean "certificate owner(s)." A
cash surrender value may be offered if the policy is terminated during the
lifetime of the insured.
No claim is made that the policy is in any way similar or comparable to a
systematic investment plan of a mutual fund.
The death benefit and cash value of this policy may vary to reflect the
experience of the Nationwide VLI Separate Account -3 or the fixed account,
depending on how premium payments are invested.
Investors assume certain risks when investing in the policies, including the
risk of losing money.
Nationwide guarantees the death benefit will never be less than the specified
amount stated on the policy data page for as long as the policy is in force.
The cash surrender value is not guaranteed. The policy will lapse if the cash
surrender value is insufficient to cover policy charges.
Benefits described in this prospectus may not be available in every jurisdiction
- - refer to your policy for specific benefit information.
THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION WHERE SUCH OFFERING MAY
NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
It may be disadvantageous for policy owners to:
- - replace existing insurance policies with the policy described in this
prospectus;
- - purchase a policy to obtain additional insurance protection if another
variable life insurance policy is owned; or
- - take policy loans or withdrawals from the policy prior to attaining age 59
1/2 (see "Tax Matters").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 7
GLOSSARY OF SPECIAL TERMS
ATTAINED AGE- The insured's age on the policy date, plus the number of full
years since the policy date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the cash
value of the variable account.
FIXED ACCOUNT- An investment option which is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
GUIDELINE SINGLE PREMIUM- The single premium required to mature the policy under
guaranteed mortality and expense charges with an interest rate of 6%.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units are separately maintained.
MATURITY DATE- The policy anniversary on or next following the insured's 95th
birthday.
NATIONWIDE - Nationwide Life Insurance Company.
SPECIFIED AMOUNT- The dollar amount used to determine the death benefit under a
policy.
VALUATION PERIOD- Each day the New York Stock Exchange is open for business.
VARIABLE ACCOUNT- Nationwide VLI Separate Account -3, a separate account of
Nationwide Life Insurance Company that contains variable account allocations.
The variable account is divided into sub-accounts, each of which invests in
shares of a separate underlying mutual fund.
3
<PAGE> 8
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS.........................3
SUMMARY OF POLICY EXPENSES........................6
UNDERLYING MUTUAL FUND ANNUAL
EXPENSES.......................................7
SYNOPSIS OF THE POLICIES..........................9
NATIONWIDE LIFE INSURANCE COMPANY.................9
NATIONWIDE ADVISORY SERVICES, INC................10
INVESTING IN THE POLICY..........................10
The Variable Account and Underlying
Mutual Funds
Changes of Investment Policy
Voting Rights
Material Conflicts
The Fixed Account
INFORMATION ABOUT THE POLICIES...................12
Minimum Requirements for Policy Issuance
Premium Payments
Pricing
POLICY CHARGES...................................13
Sales Load
Premium Expense Charge
Surrender Charges
Increases in Specified Amount
Decreases in Specified Amount
Reductions to Surrender Charges
Monthly Administrative Charge
Mortality and Expense Risk Charge
Income Tax
Reduction of Charges
SURRENDERING THE POLICY FOR CASH.................15
Surrender (Redemption)
Cash Surrender Value
Partial Surrenders
Preferred Partial Surrenders
Reduction of the Specified Amount
Income Tax Withholding
VARIATION IN CASH VALUE..........................16
Error in Age or Sex
POLICY PROVISIONS................................16
Policy Owner
Beneficiary
Changes in Existing Insurance Coverage
OPERATION OF THE POLICY..........................18
Allocation of Net Premium and Cash Value
How the Investment Experience is Determined
Net Investment Factor
Determining the Cash Value
Transfers
RIGHT TO REVOKE..................................20
POLICY LOANS.....................................21
Taking a Policy Loan
Effect on Investment Performance
Interest
Effect on Death Benefit and Cash Value
Repayment
ASSIGNMENT.......................................22
POLICY OWNER SERVICES............................22
Dollar Cost Averaging
DEATH BENEFIT INFORMATION........................22
Calculations of the Death Benefit
Changes in the Death Benefit
Proceeds Payable on Death
Incontestability
Suicide
Maturity Proceeds
EXCHANGE RIGHTS..................................24
GRACE PERIOD.....................................24
Reinstatement
TAX MATTERS......................................25
Policy Proceeds
Withholding
Federal Estate and Generation-Skipping
Transfers Taxes
Non-Resident Aliens
Taxation of Nationwide
Tax Changes
LEGAL CONSIDERATIONS.............................29
YEAR 2000 COMPLIANCE ISSUES......................29
STATE REGULATION.................................30
REPORTS TO POLICY OWNERS.........................30
ADVERTISING......................................30
LEGAL PROCEEDINGS................................31
4
<PAGE> 9
EXPERTS..........................................32
REGISTRATION STATEMENTS..........................32
LEGAL OPINIONS...................................32
DISTRIBUTION OF THE POLICIES.....................32
ADDITIONAL INFORMATION ABOUT
NATIONWIDE..................................35
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL
FUNDS.......................................43
APPENDIX B: ILLUSTRATIONS OF WHEN
ADDITIONAL PREMIUM PAYMENTS ARE PERMITTED...52
APPENDIX C: ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES, AND
DEATH BENEFITS..............................53
5
<PAGE> 10
SUMMARY OF POLICY EXPENSES
Nationwide deducts certain charges from the policy. Charges are made for
administrative and sales expenses, tax expenses, providing life insurance
protection and assuming the mortality and expense risks.
No deductions are made from premium payments - 100% of each premium payment is
applied to cash value.
Nationwide deducts the following charges from the cash value of the policy:
- Monthly Cost of Insurance
- Annual Administrative Charge(1)
- Surrender Charge(2).
(1)The amount of the Annual Administrative Charge is determined by the amount of
total net premium payments (see "Annual Administrative Charge"). The current
guaranteed maximum charges are:
- $135 ($120 in New York) for premiums less than $25,000; and
- $75 for net premiums of $25,000+.
(2)Surrender charges will not exceed 8.5% of the total premiums paid (see
"Surrender Charges").
Nationwide deducts the following charges from the assets of the variable
account:
- Mortality and Expense Risk Charge(3)
- Administrative Expense Charge(4)
- Premium Expense Charge(5).
Annually, these charges are equal to:
- -------------------------------------
POLICY POLICY
YEARS YEARS
- -------------------------------------
1-10 11+
- -------------------------------------
- -------------------------------------
CURRENT 1.30% 1.00%
- -------------------------------------
GUARANTEED
MAXIMUM 1.60% 1.30%
- -------------- --------- ------------
(3)The Mortality and Expense Risk Charge is equal to an annual effective rate of
0.75%. It is guaranteed not to exceed 0.90% (see "Mortality and Expense Risk
Charge").
(4)The Administrative Expense Charge is equal to an annual effective rate of
0.25%. It is guaranteed not to exceed 0.40% (see "Administrative Expense
Charge").
(5)The Premium Expense Charge is deducted during the first ten policy years and
is equivalent to an annual effective rate of 0.30% (see "Premium Expense
Charge").
For more information about any policy charge, see "Policy Charges" in this
prospectus.
6
<PAGE> 11
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(as a percentage of underlying mutual fund net assets, after expense reimbursement)
-----------------------------------------------------------
MANAGEMENT FEES OTHER 12b -1 FEES TOTAL MUTUAL
EXPENSES FUND EXPENSES
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American
Century VP Advantage
- -------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American 0.97% 0.00% 0.00% 0.97%
Century VP Balanced
- -------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American 1.00% 0.00% 0.00% 1.00%
Century VP Capital Appreciation
- -------------------------------------------------------------------------------------------------------------------
American Century Variable Products, Inc.-American 0.70% 0.00% 0.00% 0.70%
Century VP Income & Growth
- -------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American 1.47% 0.00% 0.00% 1.47%
Century VP International
- -------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American 1.00% 0.00% 0.00% 1.00%
Century VP Value
- -------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund 0.75% 0.05% 0.00% 0.80%
- -------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 0.25% 0.01% 0.00% 0.26%
- -------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund- Growth & Income 0.75% 0.03% 0.00% 0.78%
Portfolio.
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 0.49% 0.08% 0.00% 0.57%
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 0.59% 0.07% 0.00% 0.66%
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 0.58% 0.12% 0.00% 0.70%
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 0.74% 0.15% 0.00% 0.89%
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 0.54% 0.09% 0.00% 0.63%
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 0.59% 0.07% 0.00% 0.66%
- -------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT-Balanced Portfolio 0.85% 0.18% 0.00% 1.03%
- -------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT-Growth Portfolio 0.83% 0.09% 0.00% 0.92%
- -----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT-Guardian Portfolio 0.85% 0.15% 0.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT-Limited Maturity Bond Portfolio 0.65% 0.11% 0.00% 0.76%
- -----------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT-Partners Portfolio 0.78% 0.06% 0.00% 0.84%
- -----------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 0.60% 0.07% 0.00% 0.67%
- -----------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.07% 0.00% 0.57%
- -----------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.40% 0.06% 0.00% 0.46%
- -----------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small Cap Value Fund 0.90% 0.15% 0.00% 1.05%
- -----------------------------------------------------------------------------------------------------------------
NSAT-Nationwide Small Company Fund 1.00% 0.07% 0.00% 1.07%
- -----------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.59% 0.06% 0.00% 0.65%
- -----------------------------------------------------------------------------------------------------------------
Oppenheimer VAF-Bond Fund/VA 0.72% 0.02% 0.00% 0.74%
- -----------------------------------------------------------------------------------------------------------------
Oppenheimer VAF-Global Securities Fund/VA 0.68% 0.06% 0.00% 0.74%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------
MANAGEMENT FEES OTHER 12b -1 FEES TOTAL MUTUAL
EXPENSES FUND EXPENSES
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Oppenheimer VAF-Multiple Strategies Fund/VA 0.72% 0.04% 0.00% 0.76%
- -----------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 1.00% 0.16% 0.00% 1.16%
- -----------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc. - Discovery 1.00% 0.18% 0.00% 1.18%
Fund II, Inc.
- -----------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc. - International 1.00% 0.62% 0.00% 1.62%
Stock Fund II
- -----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Bond Fund 1.00% 0.15% 0.00% 0.15%
- -----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Emerging 1.00% 0.50% 0.00% 1.50%
Markets Fund
- -----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Hard 1.00% 0.16% 0.00% 1.16%
Assets Fund
- -----------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust - Morgan Stanley 1.20% 0.00% 0.00% 1.20%
Real Estate Securities Portfolio
- -----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity Portfolio 1.00% 0.33% 0.00% 1.33%
- -----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Post-Venture Capital Portfolio 1.08% 0.32% 0.00% 1.40%
- -----------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company Growth Portfolio 0.90% 0.24% 0.00% 1.14%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Management Other Expenses 12b-1 Total Mutual Fund
Fees Fees Expenses
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity Income Portfolio 0.49% 0.09% 0.00% 0.58%
- -----------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 0.59% 0.09% 0.00% 0.68%
- -----------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 0.74% 0.17% 0.00% 0.91%
- -----------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 0.54% 0.10% 0.00% 0.64%
- -----------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 0.59% 0.11% 0.00% 0.70%
- -----------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small Cap Value Fund 0.90% 0.43% 0.00% 1.33%
- -----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - Worldwide Hard 1.00% 0.20% 0.00% 1.20%
Assets Fund
- -----------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.61% 0.00% 1.61%
Emerging Markets Fund
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 13
SYNOPSIS OF THE POLICIES
The policies offered by this prospectus provide for life insurance coverage on
the insured. The death benefit and cash value of the policy may increase or
decrease to reflect the performance of the investment options chosen by the
policy owner (see "Death Benefit Information").
CASH SURRENDER VALUE
If the policy is terminated during the insured's lifetime, a cash surrender
value may be payable under the policy. However, there is no guaranteed cash
surrender value (see "Variation in Cash Value "). The policy will lapse without
value if the cash surrender value falls below what is needed to cover policy
charges.
PREMIUMS
The minimum initial premium for which a policy may be issued is $10,000 for
issue ages 75 or younger and $50,000 for issue ages 76 through 80.
Additional premium payments of at least $1,000 are permitted any time while the
policy is in force, subject to certain restrictions (see "Premium Payments").
TAXATION
The policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code. Nationwide will
monitor compliance with the tests provided by Section 7702 to insure the
policies continue to receive this favored tax treatment (see "Tax Matters").
NONPARTICIPATING POLICIES
The policies are nonparticipating policies on which no dividends are payable.
The policies do not share in the profits or surplus earnings of Nationwide.
RIDERS
A rider may be added to the policy. Availability varies by state (see "Riders").
Riders currently include:
- - Maturity Extension Endorsement;
- - Spouse Rider;
- - Child Rider;
- - Waiver of Monthly Deductions Rider;
- - Accidental Death Benefit Rider;
- - Base Insured Term Rider;
- - Accelerated Death Benefit Rider;
- - Change of Insured Rider; and
- - Guaranteed Minimum Death Benefit Rider.
POLICY CANCELLATION
Policy owners may return the policy for any reason within certain time periods
and Nationwide will refund the policy value or the amount required by law (see
"Right to Revoke").
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in March 1929, with its Home Office at One Nationwide Plaza,
Columbus, Ohio 43215. Nationwide is a provider of life insurance, annuities and
retirement products. It is admitted to do business in all states, the District
of Columbia and Puerto Rico.
CUSTODIAN OF ASSETS
Nationwide serves as the custodian of the assets of the variable account.
OTHER CONTRACTS ISSUED BY NATIONWIDE
Nationwide does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of Nationwide.
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NATIONWIDE ADVISORY SERVICES, INC.
The policies are distributed by Nationwide Advisory Services, Inc., Three
Nationwide Plaza, Columbus, Ohio 43215. NAS is a wholly owned subsidiary of
Nationwide.
INVESTING IN THE POLICY
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide VLI Separate Account- 3 is a separate account that invests in the
underlying mutual fund options listed in Appendix A. Nationwide established the
separate account on August 8, 1984, pursuant to Ohio law. Although the separate
account is registered with the SEC as a unit investment trust pursuant to the
Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the
management of Nationwide or the variable account.
Income, gains, and losses credited to, or charged against the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to policy owners under the policies.
The variable account is divided into sub-accounts. Policy owners elect to have
net premiums allocated among the sub-accounts and the fixed account at the time
of application.
Nationwide uses the assets of each sub-account to buy shares of the underlying
mutual funds based on policy owner instructions. A policy's investment
performance depends upon the performance of the underlying mutual fund options
chosen by the policy owner.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. The underlying mutual fund options are available as investment options in
variable life insurance policies or variable annuity contracts issued by life
insurance companies or, in some cases, through participation in certain
qualified pension or retirement plans.
However the underlying mutual funds are NOT directly related to any publicly
traded mutual fund. Policy owners should not compare the performance of a
publicly traded fund with the performance of underlying mutual funds
participating in the variable account. The performance of the underlying mutual
funds could differ substantially from that of any publicly traded funds.
Changes of Investment Policy
Nationwide may materially change the investment policy of the variable account.
Nationwide must inform policy owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the policy owners or if it renders Nationwide's operations hazardous to the
public. If a policy owner objects, the policy may be converted to a
substantially comparable general account life insurance policy offered by
Nationwide. The policy owner has the later of 60 days (6 months in Pennsylvania)
from the date of the investment policy change or 60 days (6 months in
Pennsylvania) from being informed of the change to make the conversion.
Nationwide will not require evidence of insurability for this conversion.
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<PAGE> 15
The new policy will not be affected by the investment experience of any separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the policy converted on the date of the conversion.
Voting Rights
Policy owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote policy owner shares at
special shareholder meetings based on policy owner instructions. However, if the
law changes allowing Nationwide to vote in its own right, it may elect to do so.
Policy owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholder's vote as soon as possible before
the shareholder meeting. Notification will contain proxy materials, and a form
to return to Nationwide with voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
The number of shares which a policy owner may vote is determined by dividing the
cash value of the amount they have allocated to an underlying mutual fund by the
net asset value of that underlying mutual fund. Nationwide will designate a date
for this determination not more than 90 days before the shareholder meeting.
Substitution of Securities
Nationwide may substitute, eliminate and/or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occur:
1. shares of a current underlying mutual fund option are no longer available
for investment; or
2. further investment in an underlying mutual fund option is inappropriate.
No substitution, elimination, and/or combination of shares may take place
without the prior approval of the SEC and state insurance departments.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the policy owners and those of other companies. If
a material conflict occurs, Nationwide will take whatever steps are necessary to
protect policy owners, including withdrawal of the variable account from
participation in the underlying mutual fund(s) involved in the conflict.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks. Under exemptive and exclusionary
provisions, Nationwide's general account has not been registered under the
Securities Act of 1933 and has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the general
account nor any interest therein is subject to the provisions of these Acts.
Nationwide has
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<PAGE> 16
been advised that the staff of the SEC has not reviewed the disclosures in this
prospectus relating to the fixed account. Disclosures regarding the general
account may, however, be subject to certain generally applicable provisions of
the federal securities laws concerning the accuracy and completeness of
statements made in prospectuses.
Premiums will be allocated to the fixed account by election of the policy owner.
The investment income earned by the fixed account will be allocated to the
policies at varying rate(s) set by Nationwide. The guaranteed rate for any
purchase payment will be effective for not less than twelve months. Nationwide
guarantees that the rate will not be less than 4.0% per year.
The guaranteed rate for any premiums will be effective for not less than twelve
months. Nationwide guarantees that the rate will not be less than 4.0% per year.
Any interest in excess of 4.0% will be credited to fixed account allocations at
Nationwide's sole discretion. The policy owner assumes the risk that interest
credited to fixed account allocations may not exceed the minimum guarantee of
4.0% for any given year.
INFORMATION ABOUT THE POLICIES
MINIMUM REQUIREMENTS FOR ISSUANCE OF A POLICY
This policy provides life insurance coverage on the insured. Minimum
requirements for policy issuance include:
- the insured must be age 80 or younger;
- Nationwide may require satisfactory evidence of insurability (including a
medical exam); and
- minimum initial premium of $10,000 for issue ages 75 and younger, and
$50,000 for issue ages 76 through 80.
Premium Payments
Each premium payment must be at least $10,000 for issue ages 75 and younger or
$50,000 for issue ages 76-80. The initial premium is payable in full at
Nationwide's home office or to an authorized agent of Nationwide.
The specified amount is determined by treating the initial premium as equal to
100% of the Guideline Single Premium.
Upon payment of the initial premium, temporary insurance may be provided.
Issuance of the continuing insurance coverage is dependent upon completion of
all underwriting requirements, payment of initial premium, and delivery of the
policy while the insured is still living.
Additional premium payments may be made at any time while the policy is in
force, subject to the following conditions:
- Nationwide may require satisfactory evidence of insurability before
accepting any additional premium payment which results in an increase in
the net amount at risk.
- Additional premium payments must be $1,000 (except in Virginia).
- Premium payments in excess of the premium limit established by the IRS to
qualify the policy as a contract for life insurance will be refunded.
- Nationwide may require policy indebtedness be repaid prior to accepting
any additional premium payments.
Additional premium payments or other changes to the policy may jeopardize the
policy's non-modified endowment status. Nationwide will monitor premiums paid
and other policy transactions and will notify the policy owner when non-modified
endowment contract status is in jeopardy.
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<PAGE> 17
PRICING
Premiums will not be priced when the New York Stock Exchange is closed or on the
following nationally recognized holidays:
- - New Year's Day - Independence Day
- - Martin Luther King, Jr. Day - Labor Day
- - Presidents' Day - Thanksgiving
- - Good Friday - Christmas
- - Memorial Day
Nationwide also will not price purchase payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities held in
the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for the
protection of security holders.
Rules and regulations of the SEC will govern as to when conditions described in
(2) and (3) exist.
If Nationwide is closed on days when the New York Stock Exchange is open,
contract value may be affected since the policy owner would not have access to
their account.
POLICY CHARGES
No deduction is made from premium payments - 100% of each premium payment is
applied to the cash value.
MONTHLY COST OF INSURANCE
The Cost of Insurance Charge for each policy month is determined by multiplying
the monthly cost of insurance rate by the net amount at risk. The net amount at
risk is the difference between the death benefit and the policy's cash value.
This deduction is charged proportionately to the cash value in each sub-account
and the fixed account.
Current cost of insurance charges will not exceed the cost based on the
guaranteed cost of insurance rate and the policy's net amount at risk.
Guaranteed cost of insurance rates for standard simplified issues are based on
the 1980 Commissioner's Extended Term Mortality Table, Age Last Birthday (1980
CET). Guaranteed cost of insurance rates for standard preferred issues are based
on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last Birthday
(1980 CSO). Guaranteed cost of insurance rates for substandard issues are based
on appropriate percentage multiples of the 1980 CSO.
These mortality tables are sex distinct. In addition, separate mortality tables
will be used for standard and non-tobacco.
For policies issued in Texas, guaranteed cost of insurance rates for standard
simplified issues ("Special Class-Simplified" in Texas) are based on 130% of the
1980 CSO.
The rate class of an insured may affect the cost of insurance rate. Nationwide
currently places insureds into both standard rate classes and substandard rate
classes that involve a higher mortality risk. In an otherwise identical policy,
an insured in the standard rate class will have a lower cost of insurance than
an insured in a rate class with higher mortality risks. Nationwide may also
issue certain policies on a "simplified issue" basis to certain categories of
individuals. Due to the underwriting criteria established for policies issued on
a simplified issue basis, actual rates for healthy individuals will be higher
than the current cost of insurance rates being charged under otherwise identical
policies that are issued on a preferred basis.
ANNUAL ADMINISTRATIVE CHARGE
Nationwide deducts an annual administrative charge at the beginning of each
policy year after the first. It is charged proportionately to the cash values in
each sub-account and the fixed account. The annual charge is determined by the
total net
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premium payments (premium payments less any previous partial surrenders):
- ----------------------------------------------------
GUARANTEED
CURRENT MAXIMUM
TOTAL NET ADMINISTRATIVE ADMINISTRATIVE
PREMIUMS CHARGE CHARGE
- ----------------------------------------------------
$10,000 but $90* $135*
less than
$25,000
- ----------------------------------------------------
- ----------------------------------------------------
$25,000 $50 $75
- ----------------------------------------------------
*For policies issued in New York, the current charge is $65 and the guaranteed
maximum is $120.
SURRENDER CHARGES
Nationwide incurs certain expenses related to the sale of the policies. These
expenses include commissions paid to sales personnel, the cost of sales
literature and other promotional activity. Nationwide deducts a Surrender Charge
to cover these expenses. Unrecovered expenses are borne by Nationwide's general
assets which may include profits, if any, from the Mortality and Expense Risk
Charge.
The initial premium payment and any subsequent premium payment resulting in an
increased net amount at risk will incur surrender charges upon surrender. The
charge is less than or equal to 8.5% of that premium payment, as set forth in
the following chart:
- -----------------------------------------------------
CHARGES ON SURRENDER AS A
COMPLETED YEAR(S) PERCENTAGE OF THE PAYMENT
SINCE THE PAYMENT
- -----------------------------------------------------
- -----------------------------------------------------
0 8.5%
- -----------------------------------------------------
1 8.5%
- -----------------------------------------------------
2 8.0%
- -----------------------------------------------------
3 8.0%
- -----------------------------------------------------
4 7.5%
- -----------------------------------------------------
5 7.0%
- -----------------------------------------------------
6 6.0%
- -----------------------------------------------------
7 5.0%
- -----------------------------------------------------
8 4.0%
- -----------------------------------------------------
9 0.0%
- -----------------------------------------------------
Surrender charges apply for nine years after the effective date of each premium
payment. Certain surrenders may result in adverse tax consequences.
The Surrender Charge deducted upon surrender will never exceed 8.5% of the total
premiums paid. Surrender charges may be eliminated for policies are issued to an
officer, director, former director, partner, employee, or retired employee of
Nationwide; or an employee of Nationwide Advisory Services, Inc. (NAS) the
general distributor, or an employee of an affiliate of Nationwide or NAS; or, a
duly appointed representative of Nationwide who receives no commission as a
result of the purchase. Surrender charges are eliminated only when Nationwide
does not incur sales or administrative expenses normally incurred on the sale of
a policy. In no event will reduction of the surrender charge be permitted if a
reduction would be unfairly discriminatory to any person.
Nationwide deducts the following charges from the assets of the variable
account.
- Mortality and Expense Risk Charge
- Administrative Expense Charge
- Premium Expense Charge.
Annually, these charges are equal to:
- ------------------------------------------
POLICY POLICY
YEARS YEARS
- ------------------------------------------
1-10 11+
- ------------------------------------------
- ------------------------------------------
CURRENT 1.30% 1.00%
- ------------------------------------------
GUARANTEED MAXIMUM
1.60% 1.30%
- ------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
Nationwide assumes certain risk for guaranteeing the mortality risk assumed
under the policies is that the insured may not live as long as expected. The
expense risk assumed is that the actual expenses incurred in issuing and
administering the policies may be greater than expected. In addition, Nationwide
assumes risks associated with the non-recovery of policy issue, underwriting and
other administrative
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<PAGE> 19
expenses due to policies that lapse or are surrendered in the early policy
years.
Nationwide deducts the Morality and Expense Risk Charge from the variable
account on a daily basis. This charge is equivalent to an annual effective rate
of 0.75% of the average net assets of the variable account. This charge is
guaranteed not to exceed 0.90%. Policy owners receive quarterly and annual
statements, advising policy owners of the cancellation of accumulation units for
mortality and expense risk charges.
ADMINISTRATIVE EXPENSE CHARGE
Nationwide deducts a daily Administrative Expense charge from the assets of the
sub-accounts. This charge reimburses Nationwide for certain actual expenses
related to issuance and maintenance of the policies including underwriting,
record keeping, accounting and periodic reporting to policy owners. Nationwide
does not expect to recover any amount in excess of aggregate maintenance
expenses from this charge. Currently this charge is equivalent to an annual
effective rate of 0.25%. This charge is guaranteed not to exceed 0.40%.
PREMIUM EXPENSE CHARGE
Nationwide pays any state premium taxes attributable to a particular policy when
incurred by Nationwide. Nationwide expects to pay an average state premium tax
rate of approximately 2.50% of premiums for all states, although tax rates
generally can range from 0% to 4%.
During the first ten policy years Nationwide deducts a daily charge equivalent
to an annual effective rate of 0.30% of the assets of the variable account, and
0% thereafter. This charge may be more or less than the amount actually assessed
by the state in which a particular policy owner lives.
Nationwide does not expect to make a profit from this charge.
INCOME TAX
No charge is assessed to policy owners for income taxes incurred by Nationwide
as a result of the operations of the sub-accounts. However, Nationwide reserves
the right to assess a charge for income taxes against the variable account if
income taxes are incurred.
SURRENDERING THE POLICY FOR CASH
SURRENDER (REDEMPTION)
Policies may be surrendered for the cash surrender value any time while the
insured is living. The cancellation will be effective as of the date Nationwide
receives the policy accompanied by a signed, written request for cancellation.
Nationwide may require the policy owner's signature to be guaranteed by a member
firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock
Exchanges, or by a commercial bank or a savings and loan, which is a member of
the Federal Deposit Insurance Corporation. In some cases, Nationwide may require
additional documentation of a customary nature.
Cash Surrender Value
The cash surrender value increases or decreases daily to reflect the investment
experience of the variable account and the daily crediting of interest in the
fixed account and the policy loan account.
The cash surrender value equals the policy's cash value, next computed after the
date Nationwide receives a proper written request for surrender and the policy,
minus any charges, indebtedness or other deductions due on that date, which may
also include a surrender charge.
Partial Surrenders
After the policy has been in force for five years, the policy owner may request
a partial surrender.
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<PAGE> 20
Partial surrenders are permitted if they satisfy the following requirements:
1) the minimum partial surrender in any policy year is limited to 10% of
total premium payments;
2) after a partial surrender, the cash surrender value is greater than
$10,000; and
3) after the partial surrender, the policy continues to qualify as life
insurance.
When a partial surrender is made, the cash value will be reduced by the amount
of the partial surrender. Under Death Benefit Option 1, the specified amount is
reduced by the amount of the partial surrender, unless the death benefit is
based on the applicable percentage of cash value. In that case, a partial
surrender will decrease the specified amount by the amount the partial surrender
exceeds the difference between the death benefit and specified amount. Partial
surrenders are first deducted from the values in the sub-accounts, then from the
fixed account if there are insufficient amounts in the sub-accounts.
Surrenders charges are waived for partial surrenders that satisfy the above
conditions. Certain partial surrenders may result in currently taxable income
and tax penalties.
INCOME TAX WITHHOLDING
Federal law requires Nationwide to withhold income tax from any portion of
surrender proceeds subject to tax. Nationwide will withhold income tax unless
the policy owner advises Nationwide, in writing, of his or her request not to
withhold. If a policy owner requests that taxes not be withheld, or if the taxes
withheld are insufficient, the policy owner may be liable for payment of an
estimated tax. Policy owners should consult a tax 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 exceeds the
employer's interest in the policy.
Participants should consult with the sponsor or the administrator of the plan,
and/or with their personal tax or legal advisor, to determine the tax
consequences, if any, of their employer-sponsored life insurance arrangements.
VARIATION IN CASH VALUE
On any date during the policy year, the cash value equals the cash value on the
preceding valuation date plus any net premium applied since the previous
valuation date, minus any partial surrenders, plus or minus any investment
results, minus any surrender charge for decreases in specified amount, and less
any policy charges.
There is no guaranteed cash value. The cash value will vary with the investment
experience of the variable account and/or the daily crediting of interest in the
fixed account and policy loan account depending on the allocation of cash value
by the policy owner.
ERROR IN AGE OR SEX
If the age or sex of the insured has been misstated, the affected benefits will
be adjusted to reflect the correct age and sex.
POLICY PROVISIONS
POLICY OWNER
While the insured is living, all rights in this policy are vested in the policy
owner named in the application or as subsequently changed, subject to
assignment, if any.
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<PAGE> 21
The policy owner may name a contingent policy owner or a new policy owner while
the insured is living. Any change must be in a written form satisfactory to
Nationwide and recorded at Nationwide's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by Nationwide before it was recorded. Nationwide may require that
the policy be submitted for endorsement before making a change.
If the policy owner is other than the insured and names no contingent policy
owner, and dies before the insured, the policy owner's rights in this policy
belong to the policy owner's estate.
BENEFICIARY
The beneficiary(ies) will be as named in the application or as subsequently
changed, subject to assignment, if any.
The policy owner may name a new beneficiary while the insured is living. Any
change must be in a written form satisfactory to Nationwide and recorded at
Nationwide's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by
Nationwide before it was recorded.
If any beneficiary predeceases the insured, that beneficiary's interest passes
to any surviving beneficiary(ies), unless otherwise provided. Multiple
beneficiaries will be paid in equal shares, unless otherwise provided. If no
named beneficiary survives the insured, the death proceeds will be paid to the
policy owner or the policy owner's estate.
CHANGES IN EXISTING INSURANCE COVERAGE
The policy owner may request certain changes in the insurance coverage under the
policy. Requests must be in writing and received by Nationwide. No change will
take effect unless the cash surrender value after the change is sufficient to
keep the policy in force for at least 3 months.
Specified Amount Increases
After the first policy year, the policy owner may request an increase to the
specified amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the rate class, rate class multiple, and rate type for the increase must
be identical to those on the policy date; and
5. Nationwide reserves the right to limit the number of increases to one
per policy year.
Any approved increase will have an effective date of the monthly anniversary day
on or next following the date Nationwide approves the supplemental application.
The specified amount cannot be decreased if the decrease would result in the
policy failing to meet the definition of life insurance under Section 7702 of
the Internal Revenue Code.
RIDERS
A rider may be added as an addition to the policy. Rider availability varies by
state.
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 policy owner's ability to make
certain policy changes, Nationwide automatically will make several policy
changes to reduce its risk, and no further premium payments will
17
<PAGE> 22
be accepted.
SPOUSE RIDER: This rider provides a level amount of term insurance on the spouse
of the primary insured. This rider 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 age
15-59 and provides for the waiver of total policy monthly deductions by
Nationwide 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 age 5-65.
BASE INSURED TERM RIDER: This rider provides term insurance on the base insured
age 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
charges 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.
OPERATION OF THE POLICY
ALLOCATION OF NET PREMIUM AND CASH VALUE
Nationwide allocates premium payments to sub-accounts or the fixed account, as
instructed by policy owners. Shares of the underlying mutual funds allocated to
the sub-accounts are purchased at net asset value, than converted into
accumulation units. All percentage allocations must be in whole numbers, and
must be at least 5%. The sum of allocations must equal 100%. Future premium
allocations may be changed by giving written notice to Nationwide.
Premiums allocated to sub-accounts on the application will be allocated to the
NSAT-Money Market Fund during the period that a policy owner can cancel the
policy, unless specific state require premiums to be allocated to the fixed
account. At the expiration of this cancellation period, these premiums are used
to purchase shares of the underlying mutual funds specified by the policy owner
at net asset value for the respective sub-account(s).
The policy owner may change the allocation of net premiums or may transfer cash
value from one sub-account to another. Changes are subject to the terms and
conditions
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<PAGE> 23
imposed by each underlying mutual fund and those found in this prospectus. Net
premiums allocated to the fixed account at the time of application may not be
transferred from the fixed account prior to the first policy anniversary (see
"Transfers").
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The accumulation unit value for a valuation period is determined by multiplying
the accumulation unit value for each sub-account for the immediately preceding
valuation period by the net investment factor for the sub-account for the
subsequent valuation period. Though the number of accumulation units will not
change as a result of investment experience, the value of an accumulation unit
may increase or decrease from valuation period to valuation period. The number
of accumulation units will not change as a result of investment experience.
NET INVESTMENT FACTOR
Net investment factor is determined by dividing (a) by (b) and subtracting (c)
from the result where:
(a) is:
(1) the net asset value per share of the underlying mutual fund held
in the sub-account as of the end of the current valuation period;
and
(2) the per share amount of any dividend or income distributions made
by the underlying mutual fund (if the "ex-dividend" date occurs
during the current valuation period).
(b) is the net asset value per share of the underlying mutual fund determined
as of the end of the immediately preceding valuation period.
(c) is a factor representing the daily mortality and expense risk charge,
administration expense charge and premium tax charge. This factor is
equal to an annual rate of 1.30% of the daily net assets of the variable
account for the first ten policy years and 1.00% thereafter.
The net investment factor allows for the monthly reinvestment of daily dividends
for underlying mutual fund options that credit dividends on a daily basis.
The net investment factor may be greater or less than one; therefore, the value
of an accumulation unit may increase or decrease. It should be noted that
changes in the net investment factor may not be directly proportional to changes
in the net asset value of underlying mutual fund shares because of the deduction
for mortality and expense risk charge, administrative expense charge and premium
tax charge.
DETERMINING THE CASH VALUE
The cash value is the sum of the value of all variable account accumulation
units attributable to the policy plus amounts credited to the fixed account and
the policy loan account.
The number of accumulation units credited to each sub-account is determined by
dividing the net amount allocated to the sub-account by the accumulation unit
value for the sub-account for the valuation period during which the premium is
received by Nationwide. In the event part or all of the cash value is
surrendered or charges or deductions are made against the cash value, an
appropriate number of accumulation units from the variable account and an
appropriate amount from the fixed account will be deducted in the same
proportion that the policy owner's interest in the variable account and the
fixed account bears to the total cash value.
The cash value in the fixed account and the policy loan account is credited with
interest
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<PAGE> 24
daily at an effective annual rate which Nationwide periodically declares. The
annual effective rate will never be less than 4%. (For a description of the
annual effective credited rates, see "The Fixed Account" and "Policy Loans.")
Upon request, Nationwide will inform the policy owner of the then applicable
rates for each account.
TRANSFERS
Policy owners can transfer 100% of allocations without penalty or adjustment
subject to the following conditions:
- - Nationwide reserves the right to restrict transfers between the fixed
account and the sub-accounts to one per policy year.
- - Transfers made to the fixed account may not be made in the first policy
year.
- - Nationwide reserves the right to restrict transfers from the fixed account
to 25% of the cash value attributable to the fixed account.
- - Nationwide reserves the right to restrict transfers to the fixed account
to 25% of cash value.
Transfer Requests
Nationwide will accept transfer requests in writing or over the telephone.
Nationwide will use reasonable procedures to confirm that telephone instructions
are genuine and Nationwide will not be liable for following instructions it
reasonably determined to be genuine. Nationwide may withdraw the telephone
exchange privilege upon 30 days written notice to policy owners.
Market-Timing Firms
Some policy owners may use market-timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market- timing firms will submit transfer requests on behalf of
multiple policy owners at the same time. Sometimes this can result in unusually
large transfers of funds. These large transfers might interfere with the ability
of Nationwide or the underlying mutual fund to process transactions. This can
potentially disadvantage policy owners not using market-timing firms. To avoid
this, Nationwide may modify the transfer rights of policy owners who use
market-timing firms (or other third parties) to initiate transfers on their
behalf.
The transfer rights of individual policy owners will not be modified in any way
when instructions are submitted directly by the policy owner, or by the policy
owner's representative (as authorized by the execution of a valid Nationwide
Limited Power of Attorney Form).
To protect policy owners, Nationwide may refuse transfer requests:
- submitted by any agent acting under a power of attorney on behalf of more
than one policy owner; or
- submitted on behalf of individual policy owners who have executed
pre-authorized exchange forms which are submitted by market-timing firms
(or other third parties) on behalf of more than one policy owner at the
same time.
Nationwide will not restrict transfer rights unless Nationwide believes it
to be necessary for the protection of all policy owners.
RIGHT TO REVOKE
A policy owner may cancel the policy by returning it by the latest of:
- 10 days after receiving the policy;
- 45 days after signing the application; or
- 10 days after Nationwide delivers a Notice of Right of Withdrawal.
The policy can be mailed to the registered representative who sold it, or
directly to Nationwide.
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<PAGE> 25
Returned policies are deemed void from the beginning. Nationwide will refund the
amount prescribed by the state in which the policy was issued within seven days
after it receives the policy. This right varies by state.
POLICY LOANS
TAKING A POLICY LOAN
The policy owner may take a policy loan at any time after the first policy year
using the policy as security. During the first year, maximum policy indebtedness
is limited to 50% of the cash surrender value, less interest due on the next
policy anniversary. After the first year, maximum policy indebtedness is limited
to 90% of the cash surrender value, less interest due on the next policy
anniversary.
Maximum policy indebtedness in Texas is limited to 90% of the cash surrender
value in the variable account sub-accounts and 100% of the cash surrender value
in the fixed account, less interest due on the next policy anniversary.
Nationwide will not grant a loan for an amount less than $1,000 ($500 in New
York and $200 in Connecticut). Policy indebtedness will be deducted from the
death benefit, cash surrender value upon surrender, or the maturity proceeds.
Any request for a policy loan must be in written form. The request must be
signed and, where permitted, the signature guaranteed by a member firm of the
New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or
by a commercial bank or a savings and loan which is a member of the Federal
Deposit Insurance Corporation. Certain policy loans may result in currently
taxable income and tax penalties.
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the variable account to the policy loan account. If the assets relating to
a policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each sub-account at the time of the
loan. Policy loans will be transferred from the fixed account only when
sufficient amounts are not available in the sub-accounts.
The amount taken out of the variable account will not be affected by the
variable account's investment experience while the loan is outstanding.
INTEREST
Currently, policy loans are credited with an annual effective rate of 5.0%.
Nationwide guarantees the rate will never be lower than 4%. Nationwide may
change the current interest crediting rate on policy loans at any time at its
sole discretion. The loan interest rate is 6% per year for all policy loans.
Amounts transferred to the policy loan account will earn interest daily from the
date of transfer. The earned interest is transferred from the policy loan
account to a variable account or the fixed account on each policy anniversary,
at the time a new loan is requested or at the time of loan repayment. It will be
allocated according to the fund allocation factors in effect at the time of the
transfer.
Interest is charged daily and is payable at the end of each policy year or at
the time of loan repayment. Unpaid interest will be added to the existing policy
indebtedness as of the due date and will be charged interest at the same rate as
the rest of the indebtedness.
Whenever the total policy indebtedness plus accrued interest exceeds the cash
value less any surrender charges, Nationwide will send a notice to the policy
owner and the assignee, if any. The policy will terminate without value 61 days
after the mailing of the notice unless a sufficient repayment is made during
that period. A repayment is sufficient if it is large enough to reduce the
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<PAGE> 26
total policy indebtedness to an amount equal to the total cash value less any
surrender charges plus an amount sufficient to continue the policy in force for
3 years.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A policy loan, whether or not repaid, will have a permanent effect on the death
benefit and cash value because the investment results of the variable account or
the fixed account will apply only to the non-loaned portion of the cash value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the variable account or the fixed account
while the loan is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the indebtedness may be repaid at any time while the policy is in
force during the insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the sub-accounts and the fixed account in proportion to the
policy owner's underlying mutual fund allocation factors in effect at the time
of the repayment. Each repayment may not be less than $1,000 ($50 in New York
and Connecticut). Nationwide reserves the right to require that any loan
repayments resulting from policy loans transferred from the fixed account must
be first allocated to the fixed account.
ASSIGNMENT
While the insured is living, the policy owner may assign his or her rights in
the policy. The assignment must be in writing, signed by the policy owner and
recorded at Nationwide's home office. Prior to being recorded, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted for recording, nor is Nationwide
responsible for the sufficiency or validity of any assignment. Assignments are
subject to any indebtedness owed to Nationwide before being recorded.
POLICY OWNER SERVICES
DOLLAR COST AVERAGING
Dollar Cost Averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from certain sub-accounts and the fixed account into other
sub-accounts. Policy owners may participate in this program if their policy
value is at least $15,000. Nationwide does not guarantee that this program will
result in profit or protect policy owners from loss.
Policy owners direct Nationwide to automatically transfer specified amounts from
the fixed account and the following underlying mutual fund options: Fidelity VIP
High Income Portfolio; NSAT Government Bond Fund; Neuberger Berman AMT - Limited
Maturity Bond Portfolio; and the NSAT Money Market Fund.
The minimum monthly transfer is $100. Transfers from the fixed account must be
equal to 1/30th of the fixed account value at the time the program is requested.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the policy owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new Dollar Cost Averaging
programs. Nationwide reserves the right to assess a processing fee for this
service.
DEATH BENEFIT INFORMATION
CALCULATION OF THE DEATH BENEFIT
The policy owner may choose one of two death benefit options.
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OPTION 1: The death benefit will be the greater of the specified amount or the
applicable percentage of cash value. The amount of the death benefit will
ordinarily not change for several years to reflect the investment performance
and may not change at all. If investment performance is favorable the amount of
death benefit may increase. To see how and when investment performance will
begin to affect death benefits, please see the illustrations.
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 investment performance.
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 under Option 2.
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."
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
--------------------------------------------------------------------------------------------
ATTAINED PERCENTAGE OF ATTAINED PERCENTAGE OF ATTAINED PERCENTAGE OF
AGE CASH VALUE AGE CASH VALUE AGE CASH VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
--------------------------------------------------------------------------------------------
41 243% 61 128% 81 105%
--------------------------------------------------------------------------------------------
42 236% 62 126% 82 105%
--------------------------------------------------------------------------------------------
43 229% 63 124% 83 105%
--------------------------------------------------------------------------------------------
44 222% 64 122% 84 105%
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
45 215% 65 120% 85 105%
--------------------------------------------------------------------------------------------
46 209% 66 119% 86 105%
--------------------------------------------------------------------------------------------
47 203% 67 118% 87 105%
--------------------------------------------------------------------------------------------
48 197% 68 117% 88 105%
--------------------------------------------------------------------------------------------
49 191% 69 116% 89 105%
--------------------------------------------------------------------------------------------
50 185% 70 115% 90 105%
--------------------------------------------------------------------------------------------
51 178% 71 113% 91 104%
--------------------------------------------------------------------------------------------
52 171% 72 111% 92 103%
--------------------------------------------------------------------------------------------
53 164% 73 109% 93 102%
--------------------------------------------------------------------------------------------
54 157% 74 107% 94 101%
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
55 150% 75 105% 95 100%
--------------------------------------------------------------------------------------------
56 146% 76 105%
--------------------------------------------------------------------------------------------
57 142% 77 105%
--------------------------------------------------------------------------------------------
58 138% 78 105%
--------------------------------------------------------------------------------------------
59 134% 79 105%
--------------------------------------------------------------------------------------------
</TABLE>
CHANGES IN THE DEATH BENEFIT OPTION
After the first policy year, the policy owner may elect to change the death
benefit option under the policy from either Option 1 to Option 2, or from Option
2 to Option 1. Only one change of death benefit option is permitted per policy
year. The effective date of a change will be the monthly anniversary day
following the date the change is approved by Nationwide.
If the change is from Option 1 to Option 2, the specified amount will be
decreased by the amount of the cash value. Nationwide may require evidence of
insurability for a change from Option 1 to Option 2. If the change is from
Option 2 to Option 1, the
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<PAGE> 28
specified amount will be increased by the amount of the cash value.
A change in death benefit option will not be permitted if it results in the
total premiums paid exceeding the current maximum premium limitations under
Section 7702 of the Internal Revenue Code.
PROCEEDS PAYABLE ON DEATH
The actual death proceeds payable on the insured's death will be the death
benefit as described above, less any policy indebtedness and less any unpaid
policy charges. Under certain circumstances, the death proceeds may be adjusted
(see "Incontestability," "Error in Age or Sex," and "Suicide").
INCONTESTABILITY
Nationwide will not contest payment of the death proceeds based on
representations in any written application after the policy has been in force
during the insured's lifetime for 2 years from the policy date.
SUICIDE
If the insured dies by suicide, while sane or insane, within two years from the
policy date, Nationwide will pay no more than the sum of the premiums paid, less
any unpaid loan. If the insured dies by suicide, while sane or insane, within
two years from the date an application is accepted for an increase in the
specified amount, Nationwide will pay no more than the amount paid for the
additional benefit.
MATURITY PROCEEDS
The maturity date is the policy anniversary on or next following the insured's
95th birthday. If the policy is still in force, maturity proceeds are payable to
the policy owner on the maturity date. Maturity proceeds are equal to the amount
of the policy's cash value, less any indebtedness.
EXCHANGE RIGHTS
The policy owner may exchange the policy for a modified single premium life
insurance policy offered by Nationwide on the policy date. If not available, the
new policy may be a flexible premium adjustable life insurance policy offered by
Nationwide on the policy date. The benefits for the new policy will not vary
with the investment experience of a separate account. The exchange must be
elected within 24 months from the policy date. No evidence of insurability will
be required.
The policy owner and beneficiary under the new policy will be the same as those
under the exchanged policy on the effective date of the exchange. The new policy
will have a death benefit on the exchange date not more than the death benefit
of the original policy immediately prior to the exchange date. The new policy
will have the same policy date and issue age as the original policy. The initial
specified amount and any increases in specified amount will have the same rate
class as those of the original policy. Any indebtedness may be transferred to
the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two policies.
After adjustment, if any excess is owed the policy owner, Nationwide will pay
the excess to the policy owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
GRACE PERIOD
If the cash surrender value is insufficient to pay monthly policy charges or
policy loan interest, a grace period of 61 days is allowed for payment.
Nationwide will notify the policy owner of the amount needed to keep the policy
in force. If this amount is not received by Nationwide within 61 days of
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<PAGE> 29
the notice, the policy will lapse without value. If the insured dies during the
grace period, Nationwide will pay the death proceeds.
REINSTATEMENT
If the grace period ends and the policy owner has neither paid the required
premium nor surrendered the policy for its cash surrender value, the policy
owner may reinstate the policy by:
1. submitting a written request at any time within 3 years after the end of
the grace period and prior to the maturity date;
2. providing evidence of insurability satisfactory to Nationwide;
3. paying sufficient premium to cover all policy charges that were due and
upaid during the grace period;
4. paying sufficient premium to keep the policy in force for 3 months from
the date of reinstatement; and
5. paying or reinstating any indebtedness against the policy which existed
at the end of the grace period.
The effective date of a reinstated policy will be the monthly anniversary day on
or next following the date the application for reinstatement is approved by
Nationwide. If the policy is reinstated, the cash value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the appropriate surrender charge.
Amounts allocated to underlying mutual funds at the start of the grace period
will be reinstated, unless the policy owner provides otherwise.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Internal Revenue Code provides that if certain tests are
met, a policy will be treated as a life insurance policy for federal tax
purposes. Nationwide will monitor compliance with these tests. The policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the death proceeds payable under a policy are excludable
from gross income of the beneficiary under Section 101 of the Internal Revenue
Code.
Section 7702A of the Internal Revenue Code defines modified endowment contracts
as those policies issued or materially changed on or after June 21, 1988 on
which the total premiums paid during the first seven years exceed the amount
that would have been paid if the policy provided for paid up benefits after
seven level annual premiums. The Internal Revenue Code states that taxation of
surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts (other than certain
distributions to terminally ill individuals) are subject to federal income taxes
in a manner similar to the way annuities are taxed. Modified endowment contract
distributions are defined by the Internal Revenue Code as amounts not received
as an annuity and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into the policy. A 10%
tax penalty generally applies to the taxable portion of such distributions
unless the policy owner is over age 59 1/2 or disabled, or the distribution is
part of an annuity to the policy owner as defined in the Internal Revenue Code.
Under certain circumstances, certain distributions made under a policy on the
life of a "terminally ill individual", as that term is defined in the Internal
Revenue Code, are excludable from gross income.
Even though exchanges under Section 1035 of the Internal Revenue Code qualify as
material changes, certain exchange of pre-June 22, 1988 policies may retain
their non-
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<PAGE> 30
modified endowment status. Therefore, the policies offered by this
prospectus may or may not be issued as modified endowment contracts. Nationwide
will monitor premiums paid and will notify the policy owner when the policy's
non-modified endowment status is in jeopardy. If a policy is not a modified
endowment contract, a cash distribution during the first 15 years after a policy
is issued which causes a reduction in death benefits may still become fully or
partially taxable to the policy owner pursuant to Section 7702(f)(7) of the
Internal Revenue Code. The policy owner should carefully consider this potential
effect and seek further information before initiating any changes in the terms
of the policy. Under certain conditions, a policy may become a modified
endowment as a result of a material change or a reduction in benefits as defined
by Section 7702A(c) of the Internal Revenue Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Internal Revenue Code requires that the investments of separate accounts
such as the variable account be adequately diversified. Regulations under 817(h)
provide that a variable life policy that fails to satisfy the diversification
standards will not be treated as life insurance unless such failure was
inadvertent, is corrected, and the policy owner or Nationwide pays an amount to
the IRS. The amount will be based on the tax that would have been paid by the
policy owner if the income, for the period the policy was not diversified, had
been received by the policy owner.
If the failure to diversify is not corrected in this manner, the policy owner
will be deemed the owner of the underlying securities and taxed on the earnings
of his or her account.
Representatives of the IRS have suggested, from time to time, that the number of
underlying mutual funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of underlying mutual funds, transfers between
underlying mutual funds, exchanges of underlying mutual funds or changes in
investment objectives of underlying mutual funds such that the policy would no
longer qualify as life insurance under Section 7702 of the Internal Revenue
Code, Nationwide will take whatever steps are available to remain in compliance.
Nationwide will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the Sub-Account investments
to remain in compliance.
A total surrender or cancellation of the policy by lapse may have adverse tax
consequences. If the amount received by the policy owner plus total policy
indebtedness exceeds the premiums paid into the policy, the excess generally
will be treated as taxable income, regardless of whether or not the policy is a
modified endowment contract.
WITHHOLDING
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
(which cannot be waived). The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise of no Taxpayer Identification Number
is provided to Nationwide, or if the IRS notifies Nationwide that back-up
withholding is required.
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<PAGE> 31
FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 1999, an estate of less than $625,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.
When the insured dies, the death benefit will generally be included in the
insured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the insured's estate; or (2) the insured held any "incident of
ownership" in the policy at death or at any time within three years of death. An
incident of ownership is, in general, any right that may be exercised by the
policy owner, such as the right to borrow on the policy, or the right to name a
new beneficiary.
If the policy owner (whether or not he or she is the insured) transfers
ownership of the policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such policy owner transfers the policy to
someone two or more generations younger than the policy owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the policy.
Similarly, if the beneficiary is two or more generations younger than the
insured, the payment of the death proceeds at the death of the insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the U.S.
Treasury Department, Nationwide may be required to withhold a portion of the
death proceeds and pay them directly to the IRS as the GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to the
complexity of these rules, the policy owner should consult with counsel and
other competent advisers regarding these taxes.
NON-RESIDENT ALIENS
Pre-death distributions from modified endowment contracts to nonresident aliens
("NRAs") are generally subject to federal income tax and tax withholding, at a
statutory rate of 30% of the amount of income that is distributed. Nationwide is
required to withhold such amount from the distribution and remit it to the IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to Nationwide sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. In
addition, the NRA must obtain an individual Taxpayer Identification Number from
the IRS, and furnish that number to Nationwide prior to the distribution. If
Nationwide does not have the proper proof of citizenship or residency and a
proper individual Taxpayer Identification Number prior to any distribution,
Nationwide will be required to withhold 30% of the income, regardless of any
treaty provision.
A pre-death distribution may not be subject to withholding where the recipient
sufficiently establishes to Nationwide that such payment is effectively
connected to the recipient's conduct of a trade or business in the United States
and that such payment is includible in the recipient's gross income for United
States federal income tax purposes, Any such distributions may be subject to
back-up withholding at the statutory rate (currently 31%) if no Taxpayer
Identification Number, or an incorrect
27
<PAGE> 32
Taxpayer Identification Number, is provided.
State and local estate, inheritance, income and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
policy owner or beneficiary.
TAXATION OF NATIONWIDE
Nationwide is taxed as a life insurance company under the Internal Revenue Code.
Since the variable account is not a separate entity from Nationwide and its
operations form a part of Nationwide, it will not be taxed separately as a
"regulated investment company" under Sub-chapter M of the Internal Revenue Code.
Investment income and realized capital gains on the assets of the variable
account are reinvested and taken into account in determining the value of
accumulation units. As a result, such investment income and realized capital
gains are automatically applied to increase reserves under the policies.
Nationwide does not initially expect to incur any federal income tax liability
that would be chargeable to the variable account. Based upon these expectations,
no charge is currently being made against the variable account for federal
income taxes. If, however, Nationwide determines that on a separate company
basis such taxes may be incurred, it reserves the right to assess a charge for
such taxes against the variable account.
Nationwide may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
TAX CHANGES
The foregoing discussion, which is based on Nationwide's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.
The Internal Revenue Code has been subjected to numerous amendments and changes,
and it is reasonable to believe that it will continue to be revised. The United
States Congress has, in the past, considered numerous legislative proposals
that, if enacted, could change the tax treatment of the policies. It is
reasonable to believe that such proposals, and future proposals, may be enacted
into law. In addition, the U.S. Treasury Department may amend existing
regulations, issue new regulations, or adopt new interpretations of existing law
that may be at variance with its current positions on these matters. In
addition, current state law (which is not discussed herein), and future
amendments to state law, may affect the tax consequences of the policy.
If the policy owner, insured, or beneficiary or other person receiving any
benefit or interest in or from the policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the policy, the
death proceeds, or other distributions and/or ownership of the policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a policy may be changed retroactively. There
is no way of predicting if, when, or to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
The foregoing is a general explanation as to certain tax matters pertaining to
insurance policies. It is not intended to be legal or tax advise, and should not
take the place of your independent legal, tax and/or financial adviser.
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<PAGE> 33
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women. Thus the policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this policy.
YEAR 2000 COMPLIANCE ISSUES
Nationwide has developed and implemented a plan to address issues related to the
Year 2000. The problem relates to many existing computer systems using only two
digits to identify a year in a date field. These systems were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer systems could fail or create erroneous results
when processing information dated after December 31, 1999. Like many
organizations, Nationwide is required to renovate or replace many computer
systems so that the systems will function properly after December 31, 1999.
Nationwide has completed an inventory and assessment of all computer systems and
has implemented a plan to renovate or replace all applications that were
identified as not Year 2000 compliant. Nationwide has renovated all applications
that required renovation. Testing of the renovated programs included running
each application in a Year 2000 environment and was completed as planned during
1998. For applications being replaced, Nationwide had all replacement systems in
place and functioning as planned by year-end 1998. Conversions of existing
traditional life policies will continue through second quarter, 1999. In
addition, the shareholder services system that support our mutual fund products
will be fully deployed in the first quarter of 1999.
Nationwide has completed an inventory and assessment of all vendor products and
has tested and certified that each vendor product is Year 2000 compliant. Any
vendor products that could not be certified as Year 2000 compliant were replaced
or eliminated in 1998.
Nationwide has also addressed issues associated with the exchange of electronic
data with external organizations. Nationwide has completed an inventory and
assessment of all business partners including electronic interfaces. Processes
have been put in place and programs initiated to process data irrespective of
the format by converting non-compliant data into a Year 2000 compliant format.
Systems supporting Nationwide's infrastructure such as telecommunications, voice
and networks will be compliant by March 1999. Nationwide's assessment of Year
2000 issues has also included non-information technology systems with embedded
computer chips. Nationwide's building systems such as fire, security, elevators
and escalators supporting facilities in Columbus, Ohio have been tested and are
Year 2000 compliant.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
surveying significant external organizations (business partners) to assess if
they will be Year 2000 compliant and be in a position to do business in the Year
2000 and beyond. Specifically, Nationwide has contacted mutual fund
organizations that provide funds for our variable annuity and life
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<PAGE> 34
products. The same action will continue during the first quarter of 1999 with
wholesale producers. Nationwide continues its efforts to identify external risk
factors and is planning to develop contingency plans as part of its ongoing risk
management strategy.
Operating expenses in 1998 and 1997 included approximately $44.7 million and
$45.4 million, respectively, for technology projects, including costs related to
Year 2000. Nationwide anticipates spending approximately $5 million on Year 2000
activities in 1999. These expenses have no affect on the assets of the variable
account and are not charged through to the policy owner.
Management does not anticipate that the completion of Year 2000 renovation and
replacement activities will result in a reduction in operating expenses. Rather,
personnel and resources currently allocated to Year 2000 issues will be assigned
to other technology-related projects.
STATE REGULATION
Nationwide is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
Nationwide for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine Nationwide's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Nationwide's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, Nationwide is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
REPORTS TO POLICY OWNERS
Nationwide will mail to the policy owner at the last known address of record:
- an annual statement containing: the amount of the current death benefit,
cash value, cash surrender value, premiums paid, monthly charges
deducted, amounts invested in the fixed account and the sub-accounts,
and policy indebtedness;
- annual and semi-annual reports containing all applicable information and
financial statements or their equivalent, which must be sent to the
underlying mutual fund beneficial shareholders as required by the rules
under the Investment Company Act of 1940 for the variable account; and
- statements of significant transactions, such as changes in specified
amount, changes in death benefit options, changes in future premium
allocations, transfers among sub-accounts, premium payments, loans, loan
repayments, reinstatement and termination.
ADVERTISING
Nationwide is ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of
Nationwide. The ratings are not intended to reflect the investment experience or
financial strength of the variable account. Nationwide may advertise these
ratings from time to time. In addition, Nationwide may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend Nationwide or the
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<PAGE> 35
policies. Furthermore, Nationwide may occasionally include in advertisements
comparisons of currently taxable and tax deferred investment programs, based on
selected tax brackets, or discussions of alternative investment vehicles and
general economic conditions.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
The general distributor, Nationwide Advisory Services, Inc. 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 and
annuity pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
In February 1997, Nationwide was named as a defendant in a lawsuit filed in New
York state court related to the sale of whole life policies on a "vanishing
premium" basis (John H. Snyder v. Nationwide Life Insurance Company). In April
1998, Nationwide was named as a defendant in a lawsuit filed in Ohio state court
similar to the Snyder case (David and Joan Mishler v. Nationwide Life Insurance
Company). In August 1998, Nationwide Mutual Insurance Company and Nationwide and
the plaintiffs executed a stipulation of settlement and submitted it to the New
York state court for approval. On August 20, 1998, the court in the Snyder case
signed an order preliminarily approving a class for settlement purposes (which
would include the Mishler case) and scheduled a fairness hearing for December
17, 1998. At the hearing, the court reviewed the fairness and reasonableness of
the proposed settlement and issued a final order and judgment. The approved
settlement provides for dismissal of both the Snyder and Mishler cases, bars
class members from pursuing litigation against Nationwide Mutual Insurance
Company and its affiliates, including Nationwide and its subsidiaries, relating
to the allegations in the Snyder case, and provides class members with a
potential value of approximately $100 million in policy adjustments, discounted
premiums and discounted products.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance policy and the other who was the owner of a variable annuity contract,
commenced a lawsuit in a federal court in Texas against Nationwide and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs seek to
represent a class of variable life insurance policy owners and variable annuity
contract owners whom they claim were allegedly misled when purchasing these
variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century, whose shares are publicly traded. The amended
complaint seeks unspecified compensatory and punitive damages. On April 27,
1998, the district court denied, in part, and granted, in part, Nationwide and
American Century's motions to dismiss the complaint. The remaining claims
against Nationwide allege securities fraud, common law fraud, civil conspiracy
and breach of contract. On December 2, 1998, the district court issued an order
denying plaintiffs' motion for class certification. On December 10, 1998, the
district court stayed the lawsuit pending plaintiffs'petition to the federal
appeals court for interlocutory review of the order denying class certification.
On December 14, 1998, plaintiffs filed their petition for
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interlocutory review, on which the federal appeals court has not yet ruled.
Nationwide intends to defend the case vigorously.
On October 29, 1998, Nationwide and certain of its subsidiaries were named in a
lawsuit filed in Ohio state court related to the sale of deferred annuity
products for use as investments in tax-deferred contributory retirement plans
(Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide's
customers and seeks unspecified compensatory and punitive damages. Nationwide
currently is evaluating this lawsuit, which has not been certified as a class.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
EXPERTS
The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the variable account, Nationwide, and the policies
offered hereby. Statements contained in this prospectus as to the content of
policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the policies described herein are being passed
upon by Dietrich, Reynolds & Koogler, LLP, One Nationwide Plaza, Columbus, Ohio
43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
DISTRIBUTION OF THE POLICIES
The policies will be sold by licensed insurance agents in those states where the
policies may lawfully be sold. Agents are registered representatives of broker
dealers registered under the Securities Exchange Act of 1934 who are member
firms of the National Association of Securities Dealers, Inc. ("NASD"). The
policies will be distributed by the general distributor, Nationwide Advisory
Services, Inc. ("NAS"). NAS was orgainized as an Ohio Corporation on April 8,
1965. NAS is a wholly owned subsidiary of Nationwide and a member of the NASD.
NAS acts as general distributor for the following separate accounts, all of
which are separate investment accounts of Nationwide or its affiliates:
- - Nationwide Multi-Flex Variable Account
- - Nationwide DCVA-II
- - Nationwide Variable Account-II
- - Nationwide VLI Separate Account-3
- - Nationwide VLI Separate Account-4
- - Nationwide VLI Separate Account-5
- - Nationwide Variable Account
- - Nationwide Variable Account-5
- - Nationwide Variable Account-6
- - Nationwide Variable Account-9
- - Nationwide Variable Account-10
- - Nationwide VA Separate Account-A
- - Nationwide VA Separate Account-B
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<PAGE> 37
- - Nationwide VA Separate Account-C
- - Nationwide VL Separate Account-A
- - Nationwide VL Separate Account-B
- - Nationwide VL Separate Account-C
- - Nationwide VL Separate Account-D.
NAS also acts as principal underwriter for the following open-end management
investment companies:
- - Nationwide Mutual Funds;
- - Nationwide Separate Account Trust; and
- - Nationwide Asset Allocation Trust.
Gross first year commissions paid by Nationwide on the sale of these policies
plus fees for marketing service provided by the general distributor are not more
than 7.50% of the premiums paid.
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<PAGE> 38
NATIONWIDE ADVISORY SERVICES, INC. - DIRECTORS AND OFFICERS
NAME AND POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
Dimon R. McFerson
One Nationwide Plaza Chairman and
Columbus, OH 43215 Chief Executive Officer and Director
Robert A. Oakley
One Nationwide Plaza Executive Vice President - Chief Financial
Columbus, OH 43215 Officer and Director
Paul J. Hondros
One Nationwide Plaza Director
Columbus, OH 43215
Susan A. Wolken
One Nationwide Plaza Director
Columbus, OH 43215
Robert J. Woodward, Jr.
One Nationwide Plaza Executive Vice President - Chief Investment
Columbus, OH 43215 Officer and Director
Edwin P. Mc Causland, Jr. Senior Vice President-Fixed Income
One Nationwide Plaza Securities
Columbus, OH 43215
Charles S. Bath
One Nationwide Plaza Vice President - Investments
Columbus, OH 43215
Dennis W. Click Vice President and Secretary
One Nationwide Plaza
Columbus, OH 43215
William G. Goslee
One Nationwide Plaza Vice President
Columbus, OH 43215
James F. Laird, Jr. Vice President and General
One Nationwide Plaza Manager
Columbus, OH 43215
Joseph P. Rath Vice President - Office of Product and
One Nationwide Plaza Market Compliance
Columbus, OH 43215
Alan A. Todryk Vice President - Taxation
One Nationwide Plaza
Columbus, OH 43215
Christopher A. Cray Treasurer
One Nationwide Plaza
Columbus, OH 43215
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NATIONWIDE ADVISORY SERVICES, INC. - DIRECTORS AND OFFICERS (CONTINUED)
NAME AND POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
Elizabeth A. Davin
One Nationwide Plaza Assistant Secretary
Columbus, OH 43215
David E. Simaitis Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
Patricia J. Smith Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
ADDITIONAL INFORMATION ABOUT NATIONWIDE
The life insurance business, including annuities, is the only business in which
Nationwide is engaged.
Nationwide markets its policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
Nationwide serves as depositor for the following separate investment accounts,
each of which is a registered investment company:
- - 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-9,
- - Nationwide Variable Account -10,
- - 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,
- - Nationwide VLI Separate Account -5,
- - NACo Variable Account,
- - Nationwide DC Variable Account and the
- - Nationwide DCVA-II.
Nationwide, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
Nationwide operates in the highly competitive field of life insurance. There are
approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
Nationwide shares employees with Nationwide Mutual Insurance Company and
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Nationwide Mutual Fire Insurance Company.
Nationwide does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. Nationwide shares 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 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.
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<TABLE>
<CAPTION>
DIRECTORS OF NATIONWIDE
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES 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
- --------------------------------------------------------------------------------------------------------------------------
Kenneth D. Davis Director Farm Owner and Operator (1)
7229 Woodmansee Road
Leesburg, OH 45135
- --------------------------------------------------------------------------------------------------------------------------
Keith W. Eckel Director Partner, Fred W. Eckel Sons; President, Eckel
1647 Falls Road Farms, Inc. (1)
Clarks Summit, PA 18411
- --------------------------------------------------------------------------------------------------------------------------
Willard J. Engel Director Retired General Manager, Lyon County Co-operative
301 East Marshall Street Oil Company (1)
Marshall, MN 44691
- --------------------------------------------------------------------------------------------------------------------------
Fred C. Finney Director Owner and Operator, Moreland Fruit Farm;
1558 West Moreland Road Operator, Melrose Orchard (1)
Wooster, OH 44691
- --------------------------------------------------------------------------------------------------------------------------
Joseph J. Gasper President and Chief President and Chief Operating Officer, Nationwide
One Nationwide Plaza Operating Officer and Life Insurance Company and Nationwide Life
Columbus, OH 43215 Director Insurance Company (2)
- --------------------------------------------------------------------------------------------------------------------------
Dimon R. McFerson Chairman and Chief Chairman and Chief Executive Officer- (2)
One Nationwide Plaza Executive Officer and
Columbus, OH 43215 Director
- --------------------------------------------------------------------------------------------------------------------------
David O. Miller Chairman of the Board and President, Owen Potato Farm, Inc.; Partner, M&M
115 Sprague Drive Director Enterprises (1)
Hebron, OH 43025
- --------------------------------------------------------------------------------------------------------------------------
Yvonne L. Montgomery Director Senior Vice President-General Manager Southern
Suite 1600 Customer Operations for U.S. Customer Operations,
2859 Paces Ferry Road Xerox Corporation (2)
Atlanta, GA 30339
- --------------------------------------------------------------------------------------------------------------------------
Ralph M. Paige Director Executive Director
2769 Church Street Federation of Southern Cooperatives/Land
East Point, Ga 30344 Assistance Fund
- --------------------------------------------------------------------------------------------------------------------------
James F. Patterson Director Vice President, Pattersons, Inc.; President,
8765 Mulberry Road Patterson Farms, Inc. (1)
Chesterland, OH 44026
- --------------------------------------------------------------------------------------------------------------------------
Arden L. Shisler Director President and Chief Executive Officer, K&B
1356 North Wenger Road Transport, Inc. (1)
Dalton, OH 44618
- --------------------------------------------------------------------------------------------------------------------------
Robert L. Stewart Director Owner and Operator Sunnydale Farms and Mining (1)
88740 Fairview Road
Jewett, OH 43986
- --------------------------------------------------------------------------------------------------------------------------
Nancy C. Thomas Director Farm Owner and Operator, Da-Ma-Lor Farms (1)
1733A Westwood Avenue
Alliance, OH 44601
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Principal occupation for last 5 years.
(2) Prior to assuming this current position, held other executive management
positions with the same or affiliated companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only
of Nationwide Life Insurance Company and
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<PAGE> 42
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 are directors of Nationwide
Financial Services, Inc. Mr. McFerson and Ms. Thomas, and are trustees of
Nationwide Mutual Funds, a registered investment company. Messrs. McFerson,
Gasper and Woodward are trustees of Nationwide Separate Account Trust and
Nationwide Asset Allocation Trust, registered investment companies. Mr. McFerson
is trustee of Nationwide Mutual Funds, a registered investment company. Mr.
Engel is a director of Western Cooperative Transport.
EXECUTIVE OFFICERS OF NATIONWIDE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Officers of the Depositor
Name and Principal Business Address Offices of the Depositor
- -------------------------------------------------------------------------------------------------------------------
Dennis W. Click Vice President - Secretary
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Robert A. Oakley Executive Vice President-Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
James E. Brock Senior Vice President - Corporate Development
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
John R. Cook, Jr. Senior Vice President - Chief Communications Officer
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Phillip C. Gath Senior Vice President and Chief Actuary - Nationwide Financial
One Nationwide Plaza Services
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Richard D. Headley Senior Vice President - Chief Information Technology Officer
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Donna A. James Senior Vice President - Human Resources of the Nationwide
One Nationwide Plaza Insurance Enterprise
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Richard A. Karas Senior Vice President - Sales and Financial Services
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Doublas C. Robinette Senior Vice President - Marketing and Product Management
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF NATIONWIDE (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS OFFICES OF THE DEPOSITOR
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Bruce C. Barnes Vice President - Technology Strategy and Planning
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
David A. Diamond Vice President - Enterprise Controller of Nationwide Financial
One Nationwide Plaza Services
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Matthew S. Easley Vice President - Investment Life Actuarial
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
R. Dennis Noice Vice President Systems - Nationwide Financial Services
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Joseph P. Rath Vice President-Office of Product and Market Compliance
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
Mark R. Thresher Vice President - Finance and Treasurer
One Nationwide Plaza
Columbus, OH 43215
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 44
JOSEPH J. GASPER has been President and Chief Operating Officer of Nationwide
and Director since April 1996. Previously, he was Executive Vice President -
Property/Casualty Operations of Nationwide Mutual Insurance Company from April
1995 to April 1996. He was Senior Vice President - Property/Casualty Operations
of Nationwide Mutual Insurance Company from September 1993 to April 1995. Prior
to that time, Mr. Gasper held numerous positions within Nationwide. Mr. Gasper
has been with Nationwide for 32 years.
BRUCE C. BARNES has been Vice President - Technology Strategy and Planning since
May 1998. Previously, Mr. Barnes was Vice President - Information Systems from
February 1997 to May 1998. Mr. Barnes was Vice President - Life Systems from May
1996 to May 1998. Previously, he was Vice President - Investment Product Systems
from April 1995 to May 1996. Prior to that time, Mr. Barnes was Vice President -
Individual Investment Products/Common Systems from May 1994 to April 1995 and
Associate Vice President - Individual Investment Products/Common Systems from
May 1992 to May 1994. Mr. Barnes was Vice President - Information Services of
PHP Benefits Systems, Inc. from January 1987 to January 1992. Mr. Barnes has
been with Nationwide for 7 years.
A. I. BELL has been a Director of Nationwide since April, 1998. Mr. Bell has
served as a state trustee of the Ohio Farm Bureau Federation from 1991 to 1998
and as president that last four years. He oversees the Bell family farm in
Zanesville, Ohio. The farm is the hub of a multi-family swine network, in
addition to grain and beef operations. Mr. Bell has represented the Ohio Farm
Bureau at state and national level activities, and has traveled internationally
representing Ohio agriculture. In 1995, he was introduced into The Ohio State
University Department of Animal Sciences Hall of Fame.
JAMES E. BROCK has been Senior Vice President - Corporate Development since July
1997. Previously, he was Senior Vice President - Company Operations from
December 1996 to July 1997 and was also Senior Vice President - Life Company
Operations from April 1996 to July 1997. Mr. Brock was Senior Vice President -
Investment Products Operations from November 1990 to April 1996. Prior to that
time, Mr. Brock held several positions within Nationwide. Mr. Brock has been
with Nationwide for 29 years.
DENNIS W. CLICK has been Vice President - Secretary since December 1997.
Previously, he was Vice President - Assistant Secretary from December 1996 to
December 1997. Mr. Click was Vice President - Assistant Secretary from August
1994 to December 1997. Mr. Click was Associate Vice President and Assistant
Secretary from August 1989 to August 1994. Prior to that time, he held several
positions within Nationwide. Mr. Click has been with Nationwide for 38 years.
JOHN R. COOK, JR. has been Senior Vice President - Chief Communications Officer
since May 1997. Previously, Mr. Cook was Senior Vice President - Chief
Communications Officer of USAA from July 1989 to May 1997.
KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis
has been Chairman of the Board of South Central Power Company since August 1979,
and currently oversees the Davis family farm located in Leesburg, Ohio. Mr.
Davis served as Director of the Farm Bureau Bancorp from October 1998 to March
1998. In addition, Mr. Davis has served in various officer positions with the
Ohio Farm Bureau Federation since December 1989, with his most recent position
as Trustee and President, a position he held from March 1998 to March 1999. Mr.
Davis also held officer positions with the Highland County Farm Bureau from June
1997 to September 1997, including Trustee and President from September 1984 to
September 1997.
DAVID A. DIAMOND has been Vice President - Enterprise Controller since August
1996. Previously, he was Vice President - Controller from October 1993 to August
1996. Prior to that time, Mr. Diamond held several positions within Nationwide.
Mr. Diamond has been with Nationwide for 10 years.
MATTHEW S. EASLEY has been Vice President - Investment Life Actuarial since June
1998. Mr. Easley was Vice President - Marketing and Administrative Services from
December 1996 to June 1998. Mr. Easley was Vice President - Life Marketing and
Administrative Services from May 1996 to June 1998. Mr. Easley was Vice
President - Annuity and Pension Actuarial from
40
<PAGE> 45
August 1989 to May 1996. Prior to that time, Mr. Easley held several positions
within Nationwide. Mr. Easley has been with Nationwide for 16 years.
KEITH W. ECKEL has been a Director of Nationwide since April 1996. Mr. Eckel is
a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc., in northeast
Pennsylvania. He received the Master Farmer award from Penn State University in
1982. He is a former president of the Pennsylvania Farm Bureau, a position he
held for 15 years, and the Lackawanna County Cooperative Extension Association.
Mr. Eckel has served as a board member and executive committee member of the
American Farm Bureau. He is a former vice president of the Pennsylvania Council
of Cooperative Extension Associations, and former board member of the
Pennsylvania Vegetable Grower's Association.
PHILIP C. GATH has been Senior Vice President - Chief Actuary since May 1998.
Previously, Mr. Gath was Vice President - Product Manager - Individual Variable
Annuity from July 1997 to May 1998. Mr. Gath was Vice President - Individual
Life Actuary from August 1989 to July 1997. Prior to that time, Mr. Gath held
several positions within Nationwide. Mr. Gath has been with Nationwide for 30
years.
RICHARD D. HEADLEY has been Senior Vice President - Chief Information Technology
Officer since October 1997. Previously, Mr. Headley was Chairman and Chief
Executive Officer of Banc One Services Corporation from 1992 to October 1997.
From January 1975 until 1992 Mr. Headley held several positions with Banc One
Corporation.
DONNA A. JAMES has been Senior Vice President - Human Resources since December
1997. Previously, she was Vice President - Human Resources from July 1996 to
December 1997. Prior to that time Ms. James was Vice President - Assistant to
the CEO from March 1996 to July 1996. From May 1994 to March 1996 she was
Associate Vice President - Assistant to the CEO. Prior to that time Ms. James
held several positions within Nationwide. Ms. James has been with Nationwide for
17 years.
RICHARD A. KARAS has been Senior Vice President - Sales - Financial Services
since March 1993. Previously, he was Vice President - Sales - Financial Services
from February 1989 to March 1993. Prior to that time, Mr. Karas held several
positions within Nationwide. Mr. Karas has been with Nationwide for 34 years.
DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr.
Miller has been a farm owner and land developer since 1962. He is the President
of the Owen Potato Farm Inc. and is a partner of M&M Enterprises in Licking
County, Ohio. He is Chairman of the Board of the Wausau Insurance Companies and
serves on the board of directors of several companies of the Nationwide group.
He is also a director of the National Cooperative Business Association.
YVONNE L. MONTGOMERY has been a Director since April, 1998. Ms. Montgomery is
senior vice president/general manager of southern customer operations for United
States Customer Operations for Xerox Corporation. A resident of Atlanta,
Georgia, Ms. Montgomery oversees eight customer business units across the
southern United States as well as all business and marketing functions in the
regions. Ms. Montgomery joined Xerox in 1976 as a sales representative and
progressed through management positions, including Vice President - Field
Operations, and Executive Assistant to the Chairman and CEO.
R. DENNIS NOICE has been Vice President - Systems since April 1998. Previously,
he was Vice President Retail Operations from March 1997 to April 1998. Prior to
that time, Mr. Noice was Vice President Individual Investment Products from
October 1989 to March 1997. Prior to that time, Mr. Noice held several positions
within Nationwide. Mr. Noice has been with Nationwide for 27 years.
ROBERT A. OAKLEY has been Executive Vice President - Chief Financial Officer
since April 1995. Previously, he was Senior Vice President - Chief Financial
Officer from October 1993 to April 1995. Prior to that time, Mr. Oakley held
several positions within Nationwide. Mr. Oakley has been with Nationwide for 23
years.
RALPH M. PAIGE has been a Director of Nationwide since April 1999. Mr. Paige has
been the Executive Director of the Federation of Southern Cooperatives/Land
Assistance Fund since 1969. Mr. Paige also served as the
41
<PAGE> 46
National Field Director/Georgia State Director from 1981 to 1984.
JOSEPH P. RATH has been Vice President - Product and Market Compliance since
April 1997. Previously, he was Vice President - Associate General Counsel from
October 1988 to April 1997. Prior to that time, Mr. Rath held several positions
within Nationwide. Mr. Rath has been with Nationwide for 22 years.
DOUGLAS C. ROBINETTE has been Senior Vice President - Marketing and Product
Management since May 1998. Previously, Mr. Robinette was Executive Vice
President, Customer Services of Employers Insurance of Wausau (Wausau), a member
of the Nationwide group until December 1998, from September 1996 to May 1998.
Prior to that time he was Executive Vice President, Finance and Insurance
Services of Wausau from May 1995 to September 1996. From November 1994 to May
1995 Mr. Robinette was Senior Vice President, Finance and Insurance Services of
Wausau. From May 1993 to November 1994 he was Senior Vice President, Finance of
Wausau. Prior to that time, Mr. Robinette held several positions within the
Nationwide group. Mr. Robinette has been with the Nationwide group for 12 years.
MARK R. THRESHER has been Vice President - Controller since August 1996. He was
Vice President and Treasurer from November 1996 to February 1997. Previously, he
was Vice President and Treasurer from June 1996 to August 1996. Prior to joining
Nationwide, Mr. Thresher served as a partner with KPMG LLP.
SUSAN A. WOLKEN has been Senior Vice President - Life Company Operations since
June 1997. Previously, she was Senior Vice President - Enterprise Administration
from July 1996 to June 1997. Prior to that time, she was Senior Vice President -
Human Resources from April 1995 to July 1996. From September 1993 to April 1995,
Ms. Wolken was Vice President - Human Resources. From October 1989 to September
1993 she was Vice President - Individual Life and Health Operations. Ms. Wolken
has been with Nationwide for 24 years.
ROBERT J. WOODWARD, JR. has been Executive Vice President - Chief Investment
Officer since August 1995. Previously, he was Senior Vice President - Fixed
Income Investments from March 1991 to August 1995. Prior to that time, Mr.
Woodward held several positions within Nationwide. Mr. Woodward has been with
Nationwide for 34 years.
42
<PAGE> 47
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investment
vehicles for variable annuity contracts and variable life insurance policies
issued by insurance companies.
There is no guarantee that the investment objectives will be met.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. (formerly "TCI Portfolios, Inc.") was
organized as a Maryland corporation in 1987. It is a diversified, open-end
management company, designed only to provide investment vehicles for variable
annuity and variable life insurance products of insurance companies. A member of
the American Century(SM) Family of Investments, American Century Variable
Portfolios, Inc. 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: (1) 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; (2) 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 (3) 40% of the Fund's assets in
equity securities that are considered by management to have better-than-average
prospects for appreciation. Assets will be purchased or sold, as the case may
be, as is necessary in response to changes in market value to maintain the asset
mix of the Fund's portfolio at approximately 60% cash, cash equivalents and
fixed income securities and 40% equity securities. There can be no assurance
that the Fund will achieve its investment objective.
- - 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.
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- - 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.)
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND
The Dreyfus Socially Responsible Growth Fund 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.
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DREYFUS STOCK INDEX FUND, INC.
Dreyfus Stock Index Fund, Inc. 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. Mellon Equity Associates serves
as the Fund's index fund manager. As of May 1, 1994, Dreyfus Life and Annuity
Index Fund began doing business as Dreyfus Stock Index Fund.
Investment Objective: To provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund
is neither sponsored by nor affiliated with Standard & Poor's Corporation.
DREYFUS 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 Fund offers its shares only as investment
vehicles for variable annuity and variable life insurance products of insurance
companies. 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
Fidelity Variable Insurance Products Fund ("VIP") is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. VIP's shares are purchased by insurance companies to fund
benefits under variable insurance and annuity policies. Fidelity Management &
Research Company ("FMR") is VIP'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.
- - VIP GROWTH PORTFOLIO
Investment Objective: Seeks to achieve capital appreciation. This Portfolio will
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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
economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Fidelity Variable Insurance Products Fund II ("VIP II") is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II shares are purchased by insurance companies to
fund benefits under variable insurance and annuity policies. FMR is the manager
of VIP II.
- - 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
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security that may produce capital appreciation.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the six separate Mutual Funds listed below, each with its own investment
objectives. 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.
- - NSAT - CAPITAL APPRECIATION FUND
Investment Objective: The Capital Appreciation Fund seeks long-term capital
appreciation.
- - NSAT - 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.
- - NSAT - MONEY MARKET FUND
Investment Objective: The Fund seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity.
- - NSAT - NATIONWIDE SMALL CAP VALUE FUND
Subadviser:The Dreyfus Corporation
Investment Objective: Capital appreciation through investment in a diversified
portfolio of equity securities of companies with a median market capitalization
of approximately $1 billion. The Fund intends to pursue its investment objective
by investing, under normal market conditions, at least 75% of the Fund's total
assets in equity securities of companies whose equity market capitalizations at
the time of investment are similar to the market capitalizations of companies in
the Russell 2000 Small Stock Index. The Fund will invest in equity securities of
domestic and foreign issuers characterized as "value" companies according to
criteria established by The Dreyfus Corporation, the Fund's subadviser.
- - NSAT - NATIONWIDE SMALL COMPANY FUND
Subadvisers: The Dreyfus Corporation, Neuberger Berman, LLC, Lazard Asset
Management, Strong Capital Management, Inc. and Warburg Pincus Asset Management,
Inc.
Investment Objective Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity securities of investment are similar to
the market capitalizations of companies in the Russell 2000 Small Stock Index.
NAS, the Fund's adviser, has contracted with a group of sub-advisers, each of
which will manage a portion of the Fund's portfolio. These sub-advisers are
Dreyfus, Neuberger Berman, LLC, Lazard Asset Management, 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.
- - NSAT - TOTAL RETURN FUND
Investment Objective: The investment objective of the Fund is to obtain a
reasonable, long-term total return on invested capital.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust is an open-end diversified
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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.
- - AMT 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
- - AMT 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.
- - AMT 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.
- - AMT 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.
- - AMT 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.
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OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds is an open-ended, 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/VA
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.
- - OPPENHEIMER GLOBAL SECURITIES FUND/VA
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/VA
Investment Objective: To seek a total investment return (which includes current
income and capital appreciation in the value of its shares) from 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. is a diversified, open-end management
company commonly called a Mutual Fund. The Strong Opportunity Fund II, Inc. 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 insurance 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 FUNDS, INC.
Strong Variable Insurance Funds, Inc. ("Corporation") is an open-end management
investment company, commonly referred to as a Mutual Fund. Incorporated in the
State of Wisconsin, the Corporation has been authorized to issue shares of
common stock and series and classes of series of common stock. The International
Stock Fund II and The Strong Discovery Fund II, Inc. ("Funds") are offered by
the Corporation to insurance company separate accounts for the purpose of
funding variable life insurance policies and variable annuity contracts. Strong
Capital Management, Inc. is the investment advisor to 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 stocks, preferred stocks and securities
convertible into common or preferred stocks. Although the Fund normally
emphasizes investment in equity
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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 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, asuch as real estate, energy, timber, and industrial and precious
metals. Income is a secondary consideration.
VAN KAMPEN LIFE INVESTMENT TRUST
The Van Kampen Life Investment Trust is an open-end diversified management
investment company organized as a Massachusetts business trust on June 3, 1985.
The Trust offers shares in separate funds which are sold only to insurance
companies to provide funding for variable life insurance policies and variable
annuity contracts. Van Kampen Asset Management, Inc. serves as the 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
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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: The Portfolio seeks 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 a 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.
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APPPENDIX B: ILLUSTRATIONS OF WHEN ADDITIONAL PREMIUM PAYMENTS ARE PERMITTED
Example 1: A male non-tobacco, age 35, purchases a policy with an initial
premium of $25,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a specified
amount of $179,733. In the 12th and subsequent policy years, annual premiums of
$2,177 may be paid without violating the premium limitations prescribed by the
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. Nationwide reserves the right to require
satisfactory evidence of insurability with any premium payment which increases
the net amount at risk. In addition, premium payments may be made at any time if
they are required to continue the policy in force.
Example 2: A male non-tobacco, age 55, purchases a policy with an initial
premium of $100,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a specified
amount of $306,283. In the 11th and subsequent policy years, annual premiums of
$9,591 may be paid without violating the premium limitations prescribed by the
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. Nationwide reserves the right to require
satisfactory evidence of insurability with any premium payment which increases
the net amount at risk. In addition, premium payments may be made at any time if
they are required to continue the policy in force.
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APPENDIX C: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH
BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the policies change with investment performance. The illustrations
illustrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the policies would go into default, at which time additional
premium payments would be required to continue the policy in force. The
illustrations also assume there is no policy debt, no additional premium
payments are made, no cash values are allocated to the fixed account, and 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 after expense reimburement, for the preceding
year for all mutual fund options available under the policy as of March 13,
1999. Some underlying mutual funds are subject to expense reimbursements and fee
waivers. Absent expense reimbursements and fee waivers, the annual effective
rate would have been 0.94%. Nationwide anticipates that the expense
reimbursement and fee waiver arrangements will continue past the current year.
Should there be an increase or decrease in the expense reimbursements and fee
waivers of these underlying mutual funds, such change will be reflected in the
net asset value of the corresponding underlying mutual fund.
Taking account of the current charges for mortality and expense risks,
recovering premium taxes and providing for administrative and underlying mutual
fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net
investment experience at constant annual rates of - 2.20%, 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 Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges
53
<PAGE> 58
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 Nationwide deducts an
annual administrative charge at the beginning of each policy year after the
first. The illustrations also reflect the fact that no charges for federal or
state income taxes are currently made against the variable account. If such a
charge is made in the future, it will require a higher gross investment return
than illustrated in order to produce the net after-tax returns shown in the
illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
54
<PAGE> 59
<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>
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.
55
<PAGE> 60
<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>
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.
56
<PAGE> 61
<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>
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.
57
<PAGE> 62
<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>
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.
58
<PAGE> 63
<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>
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.
59
<PAGE> 64
<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>
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.
60
<PAGE> 65
<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>
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.
61
<PAGE> 66
<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>
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.
62
<PAGE> 67
<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>
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.
63
<PAGE> 68
<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>
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.
64
<PAGE> 69
<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,
1998, and the related statements of operations and changes in contract owners'
equity for each of the years in the three year period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide VLI Separate
Account-3 as of December 31, 1998, and the results of its operations and its
changes in contract owners' equity for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 5, 1999
<PAGE> 2
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Investments at market value:
American Century VP - American Century VP Advantage (ACVPAdv)
<S> <C> <C> <C>
138,182 shares (cost $781,557)........................................................................ $958,981
American Century VP - American Century VP Balanced (ACVPBal)
2,211 shares (cost $16,283) ........................................................................... 18,442
American Century VP - American Century VP Capital Appreciation (ACVPCapAp)
6,299 shares (cost $62,625) ........................................................................... 56,814
American Century VP - American Century VP Income & Growth (ACVPIncGr)
573 shares (cost $3,726) .............................................................................. 3,885
American Century VP - American Century VP International (ACVPInt)
4,532 shares (cost $28,348) ........................................................................... 34,533
American Century VP - American Century VP Value (ACVPValue)
983 shares (cost $7,028) .............................................................................. 6,618
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
2,251 shares (cost $52,029) ........................................................................... 69,972
Dreyfus Stock Index Fund (DryStkIx)
13,448 shares (cost $307,458) ......................................................................... 437,332
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
5,612 shares (cost $181,635) .......................................................................... 202,666
Dreyfus VIF - Growth and Income Portfolio (DryGrInc)
325 shares (cost $7,168) .............................................................................. 7,357
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
16,429 shares (cost $356,165) ......................................................................... 417,636
Fidelity VIP - Growth Portfolio (FidVIPGr)
13,963 shares (cost $441,216) ......................................................................... 626,500
Fidelity VIP - High Income Portfolio (FidVIPHI)
4,845 shares (cost $60,198) ........................................................................... 55,868
Fidelity VIP - Overseas Portfolio (FidVIPOv)
1,089 shares (cost $20,062) ........................................................................... 21,834
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
5,251 shares (cost $83,995) ........................................................................... 95,358
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
19,995 shares (cost $344,281) ......................................................................... 488,670
Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp)
353 shares (cost $7,158) .............................................................................. 8,067
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
300,479 shares (cost $4,168,296) ...................................................................... 7,989,731
Nationwide SAT - Government Bond Fund (NSATGvtBd)
169,214 shares (cost $1,878,589) ...................................................................... 1,978,114
Nationwide SAT - Money Market Fund (NSATMyMkt)
325,406 shares (cost $325,406) ........................................................................ 325,406
Nationwide SAT - Small Company Fund (NSATSmCo)
2,645 shares (cost $39,219) ........................................................................... 42,339
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Nationwide SAT - Total Return Fund (NSATTotRe)
1,031,845 shares (cost $12,400,087 .............................. 18,985,946
Neuberger & Berman AMT - Balanced Portfolio (NBAMTBal)
88,386 shares (cost $1,367,924) ................................. 1,444,230
Neuberger & Berman AMT - Growth Portfolio (NBAMTGro)
2,376 shares (cost $61,567) ..................................... 62,465
Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard)
38 shares (cost $492) ........................................... 521
Neuberger & Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat)
814 shares (cost $11,211) ....................................... 11,245
Neuberger & Berman AMT - Partners Portfolio (NBAMTPart)
6,820 shares (cost $128,895) .................................... 129,103
Oppenheimer VAF - Bond Fund (OppBdFd)
913 shares (cost $10,935) ....................................... 11,248
Oppenheimer VAF - Global Securities Fund (OppGISec)
3,121 shares (cost $59,501) ..................................... 68,884
Oppenheimer VAF - Growth Fund (OppGro)
261 shares (cost $9,014) ........................................ 9,560
Oppenheimer VAF - Multiple Strategies Fund (OppMult)
524 shares (cost $8,113) ........................................ 8,934
Strong Opportunity Fund II, Inc. (StOpp2)
6,246 shares (cost $122,325) .................................... 135,673
Strong VIF - Strong Discovery Fund II (StDisc2)
1,486 shares (cost $17,921) ..................................... 18,906
Strong VIF - Strong International Stock Fund II (StIntStk2)
1,415 shares (cost $15,437) ..................................... 12,428
Van Eck WIT - Worldwide Bond Fund (VEWrldBd)
142 shares (cost $1,514) ........................................ 1,749
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
586 shares (cost $7,633) ........................................ 4,172
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
592 shares (cost $9,394) ........................................ 5,442
Van Kampen American Capital LIT -
Morgan Stanley Real Estate Securities Portfolio (VKMSRESec)
1,516 shares (cost $23,736) ..................................... 20,865
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
2,419 shares (cost $28,079) ..................................... 26,585
Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap)
83 shares (cost $882) ........................................... 978
Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr)
2,459 shares (cost $35,128) ..................................... 39,369
Total assets ........................................... 34,844,426
ACCOUNTS PAYABLE ................................................... 4,591
CONTRACT OWNERS' EQUITY (NOTE 7) ................................... $34,839,835
</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, 1998, 1997 and 199
<TABLE>
<CAPTION>
TOTAL ACVPADV
--------------------------------------------- ------------------------------
1998 1997 1996 1998 1997
------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ 441,432 452,251 447,134 19,123 12,739
Mortality and expense charges
(note 3) (251,361) (208,160) (159,468) (3,703) (3,496
------------- -------------- -------------- -------------- -------------
Net investment activity 190,071 244,091 287,666 15,420 9,243
------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 2,923,380 2,224,444 1,904,080 78,478 106,359
Cost of mutual funds sold (2,044,536) (1,729,172) (1,696,815) (66,483) (94,785
------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 878,844 495,272 207,265 11,995 11,574
Change in unrealized gain (loss)
on investments 3,011,918 4,439,699 2,051,092 40,889 32,047
------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments 3,890,762 4,934,971 2,258,357 52,884 43,621
------------- -------------- -------------- -------------- -------------
Reinvested capital gains 1,454,945 845,589 830,186 71,955 44,789
------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 5,535,778 6,024,651 3,376,209 140,259 97,653
------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 4,210,270 4,453,849 4,940,306 68,519 62,979
Transfers between funds - - - (21,014) (35,911
Surrenders (1,087,106) (747,816) (641,251) (29,005) (40,827
Death benefits (note 4) (124,773) (28,333) (6,306) (10,265) -
Policy loans (net of repayments) (note 5)
Deductions for surrender charges (859,588) (891,821) (635,496) (18,396) (18,857
(note 2d)
Redemptions to pay cost of insurance (128,012) (166,341) (145,828) (3,416) (9,081
charges and administration
charges (notes 2b and 2c)
(2,017,340) (2,036,264) (2,089,346) (23,887) (10,757
Net equity transactions ------------- -------------- -------------- -------------- -------------
(6,549) 583,274 1,422,079 (37,464) (52,454
------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity
Contract owners' equity 5,529,229 6,607,925 4,798,288 102,795 45,199
beginning of period
29,310,606 22,702,681 17,904,393 856,191 810,992
Contract owners' equity ------------- -------------- -------------- -------------- -------------
end of period $ 34,839,835 29,310,606 22,702,681 958,986 856,191
============= ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
ACVPBAL
------------- -----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends 18,056 373 171 162
Mortality and expense charges
(note 3) (2,743) (147) (23) (219)
-------------- -------------- -------------- --------------
Net investment activity 15,313 226 148 (57)
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 100,725 5,521 560 231
Cost of mutual funds sold (91,177) (4,833) (500) (218)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments 9,548 688 60 13
Change in unrealized gain (loss)
on investments 5,853 (436) 1,633 891
-------------- -------------- -------------- --------------
Net gain (loss) on investments 15,401 252 1,693 904
-------------- -------------- -------------- --------------
Reinvested capital gains 34,817 2,314 746 207
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations 65,531 2,792 2,587 1,054
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 83,479 648 1,313 1,499
Transfers between funds (48,014) - 3,416 3,453
Surrenders (9,321) (3,950) (113) (23)
Death benefits (note 4) (407) - - -
Policy loans (net of repayments) (note 5)
Deductions for surrender charges (40,770) - - -
(note 2d)
Redemptions to pay cost of insurance (2,120) (465) (25) (5)
charges and administration
charges (notes 2b and 2c)
(6,503) (626) 3 -
Net equity transactions -------------- -------------- -------------- --------------
(23,656) (4,393) 4,594 4,924
-------------- -------------- -------------- --------------
Net change in contract
owners' equity
Contract owners' equity 41,875 (1,601) 7,181 5,978
beginning of period
769,117 20,052 12,871 6,893
Contract owners' equity -------------- -------------- -------------- --------------
end of period 810,992 18,451 20,052 12,871
============== ============== ============== ==============
</TABLE>
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ACVPCAPAP ACVPINCGR
---------------------------------------------- --------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ................... $ - - - 19 -
Mortality and expense charges
(note 3) ............................. (377) (264) (154) (12) -
-------------- -------------- -------------- -------------- -------------
Net investment activity .............. (377) (264) (154) 7 -
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold .......................... 19,751 16,373 17,129 216 -
Cost of mutual funds sold .............. (23,525) (19,447) (19,961) (222) -
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments ........................ (3,774) (3,074) (2,832) (6) -
Change in unrealized gain (loss)
on investments ....................... (284) 367 (5,469) 159 -
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments ....... (4,058) (2,707) (8,301) 153 -
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains ............... 3,128 1,358 5,393 - -
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations .................. (1,307) (1,613) (3,062) 160 -
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners ...................... 8,237 15,247 16,398 402 -
Transfers between funds ................ (10,313) 12,404 7,093 3,509 -
Surrenders ............................. (9,003) (1,216) (538) - -
Death benefits (note 4) ................ - - - - -
Policy loans (net of repayments) (note 5) 4,905 (6,640) (2,519) (4) -
Deductions for surrender charges
(note 2d) ............................ (1,060) (271) (122) - -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) ............ (3,356) (2,969) (3,563) (189) -
-------------- -------------- -------------- -------------- -------------
Net equity transactions ............ (10,590) 16,555 16,749 3,718 -
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity ....................... (11,897) 14,942 13,687 3,878 -
Contract owners' equity
beginning of period .................. 68,695 53,753 40,066 - -
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period ........................ $ 56,798 68,695 53,753 3,878 -
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
ACVPINT
-------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ................... - 162 234 335
Mortality and expense charges
(note 3) ............................. - (193) (54) (48)
-------------- -------------- -------------- --------------
Net investment activity .............. - (31) 180 287
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold .......................... - 3,758 6,666 1,044
Cost of mutual funds sold .............. - (2,904) (5,748) (990)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments ........................ - 854 918 54
Change in unrealized gain (loss)
on investments ....................... - 1,807 2,645 1,724
-------------- -------------- -------------- --------------
Net gain (loss) on investments ....... - 2,661 3,563 1,778
-------------- -------------- -------------- --------------
Reinvested capital gains ............... - 1,666 451 112
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations .................. - 4,296 4,194 2,177
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ...................... - 2,509 4,901 4,482
Transfers between funds ................ - 3,810 (5,070) 18,762
Surrenders ............................. - (1,804) - (14)
Death benefits (note 4) ................ - - - -
Policy loans (net of repayments) (note 5)
Deductions for surrender charges ....... - 175 (2) -
(note 2d)............................. - (212) - -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) ............ - (1,951) (1,124) (880)
------------- -------------- -------------- --------------
Net equity transactions ............ - 2,527 (1,295) 22,350
------------- -------------- -------------- --------------
Net change in contract
owners' equity ....................... - 6,823 2,899 24,527
Contract owners' equity
beginning of period .................. - 27,751 24,852 325
------------- -------------- -------------- --------------
Contract owners' equity
end of period ........................ - 34,574 27,751 24,852
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 6
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ACVPVALUE DRYSRGRO
---------------------------------------------- --------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ................... - - - 109 161
Mortality and expense charges
(note 3) ............................. $ (32) - - (522) (88)
-------------- -------------- -------------- -------------- -------------
Net investment activity .............. (32) - - (413) 73
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold .......................... 30 - - 9,155 8,378
Cost of mutual funds sold .............. (31) - - (5,890) (5,531)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments ........................ (1) - - 3,265 2,847
Change in unrealized gain (loss)
on investments ....................... (410) - - 8,420 5,747
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments ....... (411) - - 11,685 8,594
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains ............... 5 - - 2,538 1,233
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations .................. (438) - - 13,810 9,900
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners ...................... 7,146 - - 2,861 4,271
Transfers between funds ................ - - - 17,202 7,312
Surrenders ............................. - - - (10,639) (819)
Death benefits (note 4)................. - - - - -
Policy loans (net of repayments) (note 5) - - - 6,949 (8,265)
Deductions for surrender charges
(note 2d) ............................ - - - (1,253) (182)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) ............ (165) - - (1,826) -
-------------- -------------- -------------- -------------- -------------
Net equity transactions 6,981 - - 13,294 2,317
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity ....................... 6,543 - - 27,104 12,217
Contract owners' equity
beginning of period .................. - - - 42,855 30,638
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period ........................ $ 6,543 - - 69,959 42,855
============== ============== ============== ============== ============
</TABLE>
<TABLE>
<CAPTION>
DRYSTKLX
--------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ................... 69 5,032 4,753 3,193
Mortality and expense charges
(note 3) ............................. (834) (2,715) (1,726) (1,138)
-------------- -------------- -------------- --------------
Net investment activity .............. (765) 2,317 3,027 2,055
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold .......................... 3,627 71,990 57,672 15,530
Cost of mutual funds sold .............. (3,224) (40,908) (35,667) (12,325)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments ........................ 403 31,082 22,005 3,205
Change in unrealized gain (loss)
on investments ....................... 3,163 58,442 44,911 20,580
-------------- -------------- -------------- --------------
Net gain (loss) on investments ....... 3,566 89,524 66,916 23,785
-------------- -------------- -------------- --------------
Reinvested capital gains ............... 1,239 909 10,149 3,230
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations .................. 4,040 92,750 80,092 29,070
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners ...................... 3,722 44,706 34,802 16,813
Transfers between funds ................ 3,011 55,914 61,294 54,396
Surrenders ............................. (59) (1,238) (432) -
Death benefits (note 4)................. - - - -
Policy loans (net of repayments) (note 5) (121) (70,038) (41,395) (5,987)
Deductions for surrender charges
(note 2d)............................. (13) (146) (96) -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) ............ (277) (15,056) (1,428) (396)
-------------- -------------- -------------- --------------
Net equity transactions 6,263 14,142 52,745 64,826
-------------- -------------- -------------- --------------
Net change in contract
owners' equity ....................... 10,303 106,892 132,837 93,896
Contract owners' equity
beginning of period .................. 20,335 330,407 197,570 103,674
-------------- -------------- -------------- --------------
Contract owners' equity
end of period ........................ 30,638 437,299 330,407 197,570
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 7
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
DryCapAp DryGrInc
---------------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ 1,104 80 - 55 17
Mortality and expense charges
(note 3) (508) (3) - (35) -
-------------- -------------- -------------- -------------- -------------
Net investment activity 596 77 - 20 17
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 11,604 339 - 580 2,217
Cost of mutual funds sold (10,443) (343) - (597) (2,101)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 1,161 (4) - (17) 116
Change in unrealized gain (loss)
on investments 21,032 (2) - 236 (48)
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments 22,193 (6) - 219 68
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 3 7 - 67 66
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 22,792 78 - 306 151
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 1,324 - - 6,636 143
Transfers between funds 168,936 10,711 - - 1,402
Surrenders - - - (491) -
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) - - - 522 (855)
Deductions for surrender charges
(note 2d) - - - (58) -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (839) (358) - (399) -
-------------- -------------- -------------- -------------- -------------
Net equity transactions 169,421 10,353 - 6,210 690
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity 192,213 10,431 - 6,516 841
Contract owners' equity
beginning of period 10,431 - - 841 -
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 202,644 10,431 - 7,357 841
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
FidVIPEI
--------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends - 6,967 6,340 121
Mortality and expense charges
(note 3) - (3,240) (2,750) (540)
-------------- -------------- -------------- --------------
Net investment activity - 3,727 3,590 (419)
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold - 178,067 38,671 15,900
Cost of mutual funds sold - (146,020) (30,850) (14,221)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments - 32,047 7,821 1,679
Change in unrealized gain (loss)
on investments - (19,152) 59,409 17,568
-------------- -------------- -------------- --------------
Net gain (loss) on investments - 12,895 67,230 19,247
-------------- -------------- -------------- --------------
Reinvested capital gains - 24,794 31,876 3,459
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations - 41,416 102,696 22,287
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners - 35,661 47,085 36,603
Transfers between funds - (133,030) 129,355 125,859
Surrenders - (836) (837) (66)
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) - (2,005) (1,733) (7,971)
Deductions for surrender charges
(note 2d) - (98) (186) (15)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) - (20,482) (18,859) (11,500)
-------------- -------------- -------------- --------------
Net equity transactions - (120,790) 154,825 142,910
-------------- -------------- -------------- --------------
Net change in contract
owners' equity - (79,374) 257,521 165,197
Contract owners' equity
beginning of period - 496,985 239,464 74,267
-------------- -------------- -------------- --------------
Contract owners' equity
end of period - 417,611 496,985 239,464
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
FIDVIPGR FIDVIPHI
---------------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ 2,130 2,197 421 4,477 2,716
Mortality and expense charges
(note 3) (3,719) (2,912) (1,363) (355) (139)
-------------- -------------- -------------- -------------- -------------
Net investment activity (1,589) (715) (942) 4,122 2,577
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 29,372 48,582 27,126 11,788 4,631
Cost of mutual funds sold (23,004) (42,413) (27,861) (10,748) (4,489)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 6,368 6,169 (735) 1,040 142
Change in unrealized gain (loss)
on investments 107,317 60,938 21,417 (10,637) 4,024
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments 113,685 67,107 20,682 (9,597) 4,166
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 55,712 9,833 10,639 2,845 336
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 167,808 76,225 30,379 (2,630) 7,079
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 60,527 63,266 61,227 11,217 8,521
Transfers between funds 17,221 (3,635) 96,027 (6,831) 11,758
Surrenders (10,674) (2,747) (96) (397) 333
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) (194) (18,648) (10,864) (540) (3,725)
Deductions for surrender charges
(note 2d) (1,257) (611) (22) (47) 74
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (23,389) (9,218) (8,404) (3,438) (3,408)
-------------- -------------- -------------- -------------- -------------
Net equity transactions 42,234 28,407 137,868 (36) 13,553
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity 210,042 104,632 168,247 (2,666) 20,632
Contract owners' equity
beginning of period 416,421 311,789 143,542 58,539 37,907
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 626,463 416,421 311,789 55,873 58,539
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
FIDVIPOV
-------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends 1,018 335 360 104
Mortality and expense charges
(note 3) (121) (153) (61) (136)
-------------- -------------- -------------- --------------
Net investment activity 897 182 299 (32)
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 9,726 1,816 8,615 1,493
Cost of mutual funds sold (9,709) (1,637) (7,746) (1,422)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments 17 179 869 71
Change in unrealized gain (loss)
on investments 1,860 503 (618) 1,622
-------------- -------------- -------------- --------------
Net gain (loss) on investments 1,877 682 251 1,693
-------------- -------------- -------------- --------------
Reinvested capital gains 199 987 1,428 114
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations 2,973 1,851 1,978 1,775
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 10,642 3,023 3,857 2,792
Transfers between funds 13,888 2,264 (5,213) 8,008
Surrenders (588) - (81) (34)
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) 108 (1,604) (2,330) (566)
Deductions for surrender charges
(note 2d) (134) - (18) (8)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (2,307) (1,083) (748) (816)
-------------- -------------- -------------- --------------
Net equity transactions 21,609 2,600 (4,533) 9,376
-------------- -------------- -------------- --------------
Net change in contract
owners' equity 24,582 4,451 (2,555) 11,151
Contract owners' equity
beginning of period 13,325 17,383 19,938 8,787
-------------- -------------- -------------- --------------
Contract owners' equity
end of period 37,907 21,834 17,383 19,938
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 9
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
FIDVIPAM FIDVIPCON
---------------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ 4,043 3,614 2,404 2,496 2,011
Mortality and expense charges
(note 3) (823) (414) (644) (2,561) (1,607)
-------------- -------------- -------------- -------------- -------------
Net investment activity 3,220 3,200 1,760 (65) 404
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 52,116 42,295 8,996 48,520 7,477
Cost of mutual funds sold (46,800) (36,365) (8,025) (31,647) (5,308)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 5,316 5,930 971 16,873 2,169
Change in unrealized gain (loss)
on investments (5,723) 6,372 7,164 77,750 51,877
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments (407) 12,302 8,135 94,623 54,046
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 12,128 9,065 1,983 18,366 5,315
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 14,941 24,567 11,878 112,924 59,765
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 9,641 8,749 12,328 21,970 18,570
Transfers between funds 1,888 20,102 24,141 22,252 164,277
Surrenders - - - (3,320) 360
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) (48,271) (31,692) (7,839) (9,514) (5,718)
Deductions for surrender charges
(note 2d) - - - (391) 80
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (3,950) (3,114) (2,598) (7,785) (2,157)
-------------- -------------- -------------- -------------- -------------
Net equity transactions (40,692) (5,955) 26,032 23,212 175,412
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity (25,751) 18,612 37,910 136,136 235,177
Contract owners' equity
beginning of period 121,091 102,479 64,569 352,512 117,335
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 95,340 121,091 102,479 488,648 352,512
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
FIDVIPGROP
--------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends - 9 - -
Mortality and expense charges
(note 3) (394) (32) - -
-------------- -------------- -------------- --------------
Net investment activity (394) (23) - -
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 7,841 918 - -
Cost of mutual funds sold (7,270) (910) - -
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments 571 8 - -
Change in unrealized gain (loss)
on investments 14,624 909 - -
-------------- -------------- -------------- --------------
Net gain (loss) on investments 15,195 917 - -
-------------- -------------- -------------- --------------
Reinvested capital gains 536 33 - -
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations 15,337 927 - -
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 21,257 3,849 - -
Transfers between funds 52,630 4,426 - -
Surrenders (469) - - -
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) (5,191) (832) - -
Deductions for surrender charges
(note 2d) (107) - - -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (2,039) (296) - -
-------------- -------------- -------------- --------------
Net equity transactions 66,081 7,147 - -
-------------- -------------- -------------- --------------
Net change in contract
owners' equity 81,418 8,074 - -
Contract owners' equity
beginning of period 35,917 - - -
-------------- -------------- -------------- --------------
Contract owners' equity
end of period 117,335 8,074 - -
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 10
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
NSATCAPAP NSATGVTBD
---------------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ 56,511 57,171 56,557 99,695 93,642
Mortality and expense charges
(note 3) (54,976) (44,903) (30,916) (15,337) (12,402)
-------------- -------------- -------------- -------------- -------------
Net investment activity 1,535 12,268 25,641 84,358 81,240
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 466,891 227,802 251,374 208,750 196,884
Cost of mutual funds sold (201,555) (125,614) (178,975) (194,080) (200,136)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 265,336 102,188 72,399 14,670 (3,252)
Change in unrealized gain (loss)
on investments 1,310,092 1,282,125 651,041 29,475 48,181
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments 1,575,428 1,384,313 723,440 44,145 44,929
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 221,169 131,565 129,452 9,470 -
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 1,798,132 1,528,146 878,533 137,973 126,169
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 706,503 576,936 689,709 575,305 668,858
Transfers between funds 82,239 35,346 (72,830) (30,016) (92,915)
Surrenders (232,748) (128,728) (83,559) (61,261) (50,560)
Death benefits (note 4) (52,012) (324) (1,427) - (360)
Policy loans (net of repayments)
(note 5) (192,222) (158,076) (152,508) (17,667) (41,260)
Deductions for surrender charges
(note 2d) (27,407) (28,634) (19,002) (7,214) (11,246)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (304,373) (117,273) (125,274) (255,843) (449,664)
-------------- -------------- -------------- -------------- -------------
Net equity transactions (20,020) 179,247 235,109 203,304 22,853
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity 1,778,112 1,707,393 1,113,642 341,277 149,022
Contract owners' equity
beginning of period 6,211,213 4,503,820 3,390,178 1,636,721 1,487,699
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 7,989,325 6,211,213 4,503,820 1,977,998 1,636,721
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
NSATMYMKT
-------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends 94,842 17,712 18,569 19,727
Mortality and expense charges
(note 3) (11,622) (2,877) (2,145) (2,828)
-------------- -------------- -------------- --------------
Net investment activity 83,220 14,835 16,424 16,899
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 404,881 213,696 143,558 113,843
Cost of mutual funds sold (419,505) (213,696) (143,558) (113,843)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments (14,624) - - -
Change in unrealized gain (loss)
on investments (29,088) - - -
-------------- -------------- -------------- --------------
Net gain (loss) on investments (43,712) - - -
-------------- -------------- -------------- --------------
Reinvested capital gains - - - -
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations 39,508 14,835 16,424 16,899
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 715,338 17,951 134,226 191,272
Transfers between funds (217,365) 7,464 (45,033) 10,558
Surrenders (92,984) (21,098) (4,916) (17,532)
Death benefits (note 4) (62) 1 - 1
Policy loans (net of repayments)
(note 5) (55,560) 4,580 (5,585) (4,237)
Deductions for surrender charges
(note 2d) (21,146) (2,484) (1,093) (3,991)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (466,215) (48,312) (139,235) (203,728)
-------------- -------------- -------------- --------------
Net equity transactions (137,994) (41,898) (61,636) (27,657)
-------------- -------------- -------------- --------------
Net change in contract
owners' equity (98,486) (27,063) (45,212) (10,758)
Contract owners' equity
beginning of period 1,586,185 352,121 397,333 408,091
-------------- -------------- -------------- --------------
Contract owners' equity
end of period 1,487,699 325,058 352,121 397,333
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 11
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
NSATSMCO NSATTOTRE
---------------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ - - 121 184,659 221,608
Mortality and expense charges
(note 3) (390) (209) (170) (141,818) (122,321)
-------------- -------------- -------------- -------------- -------------
Net investment activity (390) (209) (49) 42,841 99,287
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 28,399 9,361 10,050 1,085,788 1,020,699
Cost of mutual funds sold (26,375) (8,181) (9,040) (618,881) (706,961)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 2,024 1,180 1,010 466,907 313,738
Change in unrealized gain (loss)
on investments (4,434) 5,948 1,523 1,557,136 2,648,777
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments (2,410) 7,128 2,533 2,024,043 2,962,515
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains - 1,655 219 738,779 518,789
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations (2,800) 8,574 2,703 2,805,663 3,580,591
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 7,939 11,847 4,298 2,325,426 2,521,846
Transfers between funds (17,351) 2,997 32,760 (61,885) (308,827)
Surrenders (1,102) (27) - (585,152) (451,045)
Death benefits (note 4) - - - (62,497) (27,649)
Policy loans (net of repayments)
(note 5) (2,666) (2,640) (1,966) (458,542) (473,902)
Deductions for surrender charges
(note 2d) (130) (6) - (68,905) (100,329)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (2,320) - (207) (1,193,693) (1,217,219)
-------------- -------------- -------------- -------------- -------------
Net equity transactions (15,630) 12,171 34,885 (105,248) (57,125)
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity (18,430) 20,745 37,588 2,700,415 3,523,466
Contract owners' equity
beginning of period 60,766 40,021 2,433 16,284,321 12,760,855
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 42,336 60,766 40,021 18,984,736 16,284,321
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
NBAMTBAL
--------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends 220,034 33,067 22,402 26,709
Mortality and expense charges
(note 3) (89,084) (11,829) (10,350) (9,145)
-------------- -------------- -------------- --------------
Net investment activity 130,950 21,238 12,052 17,564
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 607,687 210,279 155,218 219,724
Cost of mutual funds sold (492,296) (210,334) (142,708) (205,327)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments 115,391 (55) 12,510 14,397
Change in unrealized gain (loss)
on investments 1,431,671 (110,079) 139,695 (107,617)
-------------- -------------- -------------- --------------
Net gain (loss) on investments 1,547,062 (110,134) 152,205 (93,220)
-------------- -------------- -------------- --------------
Reinvested capital gains 481,673 232,254 57,499 148,526
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations 2,159,685 143,358 221,756 72,870
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 2,781,851 200,479 176,325 224,381
Transfers between funds (184,767) (92,088) (62,137) (57,437)
Surrenders (337,925) (78,898) (42,668) (96,680)
Death benefits (note 4) (3,966) - - (445)
Policy loans (net of repayments)
(note 5) (302,135) (35,809) (49,326) (12,532)
Deductions for surrender charges
(note 2d) (76,848) (9,291) (9,491) (21,986)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (1,194,716) (75,520) (49,735) (54,729)
-------------- -------------- -------------- --------------
Net equity transactions 681,494 (91,127) (37,032) (19,428)
-------------- -------------- -------------- --------------
Net change in contract
owners' equity 2,841,179 52,231 184,724 53,442
Contract owners' equity
beginning of period 9,919,676 1,389,720 1,204,996 1,151,554
-------------- -------------- -------------- --------------
Contract owners' equity
end of period 12,760,855 1,441,951 1,389,720 1,204,996
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 12
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
NBAMTGRO NBAMTGUARD
---------------------------------------------- --------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ - - 19 - -
Mortality and expense charges
(note 3) (359) (295) (8) (1) -
-------------- -------------- -------------- -------------- -------------
Net investment activity (359) (295) 11 (1) -
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 15,315 36,777 3,795 440 -
Cost of mutual funds sold (14,646) (33,554) (3,918) (435) -
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 669 3,223 (123) 5 -
Change in unrealized gain (loss)
on investments (6,710) 7,904 (9) 29 -
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments (6,041) 11,127 (132) 34 -
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 15,182 4,858 4,370 - -
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 8,782 15,690 4,249 33 -
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 10,274 11,927 13,986 56 -
Transfers between funds (5,544) (9,110) 10,801 432 -
Surrenders (9,851) (2,224) (63) - -
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) 6,335 (15,013) (2,120) - -
Deductions for surrender charges
(note 2d) (1,160) (495) (14) - -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (4,235) (3,519) (3,008) (9) -
-------------- -------------- -------------- -------------- -------------
Net equity transactions (4,181) (18,434) 19,582 479 -
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity 4,601 (2,744) 23,831 512 -
Contract owners' equity
beginning of period 57,881 60,625 36,794 - -
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 62,482 57,881 60,625 512 -
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
NBAMTLMAT
-------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends - 645 516 663
Mortality and expense charges
(note 3) - (106) (552) (197)
-------------- -------------- -------------- --------------
Net investment activity - 539 (36) 466
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold - 915 3,804 497
Cost of mutual funds sold - (957) (3,809) (508)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments - (42) (5) (11)
Change in unrealized gain (loss)
on investments - (148) 143 (203)
-------------- -------------- -------------- --------------
Net gain (loss) on investments - (190) 138 (214)
-------------- -------------- -------------- --------------
Reinvested capital gains - - - -
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations - 349 102 252
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners - 1,277 2,269 2,726
Transfers between funds - - (2,841) 734
Surrenders - - - -
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) - 3 (613) -
Deductions for surrender charges
(note 2d) - - - -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) - (425) - -
-------------- -------------- -------------- --------------
Net equity transactions - 855 (1,185) 3,460
-------------- -------------- -------------- --------------
Net change in contract
owners' equity - 1,204 (1,083) 3,712
Contract owners' equity
beginning of period - 10,016 11,099 7,387
-------------- -------------- -------------- --------------
Contract owners' equity
end of period - 11,220 10,016 11,099
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 13
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
NBAMTPART OPPBDFD
---------------------------------------------- --------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Reinvested dividends
Mortality and expense charges $ 542 209 56 70 301
(note 3) (807) (364) (24) (102) (7)
Net investment activity -------------- -------------- -------------- -------------- -------------
(265) (155) 32 (32) 294
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 69,018 4,174 1,501 805 5,913
Cost of mutual funds sold (55,703) (2,766) (1,245) (774) (5,797)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 13,315 1,408 256 31 116
Change in unrealized gain (loss)
on investments (27,406) 20,920 5,709 242 (18)
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments (14,091) 22,328 5,965 273 98
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 17,062 3,214 700 63 17
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 2,706 25,387 6,697 304 409
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 19,544 13,757 3,023 13 762
Transfers between funds 3,492 40,368 27,787 7,798 (6,410)
Surrenders (11,127) (29) - - (75)
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) (12,996) 1,787 (728) (277) 1,767
Deductions for surrender charges
(note 2d) (1,310) (6) - - (17)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (5,165) (1,852) (289) (680) (313)
-------------- -------------- -------------- -------------- -------------
Net equity transactions (7,562) 54,025 29,793 6,854 (4,286)
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity (4,856) 79,412 36,490 7,158 (3,877)
Contract owners' equity
beginning of period 133,951 54,539 18,049 4,084 7,961
-------------- -------------- -------------- -------------- -------------
Contract owners' equity $ 129,095 133,951 54,539 11,242 4,084
end of period ============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
OPPGLSEC
-------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Reinvested dividends
Mortality and expense charges 383 1,229 476 -
(note 3) (291) (386) (139) (93)
Net investment activity -------------- -------------- -------------- --------------
92 843 337 (93)
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 13,884 10,115 1,007 529
Cost of mutual funds sold (14,003) (7,187) (783) (486)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments (119) 2,928 224 43
Change in unrealized gain (loss)
on investments (46) (402) 7,389 2,513
-------------- -------------- -------------- --------------
Net gain (loss) on investments (165) 2,526 7,613 2,556
-------------- -------------- -------------- --------------
Reinvested capital gains 5 4,626 - -
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations (68) 7,995 7,950 2,463
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 1,438 9,045 11,574 2,683
Transfers between funds 3,239 2,264 15,543 11,587
Surrenders (30) (3,712) (39) (42)
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) (3,581) (727) (172) -
Deductions for surrender charges
(note 2d) (7) (437) (9) (9)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (339) (2,073) (1,248) (157)
-------------- -------------- -------------- --------------
Net equity transactions 720 4,360 25,649 14,062
-------------- -------------- -------------- --------------
Net change in contract
owners' equity 652 12,355 33,599 16,525
Contract owners' equity
beginning of period 7,309 56,530 22,931 6,406
-------------- -------------- -------------- --------------
Contract owners' equity 7,961 68,885 56,530 22,931
end of period ============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 14
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
OPPGRO OPPMULT
---------------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ 23 - - 74 226
Mortality and expense charges
(note 3) (36) - - (47) (5)
-------------- -------------- -------------- -------------- -------------
Net investment activity (13) - - 27 221
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 1,325 - - - 32
Cost of mutual funds sold (1,165) - - - (30)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 160 - - - 2
Change in unrealized gain (loss)
on investments 546 - - 36 484
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments 706 - - 36 486
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 280 - - 431 159
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 973 - - 494 866
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 4,311 75 - 1,130 670
Transfers between funds 4,149 427 - - 1,962
Surrenders - - - - -
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) - - - - -
Deductions for surrender charges
(note 2d) - - - - -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (369) - - (404) -
-------------- -------------- -------------- -------------- -------------
Net equity transactions 8,091 502 - 726 2,632
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity 9,064 502 - 1,220 3,498
Contract owners' equity
beginning of period 502 - - 7,722 4,224
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 9,566 502 - 8,942 7,722
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
STOPP2
--------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends 163 314 342 354
Mortality and expense charges
(note 3) (7) (870) (480) (339)
-------------- -------------- -------------- --------------
Net investment activity 156 (556) (138) 15
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 38 18,389 6,165 9,897
Cost of mutual funds sold (35) (13,936) (4,969) (8,977)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments 3 4,453 1,196 920
Change in unrealized gain (loss)
on investments 271 (4,471) 11,339 5,190
-------------- -------------- -------------- --------------
Net gain (loss) on investments 274 (18) 12,535 6,110
-------------- -------------- -------------- --------------
Reinvested capital gains 52 16,130 7,197 1,657
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations 482 15,556 19,594 7,782
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 413 14,991 20,886 13,726
Transfers between funds 1,268 7,055 20,468 4,803
Surrenders - (5,800) (1,798) (693)
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) - (4,632) (2,348) (565)
Deductions for surrender charges
(note 2d) - (683) (400) (158)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) - (5,924) (475) (546)
-------------- -------------- -------------- --------------
Net equity transactions 1,681 5,007 36,333 16,567
-------------- -------------- -------------- --------------
Net change in contract
owners' equity 2,163 20,563 55,927 24,349
Contract owners' equity
beginning of period 2,061 115,087 59,160 34,811
-------------- -------------- -------------- --------------
Contract owners' equity
end of period 4,224 135,650 115,087 59,160
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 15
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
STDISC2 STINTSTK2
---------------------------------------------- --------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ - - 975 149 238
Mortality and expense charges
(note 3) (190) (67) (238) (1,320) (24)
-------------- -------------- -------------- -------------- -------------
Net investment activity (190) (67) 737 (1,171) 214
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 20,350 5,639 3,891 1,066 2,020
Cost of mutual funds sold (19,537) (6,370) (4,377) (1,378) (2,347)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments 813 (731) (486) (312) (327)
Change in unrealized gain (loss)
on investments (1,342) 3,473 (1,385) (546) (2,400)
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments (529) 2,742 (1,871) (858) (2,727)
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 367 - 1,184 - 356
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations (352) 2,675 50 (2,029) (2,157)
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 6,563 4,874 5,381 3,584 2,885
Transfers between funds (16,445) 9,677 3,290 - (1,813)
Surrenders (1,636) (98) - (344) -
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) (245) (290) (2,611) - -
Deductions for surrender charges
(note 2d) (193) (22) - (40) -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (918) (438) - (601) (341)
-------------- -------------- -------------- -------------- -------------
Net equity transactions (12,874) 13,703 6,060 2,599 731
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity (13,226) 16,378 6,110 570 (1,426)
Contract owners' equity
beginning of period 32,100 15,722 9,612 11,856 13,282
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 18,874 32,100 15,722 12,426 11,856
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
VEWRLDBD
--------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends 36 15 55 19
Mortality and expense charges
(note 3) (5,464) (31) (1) (94)
-------------- -------------- -------------- --------------
Net investment activity (5,428) (16) 54 (75)
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 380 129 197 138
Cost of mutual funds sold (376) (128) (205) (141)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments 4 1 (8) (3)
Change in unrealized gain (loss)
on investments (63) 184 (12) 60
-------------- -------------- -------------- --------------
Net gain (loss) on investments (59) 185 (20) 57
-------------- -------------- -------------- --------------
Reinvested capital gains - - - -
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations (5,487) 169 34 (18)
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 6,572 204 170 143
Transfers between funds 12,252 - - 1,056
Surrenders - - - -
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) - - - -
Deductions for surrender charges
(note 2d) - - - -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (55) (199) (300) -
-------------- -------------- -------------- --------------
Net equity transactions 18,769 5 (130) 1,199
-------------- -------------- -------------- --------------
Net change in contract
owners' equity 13,282 174 (96) 1,181
Contract owners' equity
beginning of period - 1,602 1,698 517
-------------- -------------- -------------- --------------
Contract owners' equity
end of period 13,282 1,776 1,602 1,698
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 16
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
VEWRLDEMKT VEWRLDHAS
---------------------------------------------- --------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ 48 1 - 51 360
Mortality and expense charges
(note 3) (23) (1) - (140) (33)
-------------- -------------- -------------- -------------- -------------
Net investment activity 25 - - (89) 327
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 2,898 1,348 - 8,612 17,573
Cost of mutual funds sold (4,179) (1,356) - (9,488) (18,952)
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments (1,281) (8) - (876) (1,379)
Change in unrealized gain (loss)
on investments (1,171) (2,290) - (3,152) (566)
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments (2,452) (2,298) - (4,028) (1,945)
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains 43 - - 1,261 487
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations (2,384) (2,298) - (2,856) (1,131)
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 218 35 - 1,314 151
Transfers between funds (1) 11,824 - (6,736) 12,753
Surrenders (248) - - (232) (12,552)
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) 537 (793) - (1,534) 796
Deductions for surrender charges
(note 2d) (29) - - (27) (2,792)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (2,697) - - (579) (521)
-------------- -------------- -------------- -------------- -------------
Net equity transactions (2,220) 11,066 - (7,794) (2,165)
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity (4,604) 8,768 - (10,650) (3,296)
Contract owners' equity
beginning of period 8,768 - - 16,122 19,418
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 4,164 8,768 - 5,472 16,122
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
VKMSRESEC
--------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends 291 38 550 41
Mortality and expense charges
(note 3) (448) (166) (43) (77)
-------------- -------------- -------------- --------------
Net investment activity (157) (128) 507 (36)
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold 19,584 11,641 9,603 -
Cost of mutual funds sold (18,863) (12,855) (7,795) -
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments 721 (1,214) 1,808 -
Change in unrealized gain (loss)
on investments (256) (3,184) (426) 732
-------------- -------------- -------------- --------------
Net gain (loss) on investments 465 (4,398) 1,382 732
-------------- -------------- -------------- --------------
Reinvested capital gains 285 378 1,812 19
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations 593 (4,148) 3,701 715
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners 1,377 3,108 4,935 738
Transfers between funds 22,438 8,994 9,274 2,741
Surrenders (80) (2,261) (27) -
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) (10,452) (4,523) (1,533) -
Deductions for surrender charges
(note 2d) (18) (266) (6) -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (529) (1,008) 11 -
-------------- -------------- -------------- --------------
Net equity transactions 12,736 4,044 12,654 3,479
-------------- -------------- -------------- --------------
Net change in contract
owners' equity 13,329 (104) 16,355 4,194
Contract owners' equity
beginning of period 6,089 20,959 4,604 410
-------------- -------------- -------------- --------------
Contract owners' equity
end of period 19,418 20,855 20,959 4,604
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 17
NATIONWIDE VLI SEPARATE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
WPINTEQ WPPVENCAP
---------------------------------------------- --------------------------------
1998 1997 1996 1998 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends $ 156 192 261 - -
Mortality and expense charges
(note 3) (169) (70) (39) (5) -
-------------- -------------- -------------- -------------- -------------
Net investment activity (13) 122 222 (5) -
-------------- -------------- -------------- -------------- -------------
Proceeds from mutual fund
shares sold 5,243 7,011 7,425 - -
Cost of mutual funds sold (5,782) (6,378) (7,302) - -
-------------- -------------- -------------- -------------- -------------
Realized gain (loss) on
investments (539) 633 123 - -
Change in unrealized gain (loss)
on investments 1,522 (3,096) 23 96 -
-------------- -------------- -------------- -------------- -------------
Net gain (loss) on investments 983 (2,463) 146 96 -
-------------- -------------- -------------- -------------- -------------
Reinvested capital gains - 1,329 116 - -
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity resulting
from operations 970 (1,012) 484 91 -
-------------- -------------- -------------- -------------- -------------
Equity transactions:
Purchase payments received from
contract owners 7,022 6,856 3,666 908 -
Transfers between funds (4,285) 3,823 14,184 - -
Surrenders - (1,349) - - -
Death benefits (note 4) - - - - -
Policy loans (net of repayments)
(note 5) (94) (3,408) (1,405) - -
Deductions for surrender charges
(note 2d) - (300) - - -
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) (1,109) - - (21) -
-------------- -------------- -------------- -------------- -------------
Net equity transactions 1,534 5,622 16,445 887 -
-------------- -------------- -------------- -------------- -------------
Net change in contract
owners' equity 2,504 4,610 16,929 978 -
Contract owners' equity
beginning of period 24,083 19,473 2,544 - -
-------------- -------------- -------------- -------------- -------------
Contract owners' equity
end of period $ 26,587 24,083 19,473 978 -
============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
WPSMCOGR
-------------- ----------------------------------------------
1996 1998 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends - - - -
Mortality and expense charges
(note 3) - (249) (212) (50)
-------------- -------------- -------------- --------------
Net investment activity - (249) (212) (50)
-------------- -------------- -------------- --------------
Proceeds from mutual fund
shares sold - 19,636 20,824 25,594
Cost of mutual funds sold - (14,863) (15,610) (21,195)
-------------- -------------- -------------- --------------
Realized gain (loss) on
investments - 4,773 5,214 4,399
Change in unrealized gain (loss)
on investments - (5,217) 2,827 29
-------------- -------------- -------------- --------------
Net gain (loss) on investments - (444) 8,041 4,428
-------------- -------------- -------------- --------------
Reinvested capital gains - - - -
-------------- -------------- -------------- --------------
Net change in contract
owners' equity resulting
from operations - (693) 7,829 4,378
-------------- -------------- -------------- --------------
Equity transactions:
Purchase payments received from
contract owners - 4,229 8,281 6,343
Transfers between funds - (15,770) (7,578) 13,647
Surrenders - (279) (5,302) (455)
Death benefits (note 4) - - - -
Policy loans (net of repayments)
(note 5) - (262) (1,352) (3,376)
Deductions for surrender charges
(note 2d) - (33) (1,179) (103)
Redemptions to pay cost of insurance
charges and administration
charges (notes 2b and 2c) - (2,146) (5) (271)
-------------- -------------- -------------- --------------
Net equity transactions - (14,261) (7,135) 15,785
-------------- -------------- -------------- --------------
Net change in contract
owners' equity - (14,954) 694 20,163
Contract owners' equity
beginning of period - 54,327 53,633 33,470
-------------- -------------- -------------- --------------
Contract owners' equity
end of period - 39,373 54,327 53,633
============== ============== ============== ==============
</TABLE>
(Continued)
<PAGE> 18
NATIONWIDE VLI SEPARATE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
DECEMBER, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLISeparate 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 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 Income & Growth (ACVPIncGr)
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> 19
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 Cap Value Fund (NSATSmCapV)
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 -
Guardian Portfolio (NBAMTGuard) 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 (VKMSRESec)
(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, 1998, contract owners have invested in all of the above
funds except for Morgan Stanley Universal Funds - Emerging Markets Debt
Portfolio and Nationwide SAT - Small Cap Value Fund. The contract
owners' equity is affected by the investment results of each fund,
equity transactions by contract owners and certain policy charges (see
notes 2 and 3). The accompanying financial statements include only
contract owners' purchase payments pertaining to the variable portions
of their contracts and exclude any purchase payments for fixed dollar
benefits, the latter being included in the accounts of the Company.
A contract owner may choose from among a number of different underlying
mutual fund options. The underlying mutual fund options are not
available to the general public directly. The underlying mutual funds
are available as investment options in variable life insurance policies
or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or
retirement plans.
<PAGE> 20
Some of the underlying mutual funds have been established by investment
advisers which manage publicly traded mutual funds having similar names
and investment objectives. While some of the underlying mutual funds
may be similar to, and may in fact be modeled after, publicly traded
mutual funds, the underlying mutual funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any
corresponding underlying mutual funds may differ substantially.
(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, 1998. 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.
(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 1997 and 1996 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.
<PAGE> 21
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.
(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.
<PAGE> 22
(7) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN TO
----- ---------- ---------
<S> <C> <C> <C> <C>
American Century VP -
American Century VP Advantage 24,904 $ 18.492009 $ 460,525 16%
American Century VP -
American Century VP Advantage
Initial Funding by Depositor (note 1a) 25,000 19.938436 498,461 17%
American Century VP -
American Century VP Balanced 955 19.320541 18,451 15%
American Century VP -
American Century VP Capital Appreciation 3,978 14.277913 56,798 (3)%
American Century VP -
American Century VP Income Growth 357 10.862660 3,878 9%(a)
American Century VP -
American Century VP International 2,097 16.487231 34,574 18%
American Century VP -
American Century VP Value 496 13.192098 6,543 4%
The Dreyfus Socially Responsible
Growth Fund, Inc. 2,470 28.323603 69,959 28%
Dreyfus Stock Index Fund 15,567 28.091438 437,299 27%
Dreyfus VIF - Capital Appreciation Portfolio 15,355 13.197284 202,644 29%
Dreyfus VIF - Growth and Income Portfolio 576 12.772496 7,357 11%
Fidelity VIP - Equity-Income Portfolio 11,782 35.444796 417,611 11%
Fidelity VIP - Growth Portfolio 15,280 40.998916 626,463 38%
Fidelity VIP - High Income Portfolio 2,138 26.133234 55,873 (5)%
Fidelity VIP - Overseas Portfolio 1,151 18.969496 21,834 12%
Fidelity VIP-II - Asset Manager Portfolio 3,841 24.821550 95,340 14%
Fidelity VIP-II - Contrafund Portfolio 23,039 21.209617 488,648 29%
Fidelity VIP-III - Growth Opportunities Portfolio 596 13.546531 8,074 24%
Nationwide SAT - Capital Appreciation Fund 252,268 31.669989 7,989,325 29%
Nationwide SAT - Government Bond Fund 109,393 18.081576 1,977,998 8%
Nationwide SAT - Money Market Fund 24,405 13.319323 325,058 4%
Nationwide SAT - Small Company Fund 2,608 16.233001 42,336 0%
Nationwide SAT - Total Return Fund 574,062 33.070880 18,984,736 17%
</TABLE>
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C>
Neuberger & Berman AMT -
Balanced Portfolio 72,841 19.795868 1,441,951 11%
Neuberger & Berman AMT -
Growth Portfolio 2,465 25.347646 62,482 15%
Neuberger & Berman AMT -
Guardian Portfolio 55 9.314041 512 (7)%(a)
Neuberger & Berman AMT -
Limited Maturity Bond Portfolio 755 14.860392 11,220 4%
Neuberger & Berman AMT -
Partners Portfolio 5,490 23.514569 129,095 3%
Oppenheimer VAF - Bond Fund 621 18.103341 11,242 6%
Oppenheimer VAF - Global Securities Fund 3,715 18.542353 68,885 13%
Oppenheimer VAF - Growth Fund 744 12.857977 9,566 23%
Oppenheimer VAF - Multiple Strategies Fund 394 22.696024 8,942 6%
Strong Opportunity Fund II, Inc. 4,485 30.245312 135,650 13%
Strong VIF - Strong Discovery Fund II 972 19.418031 18,874 6%
Strong VIF - Strong International Stock Fund II 1,368 9.083353 12,426 (6)%
Van Eck WIT - Worldwide Bond Fund 116 15.314274 1,776 12%
Van Eck WIT -
Worldwide Emerging Markets Fund 721 5.775322 4,164 (35)%
Van Eck WIT - Worldwide Hard Assets Fund 448 12.213207 5,472 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio 1,312 15.895654 20,855 (12)%
Warburg Pincus Trust -
International Equity Portfolio 2,250 11.816371 26,587 5%
Warburg Pincus Trust -
Post Venture Capital Portfolio 81 12.075838 978 6%
Warburg Pincus Trust -
Small Company Growth Portfolio 2,529 15.568525 39,373 (4)%
====== ========= ------------
$ 34,839,835
============
</TABLE>
(a) This investment option was not being utilized for the entire period.
Accordingly, the annual return was computed for such period as the
investment option was utilized.
(b) The annual return does not include contract charges satisfied by
surrendering units.
<PAGE> 70
<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, 1998 and
1997, 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,
1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Columbus, Ohio
January 29, 1999
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars, except per share amounts)
December 31,
-----------------------
Assets 1998 1997
------ --------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $14,245.1 $13,204.1
Equity securities 127.2 80.4
Mortgage loans on real estate, net 5,328.4 5,181.6
Real estate, net 243.6 311.4
Policy loans 464.3 415.3
Other long-term investments 44.0 25.2
Short-term investments 289.1 358.4
--------- ---------
20,741.7 19,576.4
--------- ---------
Cash 3.4 175.6
Accrued investment income 218.7 210.5
Deferred policy acquisition costs 2,022.2 1,665.4
Other assets 420.3 438.4
Assets held in separate accounts 50,935.8 37,724.4
--------- ---------
$74,342.1 $59,790.7
========= =========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $19,767.1 $18,702.8
Other liabilities 866.1 885.6
Liabilities related to separate accounts 50,935.8 37,724.4
--------- ---------
71,569.0 57,312.8
--------- ---------
Commitments and contingencies (notes 7 and 12)
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 914.7 914.7
Retained earnings 1,579.0 1,312.3
Accumulated other comprehensive income 275.6 247.1
--------- ---------
2,773.1 2,477.9
--------- ---------
$74,342.1 $59,790.7
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
Years ended December 31,
-----------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Policy charges $ 698.9 $ 545.2 $ 400.9
Life insurance premiums 200.0 205.4 198.6
Net investment income 1,481.6 1,409.2 1,357.8
Realized gains (losses) on investments 28.4 11.1 (0.3)
Other 66.8 46.5 35.9
-------- -------- --------
2,475.7 2,217.4 1,992.9
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Other benefits and claims 175.8 178.2 178.3
Policyholder dividends on participating policies 39.6 40.6 41.0
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Other operating expenses 419.7 384.9 342.4
-------- -------- --------
1,918.6 1,787.5 1,677.4
-------- -------- --------
Income from continuing operations before federal income tax expense 557.1 429.9 315.5
Federal income tax expense 190.4 150.2 110.9
-------- -------- --------
Income from continuing operations 366.7 279.7 204.6
Income from discontinued operations (less federal income tax expense
of $4.5 in 1996) -- -- 11.3
-------- -------- --------
Net income $ 366.7 $ 279.7 $ 215.9
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1998, 1997 and 1996
(in millions of dollars)
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholder's
stock capital earnings income equity
----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ 3.8 $ 657.2 $1,583.2 $ 384.3 $2,628.5
Comprehensive income:
Net income -- -- 215.9 -- 215.9
Net unrealized losses on securities
available-for-sale arising during
the year -- -- -- (170.9) (170.9)
--------
Total comprehensive income 45.0
--------
Dividends to shareholder -- (129.3) (366.5) (39.8) (535.6)
------ ------- -------- ------- --------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Comprehensive income:
Net income -- -- 279.7 -- 279.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 73.5 73.5
--------
Total comprehensive income 353.2
--------
Capital contribution -- 836.8 -- -- 836.8
Dividend to shareholder -- (450.0) (400.0) -- (850.0)
------ ------- -------- ------- --------
December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9
Comprehensive income:
Net income -- -- 366.7 -- 366.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 28.5 28.5
--------
Total comprehensive income 395.2
--------
Dividend to shareholder -- -- (100.0) -- (100.0)
------ ------- -------- ------- --------
December 31, 1998 $ 3.8 $ 914.7 $1,579.0 $ 275.6 $2,773.1
====== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
Years ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 366.7 $ 279.7 $ 215.9
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Capitalization of deferred policy acquisition costs (584.2) (487.9) (422.6)
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Amortization and depreciation (8.5) (2.0) 7.0
Realized gains on invested assets, net (28.4) (11.1) (0.3)
(Increase) decrease in accrued investment income (8.2) (0.3) 2.8
(Increase) decrease in other assets 16.4 (12.7) (38.9)
Decrease in policy liabilities (8.3) (23.1) (151.0)
(Decrease) increase in other liabilities (34.8) 230.6 191.4
Other, net (11.3) (10.9) (61.7)
--------- --------- ---------
Net cash provided by operating activities 982.9 1,146.1 858.3
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,557.0 993.4 1,162.8
Proceeds from sale of securities available-for-sale 610.5 574.5 299.6
Proceeds from repayments of mortgage loans on real estate 678.2 437.3 309.0
Proceeds from sale of real estate 103.8 34.8 18.5
Proceeds from repayments of policy loans and sale of other invested assets 23.6 22.7 22.8
Cost of securities available-for-sale acquired (3,182.8) (2,828.1) (1,573.6)
Cost of mortgage loans on real estate acquired (829.1) (752.2) (972.8)
Cost of real estate acquired (0.8) (24.9) (7.9)
Policy loans issued and other invested assets acquired (88.4) (62.5) (57.7)
Short-term investments, net 69.3 (354.8) 28.0
--------- --------- ---------
Net cash used in investing activities (1,058.7) (1,959.8) (771.3)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions -- 836.8 --
Cash dividends paid (100.0) -- (50.0)
Increase in investment product and universal life insurance
product account balances 2,682.1 2,488.5 1,781.8
Decrease in investment product and universal life insurance
product account balances (2,678.5) (2,379.8) (1,784.5)
--------- --------- ---------
Net cash (used in) provided by financing activities (96.4) 945.5 (52.7)
--------- --------- ---------
Net (decrease) increase in cash (172.2) 131.8 34.3
Cash, beginning of year 175.6 43.8 9.5
--------- --------- ---------
Cash, end of year $ 3.4 $ 175.6 $ 43.8
========= ========= =========
</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, 1998, 1997 and 1996
(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 10 and 14. 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, including variable annuities, fixed annuities and life
insurance.
(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. Operations that are classified
and reported as discontinued operations are not consolidated but
rather are reported as "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, 1998 or 1997.
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 deferred annuities. Universal life insurance
products include universal life insurance, variable universal life
insurance, corporate owned life insurance and other
interest-sensitive life insurance policies. Revenues for
investment products and universal life insurance products consist
of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and
assessed against policy account balances during the period. Policy
benefits and claims that are charged to expense include interest
credited to policy account balances and benefits and claims
incurred in the period in excess of related policy account
balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
(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. 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. Deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 2(b).
(e) Separate Accounts
-----------------
Separate account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $743.9 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the separate accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges. The average interest rate credited on investment product
policy reserves was 6.0%, 6.1% and 6.3% for the years ended
December 31, 1998, 1997 and 1996, respectively.
Future policy benefits for traditional life insurance policies
have been calculated by the net level premium method using
interest rates varying from 6.0% to 10.5% and estimates of
mortality, morbidity, investment yields and withdrawals which were
used or which were being experienced at the time the policies were
issued, rather than the assumptions prescribed by state regulatory
authorities.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
----------------------
Participating business represents approximately 40% in 1998 (50%
in 1997 and 52% in 1996) of the Company's life insurance in force,
74% in 1998 (77% in 1997 and 78% in 1996) of the number of life
insurance policies in force, and 14% in 1998 (27% in 1997 and 40%
in 1996) 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 10 and 14.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(j) Recently Issued Accounting Pronouncements
-----------------------------------------
On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures
about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for
Segments of a Business Enterprise. SFAS 131 establishes standards
for public business enterprises to report information about
operating segments in annual financial statements and selected
information about operating segments in interim financial reports.
SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The
adoption of SFAS 131 did not affect results of operations or
financial position, nor did it affect the manner in which the
Company defines its operating segments. The segment information
required for annual financial statements is included in note 13.
On January 1, 1998, the Company adopted SFAS No. 132 - Employers'
Disclosures about Pensions and Other Postretirement Benefits (SFAS
132). SFAS 132 revises employers' disclosures about pension and
other postretirement benefit plans. The Statement does not change
the measurement or recognition of benefit plans in the financial
statements. The revised disclosures required by SFAS 132 are
included in note 8.
In June 1998, the FASB issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. Contracts that contain
embedded derivatives, such as certain insurance contracts, are
also addressed by the Statement. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. The Statement is effective for fiscal years beginning
after June 15, 1999. It may be implemented earlier provided
adoption occurs as of the beginning of any fiscal quarter after
issuance. The Company plans to adopt this Statement in first
quarter 2000 and is currently evaluating the impact on results of
operations and financial condition.
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position 98-1 - Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1). SOP
98-1 provides guidance intended to standardize accounting
practices for costs incurred to develop or obtain computer
software for internal use. Specifically, SOP 98-1 provides
guidance for determining whether computer software is for internal
use and when costs incurred for internal use software are to be
capitalized. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does
not expect the adoption of SOP 98-1, which occurred on January 1,
1999, to have a material impact on the Company's financial
statements.
(k) Reclassification
----------------
Certain items in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to the 1998
presentation.
<PAGE> 11
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, 1998 and
1997 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, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 106.5 4.5 -- 111.0
Corporate securities 9,899.6 423.2 (18.7) 10,304.1
Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5
--------- ------ ------ ---------
Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1
Equity securities 110.4 18.3 (1.5) 127.2
--------- ------ ------ ---------
$13,831.7 $563.2 $(22.6) $14,372.3
========= ====== ====== =========
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
========= ====== ====== =========
</TABLE>
As of December 31, 1998 the Company had entered into S&P 500 futures
contracts with a notional amount of $20.0 million to reduce the risk of
changes in the fair market value of certain investments classified as
equity securities. These contracts had an unrealized loss of $1.3
million as of December 31, 1998 which is included in the recorded
amount of the equity securities and in accumulated other comprehensive
income, net of tax, similar to other unrealized gains and losses on
securities available-for-sale.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1998, by expected
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
---- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 2,019.9 $ 2,048.0
Due after one year through five years 8,169.1 8,470.6
Due after five years through ten years 2,795.0 2,927.7
Due after ten years 737.3 798.8
--------- ---------
$13,721.3 $14,245.1
========= =========
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Gross unrealized gains $ 540.6 $ 483.8
Adjustment to deferred policy acquisition costs (116.6) (103.7)
Deferred federal income tax (148.4) (133.0)
------- -------
$ 275.6 $ 247.1
======= =======
</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) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $52.6 $137.5 $(289.2)
Equity securities 4.2 (2.7) 8.9
----- ------ -------
$56.8 $134.8 $(280.3)
===== ====== =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1998,
1997 and 1996 were $610.5 million, $574.5 million and $299.6 million,
respectively. During 1998, gross gains of $9.0 million ($9.9 million
and $6.6 million in 1997 and 1996, respectively) and gross losses of
$7.6 million ($18.0 million and $6.9 million in 1997 and 1996,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1998 was $3.7 million. No valuation
allowance has been recorded for these loans as of December 31, 1998.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million which includes
$3.9 million of impaired mortgage loans on real estate for which the
related valuation allowance was $0.1 million and $16.0 million of
impaired mortgage loans on real estate for which there was no valuation
allowance. During 1998, the average recorded investment in impaired
mortgage loans on real estate was approximately $9.1 million ($31.8
million in 1997) and interest income recognized on those loans was $0.3
million ($1.0 million in 1997), which is equal to interest income
recognized using a cash-basis method of income recognition.
<PAGE> 13
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) 1998 1997
---- ----
<S> <C> <C>
Allowance, beginning of year $42.5 $51.0
Reductions credited to operations (0.1) (1.2)
Direct write-downs charged against the allowance -- (7.3)
----- -----
Allowance, end of year $42.4 $42.5
===== =====
</TABLE>
Real estate is presented at cost less accumulated depreciation of $21.5
million as of December 31, 1998 ($45.1 million as of December 31, 1997)
and valuation allowances of $5.4 million as of December 31, 1998 ($11.1
million as of December 31, 1997).
Investments that were non-income producing for the twelve month period
preceding December 31, 1998 amounted to $42.4 million ($19.4 million
for 1997) and consisted of $32.7 million ($3.0 million in 1997) in
securities available-for-sale and $9.7 million ($16.4 million in 1997)
in real estate.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 982.5 $ 911.6 $ 917.1
Equity securities 0.8 0.8 1.3
Mortgage loans on real estate 458.9 457.7 432.8
Real estate 40.4 42.9 44.3
Short-term investments 17.8 22.7 4.2
Other 30.7 21.0 4.0
-------- -------- --------
Total investment income 1,531.1 1,456.7 1,403.7
Less investment expenses 49.5 47.5 45.9
-------- -------- --------
Net investment income $1,481.6 $1,409.2 $1,357.8
======== ======== ========
</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) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(0.7) $ 3.6 $(3.5)
Equity securities 2.1 2.7 3.2
Mortgage loans on real estate 3.9 1.6 (4.1)
Real estate and other 23.1 3.2 4.1
----- ----- -----
$28.4 $11.1 $(0.3)
===== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $6.5 million and
$6.2 million as of December 31, 1998 and 1997, respectively, were on
deposit with various regulatory agencies as required by law.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) Federal Income Tax
------------------
The Company's current federal income tax liability was $72.8 million
and $60.1 million as of December 31, 1998 and 1997, respectively.
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $207.7 $200.1
Liabilities in Separate Accounts 319.9 242.0
Mortgage loans on real estate and real estate 17.5 19.0
Other assets and other liabilities 58.9 59.2
------ ------
Total gross deferred tax assets 604.0 520.3
Less valuation allowance (7.0) (7.0)
------ ------
Net deferred tax assets 597.0 513.3
------ ------
Deferred tax liabilities:
Deferred policy acquisition costs 568.7 480.5
Fixed maturity securities 212.2 193.3
Deferred tax on realized investment gains 34.8 40.1
Equity securities and other long-term investments 9.6 7.5
Other 21.6 22.2
------ ------
Total gross deferred tax liabilities 846.9 743.6
------ ------
Net deferred tax liability $249.9 $230.3
====== ======
</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, 1998, 1997 and 1996.
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) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable $186.1 $121.7 $116.5
Deferred tax expense (benefit) 4.3 28.5 (5.6)
------ ------ ------
$190.4 $150.2 $110.9
====== ====== ======
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1998,
1997 and 1996 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(in millions of dollars) Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $195.0 35.0 $150.5 35.0 $110.4 35.0
Tax exempt interest and dividends
received deduction (4.9) (0.9) - 0.0 (0.2) (0.1)
Other, net 0.3 0.1 (0.3) (0.1) 0.7 0.3
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $190.4 34.2 $150.2 34.9 $110.9 35.2
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $173.4 million, $91.8 million and
$115.8 million during the years ended December 31, 1998, 1997 and 1996,
respectively.
(5) Comprehensive Income
--------------------
Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the
Company adopted January 1, 1998, the Consolidated Statements of
Shareholder's Equity include a new measure called "Comprehensive
Income". Comprehensive Income includes net income as well as certain
items that are reported directly within separate components of
shareholders' equity that bypass net income. Currently, the Company's
only component of Other Comprehensive Income is unrealized gains
(losses) on securities available-for-sale. The related before and after
federal tax amounts are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Unrealized gains (losses) on securities
available-for-sale arising during the period:
Gross $ 58.2 $141.1 $(272.4)
Adjustment to deferred policy acquisition costs (12.9) (21.8) 57.0
Related federal income tax (expense) benefit (15.9) (41.7) 44.0
------ ------ ------
Net 29.4 77.6 (171.4)
------ ------ ------
Reclassification adjustment for net (gains) losses
on securities available-for-sale realized
during the period:
Gross (1.4) (6.3) 0.7
Related federal income tax expense (benefit) 0.5 2.2 (0.2)
------ ------ -------
Net (0.9) (4.1) 0.5
------ ------ -------
Total Other Comprehensive Income $ 28.5 $ 73.5 $(170.9)
====== ====== =======
</TABLE>
(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.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices. The carrying amount and fair value for
equity securities exclude the fair value of futures contracts
designated as hedges of equity securities.
Mortgage loans on real estate, net: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which is net of certain surrender
charges.
Investment contracts: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Policy reserves on life insurance contracts: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
Commitments to extend credit: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 7.
Futures contracts: The fair value for futures contracts is based
on quoted market prices.
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>
1998 1997
------------------------- --------------------------
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 $14,245.1 $14,245.1 $13,204.1 $13,204.1
Equity securities 128.5 128.5 80.4 80.4
Mortgage loans on real estate, net 5,328.4 5,527.6 5,181.6 5,509.7
Policy loans 464.3 464.3 415.3 415.3
Short-term investments 289.1 289.1 358.4 358.4
Cash 3.4 3.4 175.6 175.6
Assets held in separate accounts 50,935.8 50,935.8 37,724.4 37,724.4
Liabilities:
Investment contracts 15,468.7 15,158.6 14,708.2 14,322.1
Policy reserves on life insurance contracts 3,914.0 3,768.9 3,345.4 3,182.4
Liabilities related to separate accounts 50,935.8 49,926.5 37,724.4 36,747.0
Futures contracts 1.3 1.3 -- --
</TABLE>
(7) Risk Disclosures
----------------
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
Financial Instruments with Off-Balance-Sheet Risk: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. 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 $156.0 million
extending into 1999 were outstanding as of December 31, 1998. The
Company also had $40.0 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1998.
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 22% (20% in 1997) in any geographic area and no more than 2% (2%
in 1997) with any one borrower as of December 31, 1998. As of December
31, 1998, 42% (46% in 1997) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
Reinsurance: The Company has entered into a reinsurance contract to
cede a portion of its general account individual annuity business to
The Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $187.9 million and $220.2 million as of December 31,
1998 and 1997, 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.
(8) Pension Plan and Postretirement Benefits Other Than Pensions
------------------------------------------------------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company. Assets of the
Retirement Plan are invested in group annuity contracts of NLIC and
Employers Life Insurance Company of Wausau (ELICW).
Pension costs charged to operations by the Company during the years
ended December 31, 1998, 1997 and 1996 were $2.0 million, $7.5 million
and $7.4 million, respectively. The Company has recorded a prepaid
pension asset of $5.0 million as of December 31, 1998 and no prepaid or
accrued pension asset or expense as of December 31, 1997.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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,
1998 and 1997 was $40.1 million and $36.5 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and
1996 was $4.1 million, $3.0 million and $3.3 million, respectively.
Information regarding the funded status of the pension plan as a whole
and the postretirement life and health care benefit plan as a whole as
of December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
--------------------- -----------------------
(in millions of dollars) 1998 1997 1998 1997
--------------------------------------------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,033.8 $1,847.8 $237.9 $ 200.7
Service cost 87.6 77.3 9.8 7.0
Interest cost 123.4 118.6 15.4 14.0
Actuarial loss 123.2 60.0 15.6 24.4
Plan curtailment in 1998/merger in 1997 (107.2) 1.5 - -
Benefits paid (75.8) (71.4) (8.6) (8.2)
-------- -------- ------- -------
Benefit obligation at end of year 2,185.0 2,033.8 270.1 237.9
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 2,212.9 1,947.9 69.2 63.0
Actual return on plan assets 300.7 328.1 5.0 3.6
Employer contribution 104.1 7.2 12.1 10.6
Plan merger - 1.1 - -
Benefits paid (75.8) (71.4) (8.4) (8.0)
-------- -------- ------- -------
Fair value of plan assets at end of year 2,541.9 2,212.9 77.9 69.2
-------- -------- ------- -------
Funded status 356.9 179.1 (192.2) (168.7)
Unrecognized prior service cost 31.5 34.7 - -
Unrecognized net (gains) losses (345.7) (330.7) 16.0 1.6
Unrecognized net (asset) obligation at transition (11.0) 33.3 1.3 1.5
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ 31.7 $ (83.6) $(174.9) $(165.6)
======== ======== ======= =======
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- -----------------------
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Weighted average discount rate 5.50% 6.00% 6.65% 6.70%
Rate of increase in future compensation levels 3.75% 4.25% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 12.13%
Ultimate rate -- -- 8.00% 6.12%
Uniform declining period -- -- 15 Years 12 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
-------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Service cost (benefits earned during the period) $ 87.6 $ 77.3 $ 75.5
Interest cost on projected benefit obligation 123.4 118.6 105.5
Expected return on plan assets (159.0) (139.0) (116.1)
Recognized gains (3.8) - -
Amortization of prior service cost 3.2 3.2 3.2
Amortization of unrecognized transition obligation 4.2 4.2 4.1
------- ------- -------
$ 55.6 $ 64.3 $ 72.2
======= ======= =======
</TABLE>
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with the Nationwide Insurance Enterprise and employees of
WSC ended participation in the plan. A curtailment gain of $67.1
million resulted (consisting of a $107.2 million reduction in the
projected benefit obligation, net of the write-off of the $40.1 million
remaining unamortized transition obligation related to WSC). The
Company anticipates that the plan will settle the obligation related to
WSC employees with a transfer of assets during 1999.
Basis for measurements, net periodic pension cost for the pension plan:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 6.00% 6.50% 6.00%
Rate of increase in future compensation levels 4.25% 4.75% 4.25%
Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 9.8 $ 7.0 $ 6.5
Interest cost on accumulated postretirement benefit obligation 15.4 14.0 13.7
Actual return on plan assets (5.0) (3.6) (4.3)
Amortization of unrecognized transition obligation of affiliates 0.2 0.2 0.2
Net amortization and deferral 1.2 (0.5) 1.8
----- ----- -----
$21.6 $17.1 $17.9
===== ===== =====
</TABLE>
Actuarial assumptions used for the measurement of the accumulated
postretirement benefit obligation (APBO) and the NPPBC for the
postretirement benefit plan for 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
NPPBC:
Discount rate 6.70% 7.25% 6.65%
Long term rate of return on plan
assets, net of tax 5.83% 5.89% 4.80%
Assumed health care cost trend rate:
Initial rate 12.00% 11.00% 11.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the postretirement benefit plan as a whole, a one percentage point
increase or decrease in the assumed health care cost trend rate would
have no impact on the APBO as of December 31, 1998 and have no impact
on the NPPBC for the year ended December 31, 1998.
(9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
----------------------------------------------------------------------
and Dividend Restrictions
-------------------------
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
The statutory capital and surplus of NLIC as of December 31, 1998, 1997
and 1996 was $1.32 billion, $1.13 billion and $1.00 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1998, 1997 and 1996 was $171.0 million, $111.7 million and
$73.2 million, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1998,
the maximum amount available for dividend payment from the Company to
its shareholder without prior approval of the Department was $71.0
million.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(10) 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, 1998, 1997 and 1996, the
Company made lease payments to NMIC and its subsidiaries of $8.0
million, $8.4 million and $9.1 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 $95.0 million, $85.8 million and $101.6
million in 1998, 1997 and 1996, 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 $31.9 million and $20.5 million as of
December 31, 1998 and 1997, 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 1998 and
1997 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> 23
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, 1998, 1997 and 1996 were:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW NMIC ELICW
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums $90.1 $106.3 $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other
revenue $11.1 $ 9.4 $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and expenses $98.8 $160.5 $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 $248.4 million and $211.0 million as
of December 31, 1998 and 1997, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
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, 1998 were $60.0
million, $66.1 million and $76.9 million, respectively.
(11) 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. As of December 31, 1998 the Company had
no amounts outstanding under the agreement.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(12) Contingencies
-------------
On October 29, 1998, the Company and certain of its affiliates were
named in a lawsuit filed in the Common Pleas Court of Franklin County,
Ohio related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
The plaintiff in such lawsuit seeks to represent a national class of
the Company's customers and seeks unspecified compensatory and punitive
damages. The Company is currently evaluating this lawsuit, which is in
an early stage and has not been certified as a class. The Company
intends to defend this lawsuit vigorously.
(13) Segment Information
-------------------
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
The Variable Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company, with
investment returns accumulating on a tax-deferred basis. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that generate
a return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis.
Such contracts consist of single premium deferred annuities, flexible
premium deferred annuities and single premium immediate annuities. The
Fixed Annuities segment includes the fixed option under variable
annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
revenues and expenses of its investment advisor subsidiary (other than
the portion allocated to the Variable Annuities and Life Insurance
segments), revenues and expenses related to group annuity contracts
sold to Nationwide Insurance Enterprise employee and agent benefit
plans and all realized gains and losses on investments in a Corporate
and Other segment.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The following table summarizes the financial results of the Company's business
segments for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
- ------------------------------------ --------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (31.3) $ 1,116.6 $ 231.6 $ 164.7 $ 1,481.6
Other operating revenue 560.8 35.7 319.6 49.6 965.7
--------- --------- -------- -------- ---------
Total operating revenue (2) 529.5 1,152.3 551.2 214.3 2,447.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 828.6 115.4 125.0 1,069.0
Amortization of deferred policy
acquisition costs 123.9 44.2 46.4 -- 214.5
Other benefits and expenses 187.2 104.2 294.6 49.1 635.1
--------- --------- -------- -------- ---------
Total expenses 311.1 977.0 456.4 174.1 1,918.6
--------- --------- -------- -------- ---------
Operating income (loss) before
federal income tax 218.4 175.3 94.8 40.2 528.7
Realized gains on investments -- -- -- 28.4 28.4
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 218.4 $ 175.3 $ 94.8 $ 68.6 $ 557.1
========= ========= ======== ======== =========
Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1
========= ========= ======== ======== =========
1997:
Net investment income (1) $ (26.9) $ 1,098.2 $ 189.1 $ 148.8 $ 1,409.2
Other operating revenue 430.9 43.2 284.0 39.0 797.1
--------- --------- -------- -------- ---------
Total operating revenue (2) 404.0 1,141.4 473.1 187.8 2,206.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 823.4 78.5 114.7 1,016.6
Amortization of deferred policy
acquisition costs 87.8 39.8 39.6 -- 167.2
Other benefits and expenses 165.3 108.7 284.1 45.6 603.7
--------- --------- -------- -------- ---------
Total expenses 253.1 971.9 402.2 160.3 1,787.5
--------- --------- -------- -------- ---------
Operating income before federal
income tax 150.9 169.5 70.9 27.5 418.8
Realized gains on investments -- -- -- 11.1 11.1
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 150.9 $ 169.5 $ 70.9 $ 38.6 $ 429.9
========= ========= ======== ======== =========
Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7
========= ========= ======== ======== =========
</TABLE>
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
------------------------------------ ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Net investment income (1) $ (21.5) $ 1,050.6 $ 174.0 $ 154.7 $ 1,357.8
Other operating revenue 306.1 42.0 261.6 25.7 635.4
---------- ---------- --------- --------- ---------
Total operating revenue (2) 284.6 1,092.6 435.6 180.4 1,993.2
---------- ---------- --------- --------- ---------
Interest credited to policyholder
account balances -- 805.0 70.2 107.1 982.3
Amortization of deferred policy
acquisition costs 57.4 38.6 37.4 -- 133.4
Benefits and expenses 136.9 113.6 260.8 50.4 561.7
---------- ---------- --------- --------- ---------
Total expenses 194.3 957.2 368.4 157.5 1,677.4
---------- ---------- --------- --------- ---------
Operating income before federal
income tax 90.3 135.4 67.2 22.9 315.8
Realized losses on investments -- -- -- (0.3) (0.3)
---------- ---------- --------- --------- ---------
Consolidated income from
continuing operations before
federal tax expense $ 90.3 $ 135.4 $ 67.2 $ 22.6 $ 315.5
========== ========== ======== ======== =========
Assets as of year end $ 25,069.7 $ 13,994.7 $3,353.3 $5,348.5 $47,766.2
========== ========== ======== ======== =========
</TABLE>
-----------
(1) The Company's method of allocating net investment income results
in a charge (negative net investment income) to the Variable
Annuities segment which is recognized in the Corporate and Other
segment. The charge relates to non-invested assets which support
this segment on a statutory basis.
(2) Excludes realized gains and losses on investments.
The Company has no significant revenue from customers located outside
of the United States nor does the Company have any significant
long-lived assets located outside the United States.
(14) 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.
<PAGE> 27
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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 10 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, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C>
Revenues $ -- $ -- $ 668.9
Net income $ -- $ -- $ 11.3
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Assets, consisting primarily of investments $221.5 $247.3 $3,288.5
Liabilities, consisting primarily of policy benefits and claims $221.5 $247.3 $2,802.8
</TABLE>
<PAGE> 71
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to Form S-6 Registration Statement comprises the
following papers and documents:
The facing sheet,
Cross-reference to items required by Form N-8B-2,
The prospectus consisting of 115 pages,
Representations and Undertakings
Independent Auditors' Consent
Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<CAPTION>
<S> <C>
1, Power of Attorney dated April 1, 1999. Attached hereto.
2, Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form S-6 for
authorizing the establishment of the Registrant, the Nationwide VLI Separate Account-3 (File No, 33-
adopted 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 Deposito 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> 72
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and Nationwide hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 (the "Act"). The Registrant and Nationwide
elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act with
respect to the policies described in the prospectus. The policies have
been designed in 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 Nationwide under the policies. Nationwide represents that the
risk charges are within the range of industry practice for comparable
policies and reasonable in relation to all of the risks assumed by the
issuer under the policies. Actuarial memoranda demonstrating the
reasonableness of these charges are maintained by Nationwide, and will be
made available to the Securities and Exchange Commission ("SEC") on
request.
(c) Nationwide has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit
the separate account and the contractholders and will keep and make
available to the SEC on request a memorandum setting forth the basis for
this representation.
(d) Nationwide represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of 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
SEC such supplementary and periodic information, documents, and reports
as may be prescribed by any rule or regulation of the SEC heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(f) The fees and charges deducted under the policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by Nationwide.
<PAGE> 73
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 LLP
Columbus, Ohio
April 29, 1999
<PAGE> 74
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
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the City of Columbus, and State of Ohio, on this 23rd day
of September, 1999.
NATIONWIDE VLI SEPARATE ACCOUNT-3
---------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
Attest: (Sponsor)
GLENN W. SODEN By: JOSEPH P. RATH
- -------------- ------------------------------
Glenn W. Soden Joseph P. Rath
Assistant Secretary Vice President - Offfice of Product
and Market Compliance
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment has been signed below by the following persons in the capacities
indicated on the 23rd day of September, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- ---------------
Lewis J. Alphin
A. I. BELL Director
- ----------
A. I. Bell
KENNETH D. DAVIS Director
- ----------------
Kennth D. Davis
KEITH W. ECKEL Director
- --------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ----------------
Willard J. Engel
FRED C. FINNEY Director
- --------------
Fred C. Finney
JOSEPH J. GASPER President and Chief
- ----------------
Joseph J. Gasper Operating Office and Director
DIMON R. McFERSON Chairman and Chief Executive Officer
- -----------------
Dimon R. McFerson and Director
DAVID O. MILLER Chairman of the Board and Director
- ---------------
David O. Miller
YVONNE L. MONTGOMERY Director
- --------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President-
- ----------------
Robert A. Oakley Chief Financial Officer
RALPH M. PAIGE Director
- --------------
Ralph M. Paige
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
</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, 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 Variable Account-10, 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
Account-A, and the registration of Group Flexible Fund Retirement Contracts in
connection with Nationwide DC Variable Account, Nationwide DCVA-II, and NACo
Variable Account; and the registration of Group Common Stock Variable Annuity
Contracts in connection with Separate Account No. 1; and the registration of
variable life insurance policies in connection with Nationwide VLI Separate
Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3,
Nationwide VLI Separate Account-4, Nationwide VLI Separate Account-5, Nationwide
VL Separate Account-A and Nationwide VL Separate Account-B, Nationwide VL
Separate Account-C, Nationwide VL Separate Account-D, hereby constitutes and
appoints Dimon Richard McFerson, Joseph J. Gasper, Robert J. Woodward, Jr.,
Philip C. Gath Richard A. Karas, Edwin P. McCausland, Jr., Douglas C. Robinette,
Susan A. Wolken, Mark B. Koogler, Joseph P. Rath, and Mark R. Thresher, and each
of them with power to act without the others, his/her attorney, with full power
of substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby gaining 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, 1999.
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------- -------------------------------------
Lewis J. Alphin, Director David O. Miller, Chairman of the
Board, Director
/s/ A. I. Bell /s/ Yvonne L. Montgomery
- ------------------------------------- -------------------------------------
A. I. Bell, Director Yvonne L. Montgomery, Director
/s/ Kenneth D. Davis /s/ Robert A. Oakley
- ------------------------------------- -------------------------------------
Kenneth D. Davis, Director Robert A. Oakley, Executive Vice
President and Chief Financial Officer
/s/ Keith W. Eckel /s/ Ralph M. Paige
- ------------------------------------- -------------------------------------
Keith W. Eckel, Director Ralph M. Paige, Director
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------- -------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------- -------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------- -------------------------------------
Joseph J. Gasper, President and Robert L. Stewart, Director
Chief Operating Officer and Director
/s/ Dimon Richard McFerson /s/ Nancy C. Thomas
- ------------------------------------- -------------------------------------
Dimon Richard McFerson, Chairman and Nancy C. Thomas, Director
Chief Executive Officer and Director
