-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AmxiJ7PJ/rddtDLtgO2Ve47f4MNsrVo129zcBqVUPpD03JGrD6LZ+bzqglv+ARw7 KIJAEk7eoPYMrxThiWv2cQ== 0000950152-99-003799.txt : 19990503 0000950152-99-003799.hdr.sgml : 19990503 ACCESSION NUMBER: 0000950152-99-003799 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19990430 EFFECTIVENESS DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VLI SEPARATE ACCOUNT 4 CENTRAL INDEX KEY: 0001041357 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 333-31725 FILM NUMBER: 99607662 BUSINESS ADDRESS: STREET 1: C/O NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 BUSINESS PHONE: 8008603946 MAIL ADDRESS: STREET 1: C/O NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 485BPOS 1 NATIONWIDE VLI SEPERATE ACCOUNT - 4 485BPOS 1 Registration No. 333-31725 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 4 TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ---------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-4 (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. It is proposed that this filing will become effective (check appropriate box). [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [ X ] on May 1, 1999 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [ ] on (date) pursuant to paragraph (a)(1) of Rule 485 [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment Title of Securities being registered: Flexible Premium Variable Universal Life Insurance Policies ================================================================================ 1 of 119 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
2 of 119 3
N-8B-2 ITEM CAPTION IN PROSPECTUS 38.....................................................................Distribution of the Policies 39.....................................................................Distribution of the Policies 40.....................................................................Not Applicable 41(a)..................................................................Distribution of the Policies 42.....................................................................Not Applicable 43.....................................................................Not Applicable 44.....................................................................How the Cash Value Varies 45.....................................................................Not Applicable 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 119 4 NATIONWIDE LIFE INSURANCE COMPANY Flexible Premium Variable Universal Life Insurance Policies Issued by Nationwide Life Insurance Company through its Nationwide VLI Separate Account-4 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 o American Century VP Income & Growth o American Century VP International o American Century VP Value DREYFUS o The Dreyfus Socially Responsible Growth Fund, Inc. o Dreyfus Stock Index Fund o Dreyfus Variable Investment Fund - Capital Appreciation Portfolio FEDERATED INSURANCE SERIES o Federated Quality Bond Fund II FIDELITY VARIABLE INSURANCE PRODUCTS FUND o VIP Equity-Income Portfolio: Service Class o VIP Growth Portfolio: Service Class o VIP High Income Portfolio: Service Class* o VIP Overseas Portfolio: Service Class FIDELITY VARIABLE INSURANCE PRODUCTS FUND II o VIP II Contrafund Portfolio: Service Class FIDELITY VARIABLE INSURANCE PRODUCTS FUND III o VIP III Growth Opportunities Portfolio: Service Class MORGAN STANLEY o Morgan Stanley Dean Witter Universal Funds, Inc. - Emerging Markets Debt Portfolio o Van Kampen Life Investment Trust - Morgan Stanley Real Estate Securities Portfolio NATIONWIDE SEPARATE ACCOUNT TRUST o Capital Appreciation Fund o Total Return Fund o Government Bond Fund o Money Market Fund o Nationwide Balanced Fund (subadviser: Salomon Brothers Asset Management, Inc.) o Nationwide Equity Income Fund (subadviser: Federated Investment Counseling) o Nationwide Global Equity Fund (subadviser: J.P. Morgan Investment Management Inc.) o Nationwide High Income Bond Fund* (subadviser: Federated Investment Counseling) o Nationwide Multi Sector Bond Fund* (subadviser: Salomon Brothers Asset Management, Inc. with Salomon Brothers Asset Management Limited) o Nationwide Select Advisers Mid Cap Fund (subadvisers: First Pacific Advisors, Inc., Pilgrim Baxter & Associates, Ltd., and Rice, Hall, James & Associates) o Nationwide Select Advisers Small Cap Growth Fund (subadvisers: Franklin Advisers, Inc., Miller Anderson & Sherrerd, LLP, Neuberger Berman, LLC.) o Nationwide Small Cap Value Fund (subadviser: The Dreyfus Corporation) o Nationwide Small Company Fund (subadvisers: The Dreyfus Corporation, Neuberger Berman, L.P., Lazard Asset Management, Strong Capital Management, Inc. and Warburg Pincus Asset Management, Inc.) o Nationwide Strategic Growth Fund (subadviser: Strong Capital Management Inc.) o Nationwide Strategic Value Fund (subadviser: Strong Capital Management Inc./Schafer Capital Management Inc.) 1 5 NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST o AMT Guardian Portfolio o AMT Mid-Cap Growth Portfolio o AMT Partners Portfolio OPPENHEIMER VARIABLE ACCOUNT FUNDS o Oppenheimer Aggressive Growth Fund/VA (formerly "Oppenheimer Capital Appreciation Fund") o Oppenheimer Capital Appreciation Fund/VA (formerly "Oppenheimer Growth Fund") o Oppenheimer Main Street Growth & Income Fund/VA (formerly "Oppenheimer Growth & Income Fund") VAN ECK WORLDWIDE INSURANCE TRUST o Worldwide Emerging Markets Fund o Worldwide Hard Assets Fund WARBURG PINCUS TRUST o Growth & Income Portfolio o International Equity Portfolio o Post-Venture Capital Portfolio *These underlying mutual funds invest in lower quality debt securities commonly referred to as junk bonds. 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 in this prospectus can be found on the SEC website at: www.sec.gov Information about this and other Best of America products can be found on the world-wide web at: www.bestofamerica.com This policy is NOT: o a bank deposit; o endorsed by a bank or government agency; o federally insured; or o available in every state. The life insurance policies offered by this prospectus are flexible premium variable universal life insurance policies. They provide flexibility to vary the amount and frequency of premium payments. A cash surrender value may be offered if the policy is terminated during the lifetime of the insured. The purpose of this policy is to provide life insurance protection for the beneficiary named in the policy. No claim is made that the policy is in any way similar or comparable to a systematic investment plan of a mutual fund. The death benefit and cash value of this policy may vary to reflect the experience of the Nationwide VLI Separate Account -4 (the "variable account") or the fixed account, depending on how premium payments are invested. Investors assume certain risks when investing in the policies, including the risk of losing money. Nationwide guarantees the death benefit for as long as the policy is in force. The cash surrender value is not guaranteed. The policy will lapse if the cash surrender value is insufficient to cover policy charges. Nationwide guarantees to keep the policy in force so long as minimum premium requirements have been met. 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. 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 6 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. MATURITY DATE- The policy anniversary on or next following the insured's 100th birthday. MINIMUM REQUIRED DEATH BENEFIT- The lowest death benefit which will qualify the policy as life insurance under Section 7702 of the Internal Revenue Code. NATIONWIDE - Nationwide Life Insurance Company. NET AMOUNT AT RISK- The death benefit minus the cash value. On a monthly anniversary day, the net amount at risk is the death benefit minus the cash value prior to subtraction of the base policy cost of insurance charge. NET PREMIUMS- The actual premiums minus the percent of premium charges. The percent of premium charges are shown on the policy data page. SEC GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the policy under reasonable mortality and expense charges with an annual effective interest rate of 5%. It is calculated pursuant to Rule 6e-3(T) of the Investment Company Act of 1940. SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund shares are allocated and for which accumulation units are separately maintained. VALUATION PERIOD - Each day the New York Stock Exchange is open. VARIABLE ACCOUNT- Nationwide VLI Separate Account-4, 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 7 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 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 Monthly Administrative Charge Mortality and Expense Risk Charge Income Tax Reduction of Charges SURRENDERING THE POLICY FOR CASH................... 17 Surrender (Redemption) Cash Surrender Value Partial Surrenders Income Tax Withholding VARIATION IN CASH VALUE............................ 18 POLICY PROVISIONS.................................. 18 Policy Owner Beneficiary Changes in Existing Insurance Coverage OPERATION OF THE POLICY............................ 19 Allocation of Net Premium and Cash Value How the Investment Experience is Determined Net Investment Factor Determining the Cash Value Transfers RIGHT TO REVOKE.................................... 21 POLICY LOANS....................................... 21 Taking a Policy Loan Effect on Investment Performance Interest Effect on Death Benefit and Cash Value Repayment ASSIGNMENT......................................... 23 POLICY OWNER SERVICES.............................. 23 Dollar Cost Averaging DEATH BENEFIT INFORMATION.......................... 23 Calculation of the Death Benefit Changes in the Death Benefit Option Proceeds Payable on Death Error in Age or Sex Incontestability Suicide Maturity Proceeds EXCHANGE RIGHTS.................................... 25 GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PERIOD........................... 25 Grace Period Guaranteed Policy Continuation Period Reinstatement TAX MATTERS........................................ 26 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........................................ 31 LEGAL PROCEEDINGS.................................. 31 EXPERTS............................................ 32 REGISTRATION STATEMENT............................. 32 LEGAL OPINIONS..................................... 32 DISTRIBUTION OF THE POLICIES....................... 32
4 8 ADDITIONAL INFORMATION ABOUT NATIONWIDE.................................... 34 APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS.................................. 41 APPENDIX B: ILLUSTRATIONS OF SURRENDER CHARGES..... 52 APPENDIX C: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH BENEFITS...................................... 53
5 9 SUMMARY OF POLICY EXPENSES Nationwide deducts certain charges from the policy. Charges are made for administrative and sales expenses, providing life insurance protection, and assuming the mortality and expense risks. Nationwide deducts a sales load and a premium expense charge from premium payments. The sales load is guaranteed never to exceed 2.5% of each premium payment. The premium expense charge is approximately 3.5% of premiums for all states (see "Sales Load" and "Premium Expense Charge"). Nationwide deducts the following charges from the cash value of the policy: o monthly cost of insurance; o monthly cost of any additional benefits provided by riders to the policy; o administrative expense charge(1): and o mortality and expense risk charge(2). (1) Currently, the administrative expense charge is $10 per month in the first year and $5 per month in renewal years. It is guaranteed not to exceed $10 per month in the first year and $7.50 in renewal years. (2) The mortality and expense risk charge is a daily charge equal to an annual rate of 0.60% of the first $25,000 of cash value attributable to the variable account, 0.30% of the next $225,000 of cash value attributable to the variable account, and 0.10% of cash value attributable to the variable account in excess of $250,000. For policies which are surrendered during the first nine policy years (first fifteen years in Pennsylvania), Nationwide deducts a surrender charge (see "Surrender Charges"). For more information about any policy charge, see "Policy Charges" in this prospectus. 6 10 UNDERLYING MUTUAL FUND ANNUAL EXPENSES (as a percentage of underlying mutual fund net assets, after expense reimbursement)
Management Other Total Underlying Fees Expenses 12b-1 Fees Mutual Fund Expenses American Century Variable Portfolios, Inc. - 0.70% 0.00% 0.00% 0.70% American Century VP Income & Growth American Century Variable Portfolios, Inc. - 1.47% 0.00% 0.00% 1.47% American Century VP International American Century Variable Portfolios, Inc. - 1.00% 0.00% 0.00% 1.00% American Century VP Value The Dreyfus Socially Responsible Growth Fund, 0.75% 0.05% 0.00% 0.80% Inc. Dreyfus Stock Index Fund, Inc. 0.25% 0.01% 0.00% 0.26% Dreyfus Variable Investment Fund - Capital 0.75% 0.05% 0.00% 0.80% Appreciation Portfolio Federated Insurance Series - Federated Quality 0.23% 0.47% 0.00% 0.70% Bond Fund II Fidelity VIP Equity-Income Portfolio: Service 0.49% 0.08% 0.10% 0.67% Class Fidelity VIP Growth Portfolio: Service Class 0.59% 0.06% 0.10% 0.75% Fidelity VIP High Income Portfolio: Service 0.58% 0.14% 0.10% 0.82% Class Fidelity VIP Overseas Portfolio: Service Class 0.74% 0.13% 0.10% 0.97% Fidelity VIP II Contrafund Portfolio: Service 0.59% 0.06% 0.10% 0.75% Class Fidelity VIP III Growth Opportunities 0.59% 0.10% 0.10% 0.79% Portfolio: Service Class Morgan Stanley Dean Witter Universal Funds, Inc. 0.27% 1.25% 0.00% 1.52% - - Emerging Markets Debt Portfolio 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 Total Return Fund 0.59% 0.06% 0.00% 0.65% NSAT Nationwide Balanced Fund 0.75% 0.15% 0.00% 0.90% NSAT Nationwide Equity Income Fund 0.80% 0.15% 0.00% 0.95% NSAT Nationwide Global Equity Fund 1.00% 0.20% 0.00% 1.20% NSAT Nationwide High Income Bond Fund 0.80% 0.15% 0.00% 0.95% NSAT Nationwide Multi-Sector Bond Fund 0.75% 0.15% 0.00% 0.90% NSAT Nationwide Select Advisers Mid Cap Fund 1.05% 0.15% 0.00% 1.20% NSAT Nationwide Select Advisers Small Cap Growth 1.10% 0.20% 0.00% 1.30% Fund 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 Nationwide Strategic Growth Fund 0.90% 0.10% 0.00% 1.00% NSAT Nationwide Strategic Value Fund 0.90% 0.10% 0.00% 1.00% Neuberger Berman AMT - Guardian Portfolio 0.85% 0.15% 0.00% 1.00% Neuberger Berman AMT - Mid-Cap Growth Portfolio 0.85% 0.15% 0.00% 1.00% Neuberger Berman AMT - Partners Portfolio 0.78% 0.06% 0.00% 0.84% Oppenheimer Variable Account Funds - Oppenheimer 0.69% 0.02% 0.00% 0.71% Aggressive Growth Fund/VA Oppenheimer Variable Account Funds - 0.72% 0.03% 0.00% 0.75% Oppenheimer Capital Appreciation Fund/VA
7 11 UNDERLYING MUTUAL FUND ANNUAL EXPENSES (CONTINUED)
Management Other Total Underlying Fees Expenses 12b-1 Fees Mutual Fund Expenses Oppenheimer Variable Account Funds - Oppenheimer 0.74% 0.05% 0.00% 0.79% Main Street Growth & Income Fund/VA Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.50% 0.00% 1.50% Emerging Markets Fund Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.16% 0.00% 1.16% Hard Assets Fund Van Kampen Life Investment Trust - Morgan 1.20% 0.00% 0.00% 1.20% Stanley Real Estate Securities Portfolio Warburg Pincus Trust - Growth & Income Portfolio 0.51% 0.49% 0.00% 1.00% Warburg Pincus Trust - International Equity 1.00% 0.33% 0.00% 1.33% Portfolio Warburg Pincus Trust - Post-Venture Capital 1.08% 0.32% 0.00% 1.40% Portfolio
The Federated Insurance Series - Federated Quality Bond Fund II has a voluntary expense cap of 0.70%. 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.
Management Other Total Underlying Fees Expenses 12b-1 Fees Mutual Fund Expenses Fidelity VIP Equity-Income Portfolio: Service 0.49% 0.09% 0.10% 0.68% Class Fidelity VIP Growth Portfolio: Service Class 0.59% 0.11% 0.10% 0.80% Fidelity VIP Overseas Portfolio: Service Class 0.74% 0.17% 0.10% 1.01% Fidelity VIP II Contrafund Portfolio: Service 0.59% 0.11% 0.10% 0.80% Class Fidelity VIP III Growth Opportunities Portfolio: 0.59% 0.11% 0.10% 0.80% Service Class Morgan Stanley Dean Witter Universal Funds, Inc. 0.80% 1.25% 0.00% 2.05% - - Emerging Markets Debt Portfolio NSAT Nationwide Balanced Fund 0.75% 0.21% 0.00% 0.96% NSAT Nationwide Equity Income Fund 0.80% 0.35% 0.00% 1.15% NSAT Nationwide Global Equity Fund 1.00% 0.46% 0.00% 1.46% NSAT Nationwide High Income Bond Fund 0.80% 0.32% 0.00% 1.12% NSAT Nationwide Multi-Sector Bond Fund 0.75% 0.21% 0.00% 0.96% NSAT Nationwide Select Advisers Mid Cap Fund 1.05% 0.49% 0.00% 1.54% NSAT Nationwide Select Advisers Small Cap Growth 1.10% 0.58% 0.00% 1.68% Fund NSAT Nationwide Small Cap Value Fund 0.90% 0.43% 0.00% 1.33% NSAT Nationwide Strategic Growth Fund 0.90% 0.65% 0.00% 1.55% NSAT Nationwide Strategic Value Fund 0.90% 0.33% 0.00% 1.23%
8 12
Management Other Total Underlying Fees Expenses 12b-1 Fees Mutual Fund Expenses Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.61% 0.00% 1.61% Emerging Markets Fund Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.20% 0.00% 1.20% Hard Assets Fund
SYNOPSIS OF THE POLICIES The policy offered by this prospectus provides for life insurance coverage on the insured. The death benefit and cash value of the policy may increase or decrease to reflect the performance of the investment options chosen by the policy owner (see "Death Benefit Information"). CASH SURRENDER VALUE If the policy is terminated during the insured's lifetime, a cash surrender value may be payable under the policy. However, there is no guaranteed cash surrender value (see "Variation in Cash Value"). The policy will lapse without value if the cash surrender value falls below what is needed to cover policy charges. Nationwide will keep the policy in force during the guaranteed policy continuation period provided premium requirements are met (see "Grace Period and Guaranteed Policy Continuation Period" and "Minimum Requirements for Policy Issuance"). PREMIUMS The minimum initial premium for which a policy may be issued is equal to three times the initial minimum monthly premium. The initial premium is shown on the policy data page. Each premium payment must be at least $50. Additional premium payments may be made at 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). Riders currently include: o Maturity Extension Endorsement; o Spouse Rider; o Child Rider; o Waiver of Monthly Deductions Rider; o Accidental Death Benefit Rider; o Additional Protection Rider; and o Change of Insured 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. It is a member of the Nationwide group 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. 9 13 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. NATIONWIDE ADVISORY SERVICES, INC. The policies are distributed by Nationwide Advisory Services, Inc. ("NAS"), 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-4 is a separate account that invests in the underlying mutual fund options listed in Appendix A. Nationwide established the separate account on December 3, 1987, 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 in general 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. The new policy will not be affected by the investment experience of any separate account. The new policy will be for an amount of 10 14 insurance not exceeding the death benefit of the policy converted on the date of the conversion. Voting Rights Policy owners who have allocated assets to the underlying mutual funds are entitled to certain voting rights. Nationwide will vote policy owner shares at special shareholder meetings based on policy owner instructions. However, if the law changes allowing Nationwide to vote in its own right, it may elect to do so. Policy owners with voting interests in an underlying mutual fund will be notified of issues requiring the shareholder's vote as soon as possible prior to the shareholder meeting. Notification will contain proxy materials, and a form to return to Nationwide with voting instructions. Nationwide will vote shares for which no instructions are received in the same proportion as those that are received. 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 contract owners and those of other companies. If a material conflict occurs, Nationwide will take whatever steps are necessary to protect contract owners and variable annuity payees, including withdrawal of the variable account from participation in the underlying mutual fund(s) involved in the conflict. THE FIXED ACCOUNT The fixed account is an investment option that is funded by assets of Nationwide's general account. The general account contains all of Nationwide's assets other than those in other Nationwide separate accounts. It is used to support Nationwide's annuity and insurance obligations and may contain compensation for mortality and expense risks. Under exemptive and exclusionary provisions, Nationwide's general account has not been registered under the Securities Act of 1933 and has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the general account nor any interest therein is subject to the provisions of these Acts. Nationwide has been advised that the staff of the SEC has not reviewed the disclosures in this prospectus relating to the fixed account. Disclosures regarding the general account may, however, be subject to certain generally applicable provisions of the federal securities laws concerning the accuracy and completeness of statements made in prospectuses. Premium payments 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 premium payment will 11 15 be effective for not less than twelve months. Nationwide guarantees that the rate will not be less than 3.0% per year. Any interest in excess of 3.0% 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 3.0% for any given year. New premium payments deposited to the contract which are allocated to the fixed account may receive a different rate of interest than amounts transferred from the sub-accounts to the fixed account and amounts maturing in the fixed account. INFORMATION ABOUT THE POLICIES MINIMUM REQUIREMENTS FOR POLICY ISSUANCE This policy provides life insurance coverage with the flexibility to vary the amount and frequency of premium payments. Minimum requirements for policy issuance include: o the insured must be 80 or younger; o Nationwide may require satisfactory evidence of insurability (including a medical exam); and o a minimum specified amount of $50,000 for non-preferred policies ($100,000 for non-preferred policies in Pennsylvania, New Jersey, Texas Alabama and New York) and $100,000 for preferred policies. PREMIUM PAYMENTS Each premium payment must be at least $50. The initial premium is payable in full at Nationwide's home office or to an authorized agent of Nationwide. Upon payment of the initial premium, temporary insurance may be provided. Issuance of the continuing insurance coverage is dependent upon completion of all underwriting requirements, payment of initial premium, and delivery of the policy while the insured is still living. Additional premium payments may be made at any time while the policy is in force, subject to the following conditions: o Nationwide may require satisfactory evidence of insurability before accepting any additional premium payment which results in an increase in the net amount at risk. o During the guaranteed policy continuation period, the total premium payments, less any policy indebtedness and less any partial surrenders, must be greater than or equal to the sum of the minimum monthly premiums in order to guarantee that the policy remain in force. (The minimum monthly premiums are shown in the policy data page.) o Premium payments in excess of the premium limit established by the IRS to qualify the policy as a contract for life insurance will be refunded. o Nationwide may require policy indebtedness be repaid prior to accepting any additional premium payments. Additional premium payments or other changes to the policy may jeopardize the policy's non-modified endowment status. Nationwide will monitor premiums paid and other policy transactions and will notify the policy owner when non-modified endowment contract status is in jeopardy. Nationwide will send scheduled premium payment reminder notices to policy owners according to the premium mode shown on the policy data page. PRICING Premiums will not be priced when the New York Stock Exchange is closed or on the following nationally recognized holidays: o New Year's Day o Independence Day o Martin Luther King, Jr. Day o Labor Day o Presidents' Day o Thanksgiving o Good Friday o Christmas o Memorial Day Nationwide also will not price purchase payments if: (1) trading on the New York Stock Exchange is restricted; (2) an emergency exists making disposal or valuation of securities held in the variable account impracticable; or (3) the SEC, by order, permits a suspension or postponement for the protection of security holders. Rules and regulations of the SEC will govern as to when the conditions described in (2) and (3) exist. If Nationwide is closed on days when the New York Stock Exchange is open, policy value may be affected since the policy owner would not have access to their account. 12 16 POLICY CHARGES SALES LOAD Nationwide deducts a sales load from each premium payment received. It is guaranteed never to exceed 2.5% of each premium payment. Currently, for all policy years the sales load is 2.5% of premium paid up to the target premium. Once the target premium is reached, the load is reduced to 0.5% of each premium payment. The target premium is a premium level based upon a percentage of the guideline level premium. It is the level annual premium amount at which the sales load is reduced. The target premium amount is located on the policy data page. The total sales load actually deducted from any policy will be equal to the sum of this front-end sales load plus any sales surrender charge. PREMIUM EXPENSE CHARGE Nationwide deducts a premium expense charge equal to 3.50% from all premium payments. This charge reimburses Nationwide for administrative expenses on an aggregate basis including premium taxes imposed by various state and local jurisdictions and for federal taxes imposed under Section 848 of the Internal Revenue Code. Generally, these tax expenses to Nationwide consist of two components: (1) a state premium tax rate of 2.25%; and (2) a federal tax rate of 1.25%. Nationwide expects to pay an average state premium tax rate of approximately 2.25% of premiums for all states. State tax rates can range from 0% to 4%. This charge may be more or less than the amount actually assessed by the state in which a particular policy owner lives. The 1.25% federal tax component is designed to reimburse Nationwide for expenses incurred from federal taxes imposed under Section 848 of the Internal Revenue Code. Nationwide does not expect to make a profit from these charges. SURRENDER CHARGES Nationwide deducts a surrender charge from the cash value of any policy surrendered during the first nine years (first fifteen years in Pennsylvania). The charge is deducted proportionally from the cash value in each sub-account and the fixed account. The maximum initial surrender charge varies by issue age, sex, specified amount and underwriting classification. The surrender charge is calculated based on the initial specified amount. The following tables illustrate the maximum initial surrender charge per $1,000 of initial specified amount for policies which are issued on a standard basis (see Appendix B for specific examples).
INITIAL SPECIFIED AMOUNT $50,000-$99,999 MALE FEMALE ISSUE NON- NON- MALE FEMALE AGE TOBACCO TOBACCO STANDARD STANDARD 25 $7.773 $7.518 $8.369 $7.818 35 $8.817 $8.396 $9.811 $8.889 45 $12.185 $11.390 $13.884 $12.164 55 $15.628 $13.995 $18.410 $15.106 65 $22.274 $19.043 $26.559 $20.607 INITIAL SPECIFIED AMOUNT $100,000+ MALE FEMALE ISSUE NON- NON- MALE FEMALE AGE TOBACCO TOBACCO STANDARD STANDARD 25 $5.773 $5.518 $6.369 $5.818 35 $6.817 $6.396 $7.811 $6.889 45 $9.685 $8.890 $11.384 $9.664 55 $13.128 $11.495 $15.910 $12.606 65 $21.274 $18.043 $25.559 $19.607
The surrender charge is comprised of two components: o an underwriting component; and o sales component. The underwriting component varies by issue age in the following manner:
$1,000 OF INITIAL SPECIFIED AMOUNT ISSUE SPECIFIED AMOUNTS SPECIFIED AMOUNTS AGE LESS THAN $100,000 $100,000 OR MORE 0-35 $6.00 $4.00 36-55 $7.50 $5.00 56-80 $7.50 $6.50
13 17 The underwriting component is designed to cover the administrative expenses associated with underwriting and issuing policies, including the costs of: o processing applications; o conducting medical exams; o determining insurability and the insured's underwriting class; and o establishing policy records. The remainder of the surrender charge that is not attributable to the underwriting component represents the sales component. In no event will this component exceed 26 1/2% of the lesser of the SEC guideline level premium required in the first year or the premiums actually paid in the first year. The purpose of the sales component is to reimburse Nationwide for some of the expenses incurred in the distribution of the policies. Nationwide also deducts 2.5% of each premium payment for sales load. The surrender charge may be insufficient to recover certain expenses related to the sale of the policies. Unrecovered expenses are borne by Nationwide's general assets which may include profits, if any, from mortality and expense risk charges. Additional premiums and/or income earned on assets in the variable account have no effect on these charges. Increases in Specified Amount Policies surrendered during the first nine policy years (first fifteen policy years in Pennsylvania) following an increase in the specified amount will incur a surrender charge associated with the increase. This surrender charge is comprised of an underwriting component and sales component. The maximum initial surrender charge associated with the increase is based on the attained age at the time of the increase, the underwriting classification of the increase, sex, and the amount of the increase in specified amount. The actual initial surrender charge associated with the increase is based upon the maximum initial surrender charge and the premium received within one year of the increase in specified amount. Increases that are caused by a change in death benefit option that do not change the net amount at risk are not subject to a surrender charge. The surrender charge associated with the increase for policy years following the increase is a percentage of the initial surrender charge. The following table illustrates the maximum initial surrender charge per $1,000 of specified amount increase for policies increasing coverage on a standard basis. This charge reflects both the underwriting and sales component.
MALE FEMALE ISSUE NON- NON- MALE FEMALE AGE TOBACCO TOBACCO STANDARD STANDARD 25 $3.464 $3.311 $3.821 $3.491 35 4.090 3.837 4.686 4.133 45 5.811 5.334 6.830 5.798 55 7.877 6.897 9.546 7.563 65 12.764 10.826 15.335 11.764 75 20.787 17.389 24.236 18.682 80 27.309 23.309 30.707 24.647
Reduction in Specified Amount Decreases in specified amount requested by a policy owner will incur a proportional surrender charge. This proportion is equal to the decrease in specified amount divided by the specified amount prior to the decrease. In the case of a policy with prior increases, these fractional surrender charges will be calculated separately for the initial specified amount and each increase in specified amount. For a policy with prior increases in specified amounts, these decreases will be made on a last in first out ("LIFO") basis and therefore decrease each segment in reverse order of its effective date. Decreases in the specified amount resulting from a partial surrender or a death benefit option change that do not change the net amount risk will not incur a proportional surrender charge. 14 18 Reductions to Surrender Charges Surrender charges are reduced in subsequent policy years as follows:
COMPLETED SURRENDER CHARGE AS A % OF POLICY YEARS INITIAL SURRENDER CHARGES 0 100% 1 100% 2 90% 3 80% 4 70% 5 60% 6 50% 7 40% 8 30% 9+ 0%
The surrender charge is reduced by any partial surrender charge actually paid on previous decreases in specified amount. For the initial specified amount, a completed policy year (in the chart above) is measured from the issue date. For any increase in specified amount, a completed policy year (in the chart above) is measured from the effective date of the increase. Special guaranteed maximum surrender charges apply in Pennsylvania (see Appendix B). MONTHLY COST OF INSURANCE The monthly cost of insurance charge for each policy month is determined by multiplying the monthly cost of insurance rate by the net amount at risk. This deduction is charged proportionately to the cash value in each sub-account and the fixed account. If death benefit Option 1 or Option 3 is in effect and there have been increases in the specified amount, then the cash value will first be considered a part of the initial specified amount. If the cash value exceeds the initial specified amount, it will then be considered a part of the additional increases in specified amount resulting from the increases in the order of the increases. Monthly cost of insurance rates will not exceed those guaranteed in the policy. Guaranteed cost of insurance rates for policies issued on specified amounts less than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table, Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for policies issued on specified amounts $100,000 or more are based on the 1980 Commissioners Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for policies issued on a substandard basis are based on appropriate percentage multiples of the guaranteed cost of insurance rate on a standard basis. These mortality tables are sex distinct. In addition, separate mortality tables will be used for tobacco and non-tobacco. Mortality tables are unisex for: o policies issued in the State of Montana; o group or sponsored arrangements (including employees of Nationwide and their family members); and o special exchange programs which Nationwide may make available from time to time. 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 "non-medical" basis to certain categories of individuals. Due to the underwriting criteria established for policies issued on a non-medical basis, actual rates will be higher than the current cost of insurance rates being charged under policies that are medically underwritten. MONTHLY ADMINISTRATIVE CHARGE Nationwide deducts an administrative expense charge proportionately from the cash value in each sub-account and the fixed account on a monthly basis. This charge reimburses Nationwide for certain actual expenses related to the maintenance of the policies including accounting and record keeping, and periodic reporting to policy owners. Nationwide does not expect to recover any amount in excess of aggregate maintenance expenses from this 15 19 charge. Currently, this charge is $10 per month in the first year, and $5 per month in renewal years. Nationwide may, at its sole discretion, increase this charge. However, Nationwide guarantees that this charge will never exceed $10 per month in the first year and $7.50 per month in renewal years. MORTALITY AND EXPENSE RISK CHARGE Nationwide assumes certain risks for guaranteeing the mortality and expense charges. The mortality risk assumed under the policies is that the insured may not live as long as expected. The expense risk assumed is that the actual expenses incurred in issuing and administering the policies may be greater than expected. In addition, Nationwide assumes risks associated with the non-recovery of policy issue, underwriting and other administrative expenses due to policies that lapse or are surrendered in the early policy years. Nationwide deducts the mortality and expense risk charge from the variable account on a monthly basis. Mortality and expense risk deductions will be charged proportionally to the cash value in each sub-account. The mortality and expense risk charge compensates Nationwide for assuming risks associated with mortality and administrative costs. The charge is charged on a daily basis and is equivalent to an annual effective rate of 0.60% of the first $25,000 of cash value attributable to the variable account, 0.30% of the next $225,000 of cash value attributable to the variable account, and 0.10% of cash value attributable to the variable account in excess of $250,000. Policy owners receive quarterly and annual statements advising policy owners of the cancellation of accumulation units for mortality and expense risk charges. These charges are all guaranteed. Nationwide may realize a profit from 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. REDUCTION OF CHARGES The policy is available for purchase by individuals, corporations and other groups. Nationwide may reduce or eliminate certain charges (sales load, surrender charge, monthly administrative charge, monthly cost of insurance charge, or other charges) where the size or nature of the group results in savings in sales, underwriting, administrative or other costs, to Nationwide. These charges may be reduced in certain group, sponsored arrangements or special exchange programs made available by Nationwide (including employees of Nationwide and their families). Eligibility for reduction in charges and the amount of any reduction is determined by a number of factors, including: o the number of insureds; o the total premium expected to be paid; o total assets under management for the policy owner; o the nature of the relationship among individual insureds; o the purpose for which the policies are being purchased; o the expected persistency of individual policies; and o any other circumstances which are rationally related to the expected reduction in expenses. The extent and nature of reductions may change from time to time. The charge structure may vary. Variations are determined in a manner not unfairly discriminatory to policy owners which reflects differences in costs of services. 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. In some cases, Nationwide may 16 20 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 one year, the policy owner may request a partial surrender. Partial surrenders are permitted if they satisfy the following requirements: 1) the minimum partial surrender is $200; 2) partial surrenders may not reduce the specified amount below the minimum specified amount; 3) during the first ten policy years, the maximum amount of a partial surrender cannot exceed 10% of cash surrender value as of the beginning of the policy year; 4) after the completion of ten policy years, the maximum amount of a partial surrender is the cash surrender value less the greater of $500 or three monthly deductions; and 5) 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. Further, the specified amount will be reduced by the amount necessary to prevent any increase to the net amount at risk, unless the partial surrender is treated as a preferred partial surrender. Preferred Partial Surrenders A partial surrender is considered a preferred partial surrender if the following conditions are met: (1) the surrender occurs before the 15th policy anniversary; and (2) the surrender amount plus the amount of any previous preferred policy surrenders in that same policy year does not exceed 10% of the cash surrender value as of the beginning of the policy year. Reduction of the Specified Amount When a partial surrender is made, in addition to the cash value being reduced by the amount of the partial surrender, the specified amount may also be reduced (except in the case of a preferred partial surrender). The reduction to the specified amount will be made in the following order: (1) against the most recent increase in the specified amount; (2) against the next most recent increases in the specified amount in succession; and (3) against the specified amount under the original application. Nationwide reserves the right to deduct a fee from the partial surrender amount. The maximum fee is $25 or 5% of the partial surrender amount, whichever is less. Preferred partial surrenders are not subject to this fee. 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 17 21 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. POLICY PROVISIONS POLICY OWNER While the insured is living, all rights in this policy are vested in the policy owner named in the application or as subsequently changed, subject to assignment, if any. The policy owner may name a contingent policy owner or a new policy owner while the insured is living. Any change must be in a written form satisfactory to Nationwide and received at Nationwide's home office. Once received, the change will be effective when signed. The change will not affect any payment made or action taken by Nationwide before it was received. Nationwide may require that the policy be submitted for endorsement before making a change. If the policy owner is other than the insured, names no contingent policy owner, and dies before the insured, the policy owner's rights in this policy belong to the policy owner's estate. BENEFICIARY The beneficiary(ies) will be as named in the application or as subsequently changed, subject to assignment, if any. The policy owner may name a new beneficiary while the insured is living. Any change must be in a written form satisfactory to Nationwide and received at Nationwide's home office. Once received, the change will be effective when signed. The change will not affect any payment made or action taken by Nationwide before it was received. 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; 18 22 4. the cash surrender value is sufficient to continue the policy in force for at least 3 months; and 5. the age at the time of increase must satisfy the same age requirements as new issues. Any approved increase will have an effective date of the monthly anniversary day on or next following the date Nationwide approves the supplemental application. Nationwide reserves the right to limit the number of specified amount increases to one each policy year. Specified Amount Decreases After the first policy year, the policy owner may also request a decrease to the specified amount. Any approved decrease will be effective on the monthly anniversary day on or next following the date Nationwide receives the request. Any such decrease shall reduce the insurance in the following order: 1. against insurance provided by the most recent increase; 2. against the next most recent increases successively; and 3. against insurance provided under the original application. Nationwide reserves the right to limit the number of specified amount decreases to one each policy year. Nationwide will refuse a request for a decrease which would: 1. reduce the specified amount to less than the minimum specified amount; or 2. disqualify the policy as a contract for life insurance. OPERATION OF THE POLICY ALLOCATION OF NET PREMIUM AND CASH VALUE Nationwide allocates premium payments to sub-accounts or the fixed account, as instructed by policy owners. 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 a sub-account on the application are allocated to the NSAT Money Market Fund during the period the policy owner may cancel the policy, unless a specific state requires premiums to be allocated to the fixed account. At the expiration of this period, the premiums are used to purchase shares of the underlying mutual funds specified by the policy owner at net asset value for the respective sub-account(s). The policy owner may change the allocation of net premiums or may transfer cash value from one sub-account to another. Changes are subject to the terms and conditions imposed by each underlying mutual fund and those found in this prospectus. Net premiums allocated to the fixed account at the time of application may not be transferred from the fixed account prior to the first policy anniversary (see "Transfers"). HOW THE INVESTMENT EXPERIENCE IS DETERMINED The accumulation unit value for a valuation period is determined by multiplying the accumulation unit value for each sub-account for the immediately preceding valuation period by the net investment factor for the sub-account for the subsequent valuation period. Though the number of accumulation units will not change as a result of investment experience, the value of an accumulation unit may increase or decrease from valuation period to valuation period. NET INVESTMENT FACTOR The net investment factor for any valuation period is determined by dividing (a) by (b) 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). 19 23 (b) is the net asset value per share of the underlying mutual fund determined as of the end of the immediately preceding valuation period. The net investment factor may be greater or less than one; therefore, the value of an accumulation unit may increase or decrease. Currently, Nationwide does not maintain a tax reserve with respect to the policies since income with respect to the underlying mutual funds is not taxable to Nationwide or the variable account. Nationwide reserves the right to adjust the calculation of the net investment factor to reflect a tax reserve should such income of other items become taxable to Nationwide. It should be noted that changes in the net investment factor may not be directly proportional to changes in the net asset value of underlying mutual fund shares, because of the deduction for mortality and expense risk charge, and any charge or credit for tax reserves. DETERMINING THE CASH VALUE The cash value is the sum of the value of all variable account accumulation units attributable to the policy plus amounts credited to the fixed account and the policy loan account. Nationwide will determine the value of the assets in a variable account at the end of each valuation day. The cash value will be determined at least monthly. The number of accumulation units credited to each sub-account is determined by dividing the net amount allocated to the sub-account by the accumulation unit value for the sub-account for the valuation period during which the premium is received by Nationwide. In the event part or all of the cash value is surrendered or charges or deductions are made against the cash value, an appropriate number of accumulation units from the variable account and an appropriate amount from the fixed account will be deducted in the same proportion that the policy owner's interest in the variable account and the fixed account bears to the total cash value. The cash value in the fixed account and the policy loan account is credited with interest daily at an effective annual rate which Nationwide periodically declares. The annual effective rate will never be less than 3%. (For a description of the annual effective credited rates, see "The Fixed Account" and "Policy Loans.") Upon request, Nationwide will inform the policy owner of the then applicable rates for each account. TRANSFERS Policy owners can transfer allocations without penalty or adjustment subject to the following conditions: o Nationwide reserves the right to restrict transfers between the fixed account and the sub-accounts to one per policy year. o Transfers made to the fixed account may not be made in the first policy year. o Nationwide reserves the right to restrict the amount transferred from the fixed account to 20% of that portion of the cash value attributable to the fixed account as of the end of the previous policy year (subject to state restrictions). Policy owners who have entered into Dollar Cost Averaging agreements with Nationwide may transfer under the terms of that agreement. o Nationwide reserves the right to restrict the amount transferred to the fixed account to 20% of that portion of cash value attributable to the sub-accounts as of the close of business of the prior valuation period. o Nationwide reserves the right to refuse a transfer to the fixed account if the fixed account value is greater than or equal to 30% of the total policy value. Transfer Requests Nationwide will accept transfer requests in writing or in those states that allow, over the telephone. Nationwide will use reasonable procedures to confirm that telephone instructions are genuine and will not be liable for following instructions it reasonably determined to be genuine. Nationwide may withdraw the telephone exchange privilege upon 30 days written notice to policy owners. 20 24 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: o submitted by any agent acting under a power of attorney on behalf of more than one policy owner; or o 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: o 10 days after receiving the policy; o 45 days after signing the application; or o 10 days after Nationwide delivers a Notice of Right of Withdrawal. The policy can be mailed to the registered representative who sold it, or directly to Nationwide. Returned policies are deemed void from the beginning. Nationwide will refund the amount prescribed by the state in which the policy was issued within seven days after it receives the policy. The refunded policy value will reflect the deduction of any policy charges, unless otherwise required by law. This right varies by state. POLICY LOANS TAKING A POLICY LOAN The policy owner may take a policy loan at any time using the policy as security. Maximum policy indebtedness is limited to cash value attributable to both fixed and policy loan accounts, and 90% of the cash value of the variable account, less any surrender charges. Nationwide will not grant a loan for an amount less than $200. 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. Certain policy loans may result in currently taxable income and tax penalties. A policy owner considering the use of policy loans in connection with his or her retirement income plan should consult his or her personal tax adviser regarding potential tax consequences that may arise if necessary payments are not made to keep the policy from lapsing. The amount of the payments necessary to prevent the policy from lapsing will increase with age. 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. 21 25 The amount taken out of the variable account will not be affected by the variable account's investment experience while the loan is outstanding. INTEREST The annual effective loan interest rate charged on policy loans is 3.9%. On a current basis, the cash value in the policy loan account is credited with an annual effective rate of 3% during policy years 1 through 10 and an annual effective rate of 3.9% during the 11th and subsequent policy years. Nationwide may change the current interest crediting rate on the policy loans at any time at its sole discretion. However, the crediting rate is guaranteed never to be lower than 3% during policy years 1 through 10 and 3.65% during the 11th and subsequent policy years. If it is determined that such loans will be treated, as a result of the differential between the interest crediting rate and the loan interest rate, as taxable distributions under any applicable ruling, regulation, or court decision, Nationwide retains the right to increase the net cost (by decreasing the interest crediting rate) on all subsequent policy loans to an amount that would result in the transaction being treated as a loan under federal tax law. If this amount is not prescribed by such ruling, regulation, or court decision, the amount will be that which Nationwide considers to be more likely to result in the transaction being treated as a loan under federal tax law. 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 the 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 exceeds the cash value less any surrender charges, and if the guaranteed policy continuation provision is not in effect, Nationwide will send a notice to the policy owner and the assignee, if any. The policy will terminate without value 61 days after the mailing of the notice unless a sufficient repayment is made during that period. A repayment is sufficient if it is large enough to reduce the total policy indebtedness to an amount equal to the total cash value less any surrender charges plus an amount sufficient to continue the policy in force for 3 months. Alternatively, if the policy is in the guaranteed policy continuation period, a payment which will bring the guaranteed policy continuation provision into effect will be considered sufficient if such an amount is less than the premium required to bring the cash surrender value to zero and cover 3 months of deductions. 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 premium payment, rather than a loan repayment, 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 $50. 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. 22 26 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 received at Nationwide's home office. Prior to being received, assignments will not affect any payments made or actions taken by Nationwide. Nationwide is not responsible for any assignment not submitted, nor is Nationwide responsible for the sufficiency of any assignment. Assignments are subject to any indebtedness owed to Nationwide before being received. POLICY OWNER SERVICES DOLLAR COST AVERAGING Dollar Cost Averaging is a long-term transfer program that allows you to make regular, level investments over time. It involves the automatic transfer of a specified amount from the fixed account and/or certain sub-accounts into other sub-accounts. 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: Federated Insurance Series - Federated Quality Bond Fund II, Fidelity VIP High Income Portfolio; NSAT Government Bond Fund; NSAT Nationwide High Income Bond Fund; and the NSAT Money Market Fund. The minimum monthly transfer is $100. Transfers from the fixed account must be equal to or less than 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 At issue, the policy owner selects the specified amount and the death benefit option. At issue, the policy owner also irrevocably elects either of the following tests qualifying the policy as life insurance under Section 7702 of the Internal Revenue Code: (1) guideline premium/cash value corridor test; or (2) the cash value accumulation test. While the policy is in force, the death benefit will never be less than the specified amount. The death benefit may vary with the cash value of the policy, which depends on investment performance. The policy owner may choose one of three death benefit options. OPTION 1: the death benefit will be the greater of the specified amount or minimum required death benefit. Under OPTION 1, the amount of the death benefit will ordinarily not change for several years to reflect the investment performance and may not change at all. If investment performance is favorable, the amount of death benefit may increase. To see how and when investment performance will begin to affect death benefits, see the illustrations in Appendix C. OPTION 2: the death benefit will be the greater of the specified amount plus the cash value as of the date of death, or minimum required death benefit and will vary directly with the investment performance. OPTION 3: the death benefit is the greater of the minimum required death benefit or the sum of the specified amount on the date of death and accumulated premium account which consists of all premium payments accumulated to date of death less partial surrenders accumulated to date of death. The accumulations will be calculated based on the OPTION 3 interest rate shown on the policy data page. In no event will the accumulated premium account be less than zero 23 27 or greater than the maximum accumulated premium account shown on the policy data page. For any death benefit option, the calculation of the minimum required death benefit is shown on the policy data page. The minimum required death benefit is the lowest death benefit which will qualify the policy as life insurance under Section 7702 of the Internal Revenue Code. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the then current maximum premium limitations under Section 7702 of the Internal Revenue Code where the policy owner has selected guideline premium/cash value corridor test. 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. In order for any change in the death benefit option to become effective, the cash surrender value, after a change, must be sufficient to keep the policy in force for at least three months. Nationwide will adjust the specified amount so that the net amount at risk remains constant before and after the death benefit option change. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the then current maximum premium limitations under Section 7702 of the Internal Revenue Code where the policy owner has selected guideline premium/cash value corridor test. PROCEEDS PAYABLE ON DEATH The actual death proceeds payable on the insured's death will be the death benefit as described above, less any policy indebtedness, and less any unpaid policy charges. Under certain circumstances, the death proceeds may be adjusted (see "Incontestability," "Error in Age or Sex," and "Suicide"). INCONTESTABILITY Nationwide will not contest payment of the death proceeds based on the initial specified amount after the policy has been in force during the insured's lifetime for 2 years from the policy date. For any increase in specified amount requiring evidence of insurability, Nationwide will not contest payment of the death proceeds based on such an increase after it has been in force during the insured's lifetime for 2 years from its effective date. ERROR IN AGE OR SEX If the age or sex of the insured has been misstated, the death benefit and cash value will be adjusted. The cash value will be adjusted to reflect the cost of insurance charges on the correct age and sex 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 indebtedness and less any partial surrenders. If the insured dies by suicide, while sane or insane, within two years from the date an application is accepted for an increase in the specified amount, Nationwide will pay no more than the amount paid for the additional benefit. MATURITY PROCEEDS The maturity date is the policy anniversary on or next following the insured's 100th birthday. If the policy is still in force, maturity proceeds are payable to the policy owner on the maturity date. Maturity proceeds are equal to the amount of the policy's cash value, less any indebtedness. EXCHANGE RIGHTS The policy owner may exchange the policy for a flexible premium adjustable life insurance policy offered by Nationwide on the policy date. The benefits for the new policy will not vary with the investment experience of a separate account. The exchange must be elected within 24 months from the policy date. No evidence of insurability will be required. 24 28 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 AND GUARANTEED POLICY CONTINUATION PERIOD GRACE PERIOD If the cash surrender value on a monthly anniversary day is not sufficient to cover the current monthly deduction, and the guaranteed policy continuation provision is not in effect, a grace period will be allowed for the payment of a premium of the lesser of at least three times the current monthly deduction and the premium required to bring the guaranteed policy continuation provision back into effect. Nationwide will send the policy owner a notice at the start of the grace period, at the address in the application or another address specified by the policy owner, stating the amount of premium required. The grace period will end 61 days after the day the notice is mailed. If sufficient premium is not received by Nationwide by the end of the grace period, the policy will lapse without value. If death proceeds become payable during the grace period, Nationwide will pay the death proceeds. GUARANTEED POLICY CONTINUATION PERIOD This policy will not lapse during the guaranteed policy continuation period provided that on each monthly anniversary day (1) is greater than or equal to (2) where: (1) is the sum of all premiums paid to date minus any indebtedness, and minus any partial surrenders; and (2) is the sum of minimum monthly premiums required since the policy date including the minimum monthly premium for the current monthly anniversary day. The guaranteed policy continuation period is the lesser of 30 policy years or the number of policy years until the insured reaches attained age 65. For policies issued to ages greater than 55, the guaranteed policy continuation period is 10 policy years. This provision is subject to state insurance restrictions. In New York, the guaranteed policy continuation period is the lesser of 30 policy years or the number of policy years until the insured reaches attained age 65. For policies issued to ages greater than 62, the guaranteed policy continuation period is 3 policy years. In Texas, the guaranteed policy continuation period is 9 policy years for all issue ages. In Massachusetts, the guaranteed policy continuation period is 5 policy years for all issue ages. REINSTATEMENT If the grace period ends and the policy owner has neither paid the required premium nor surrendered the policy for its cash surrender value, the policy owner may reinstate the policy by: 1. submitting a written request at any time within 3 years after the end of the grace period and prior to the maturity date; 2. providing evidence of insurability satisfactory to Nationwide; 3. paying sufficient premium to cover all policy charges that were due and unpaid during the grace period; 4. paying sufficient premium to keep the policy in force for 3 months from the date of reinstatement, or, if the policy is in the 25 29 guaranteed policy continuation period, paying the lesser of (a) and (b) where: (a) is premium sufficient to keep the policy in force for 3 months from the date of reinstatement; and (b) is premium sufficient to bring the guaranteed policy continuation provision into effect; and 5. paying or reinstating any indebtedness against the policy which existed at the end of the grace period. The effective date of a reinstated policy will be the monthly anniversary day on or next following the date the application for reinstatement is approved by Nationwide. If the policy is reinstated, the cash value on the date of reinstatement, but prior to applying any premiums or loan repayments received, will be set equal to the lesser of: 1. the cash value at the end of the grace period; or 2. the surrender charge for the policy year in which the policy was reinstated. 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 (see "Information about the Policies"). 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, disabled, or the distribution is part of an annuity to the policy owner as defined in the Internal Revenue Code. Under certain circumstances, certain distributions made under a policy on the life of a "terminally ill individual", as that term is defined in the Internal Revenue Code, are excludable from gross income. The policies offered by this prospectus may or may not be issued as modified endowment contracts. Nationwide will monitor premiums paid and will notify the policy owner when the policy's non-modified endowment status is in jeopardy. If a policy is not a modified endowment contract, a cash distribution during the first 15 years after a policy is issued which causes a reduction in death benefits may still become fully or partially taxable to the policy owner pursuant to Section 7702(f)(7) of the Internal Revenue Code. The policy owner should carefully consider this potential effect and seek further information before initiating any changes in the terms of the policy. Under certain conditions, a policy may become a modified endowment as a result of a material change or a reduction in benefits as defined by Section 7702A(c) of the Internal Revenue Code. In addition to meeting the tests required under Section 7702, Section 817(h) of the Internal Revenue Code requires that the investments of separate accounts such as the variable account be adequately diversified. Regulations under 817(h) provide that a variable life policy that 26 30 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 U.S. 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 or the maturity of the policy on its maturity date may have adverse tax consequences. If the amount received by the policy owner plus total policy indebtedness exceeds the premiums paid into the policy, the excess generally will be treated as taxable income, regardless of whether or not the policy is a modified endowment contract. WITHHOLDING Distributions of income from a modified endowment contract are subject to federal income tax withholding; however, the recipient may elect not to have the withholding taken from the distribution. A distribution of income from a modified endowment contract may be subject to mandatory back-up withholding (which cannot be waived). The mandatory back-up withholding rate is 31% of the income that is distributed and will arise of no taxpayer identification number is provided to Nationwide, or if the IRS notifies Nationwide that back-up withholding is required. FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES The federal estate tax is integrated with the federal gift tax under a unified tax rate schedule. In general, in 1999, an estate of less than $625,000 (inclusive of certain pre-death gifts) will not incur a federal estate tax liability. In addition, an unlimited marital deduction may be available for federal estate tax purposes, for certain amounts that pass to the surviving spouse. When the insured dies, the death benefit will generally be included in the insured's federal gross estate if: (1) the proceeds were payable to or for the benefit of the insured's estate; or (2) the insured held any "incident of ownership" in the policy at death or at any time within three years of death. An incident of ownership is, in general, any right that may be exercised by the policy owner, such as the right to borrow on the policy, or the right to name a new beneficiary. If the policy owner (whether or not he or she is the insured) transfers ownership of the policy to another person, such transfer may be subject to a federal gift tax. In addition, if such policy owner transfers the policy to someone two or more generations younger than the policy owner, the transfer may be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable amount being the value of the policy. Similarly, if the beneficiary is two or more generations younger than the insured, the payment of the death proceeds at the death of the insured may be subject to the GSTT. Pursuant to regulations recently promulgated by the U.S. Secretary of the Treasury, Nationwide may be required to withhold a portion of the death proceeds and pay them directly to the IRS as the 27 31 GSTT liability. The GSTT provisions generally apply to the same transfers that are subject to estate or gift taxes. The tax rate is a flat rate equal to the maximum estate tax rate (currently 55%), and there is a provision for an aggregate $1 million exemption. Due to the complexity of these rules, the policy owner should consult with counsel and other competent advisors regarding these taxes. NON-RESIDENT ALIENS Pre-death distributions from modified endowment contracts to nonresident aliens ("NRAs") are generally subject to federal income tax and tax withholding, at a statutory rate of 30% of the amount of income that is distributed. Nationwide is required to withhold such amount from the distribution and remit it to the IRS. Distributions to certain NRAs may be subject to lower, or in certain instances zero, tax and withholding rates, if the United States has entered into an applicable treaty. However, in order to obtain the benefits of such treaty provisions, the NRA must give to Nationwide sufficient proof of his or her residency and citizenship in the form and manner prescribed by the IRS. In addition, the NRA must obtain an individual taxpayer identification number from the IRS, and furnish that number to Nationwide prior to the distribution. If Nationwide does not have the proper proof of citizenship or residency and a proper individual taxpayer identification number prior to any distribution, Nationwide will be required to withhold 30% of the income, regardless of any treaty provision. A pre-death distribution may not be subject to withholding where the recipient sufficiently establishes to Nationwide that such payment is effectively connected to the recipient's conduct of a trade or business in the United States and that such payment is includible in the recipient's gross income for United States federal income tax purposes. Any such distributions may be subject to back-up withholding at the statutory rate (currently 31%) if no taxpayer identification number, or an incorrect taxpayer identification number, is provided. State and local estate, inheritance, income and other tax consequences of ownership or receipt of policy proceeds depend on the circumstances of each policy owner or beneficiary. TAXATION OF NATIONWIDE Nationwide is taxed as a life insurance company under the Internal Revenue Code. Since the variable account is not a separate entity from Nationwide and its operations form a part of Nationwide, it will not be taxed separately as a "regulated investment company" under Sub-chapter M of the Internal Revenue Code. Investment income and realized capital gains on the assets of the variable account are reinvested and taken into account in determining the value of accumulation units. As a result, such investment income and realized capital gains are automatically applied to increase reserves under the policies. Nationwide does not initially expect to incur any federal income tax liability that would be chargeable to the variable account. Based upon these expectations, no charge is currently being made against the variable account for federal income taxes. If, however, Nationwide determines that on a separate company basis such taxes may be incurred, it reserves the right to assess a charge for such taxes against the variable account. Nationwide may also incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If they increase, however, charges for such taxes may be made. TAX CHANGES The foregoing discussion, which is based on Nationwide's understanding of federal tax laws as they are currently interpreted by the IRS, is general and is not intended as tax advice. The Internal Revenue Code has been subjected to numerous amendments and changes, and it is reasonable to believe that it will continue to be revised. The United States Congress has, in the past, considered numerous legislative proposals that, if enacted, could change the tax treatment of the policies. It is reasonable to believe that such proposals, and future proposals, may be 28 32 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 advice, and should not take the place of your independent legal, tax and/or financial advisor. LEGAL CONSIDERATIONS On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v. Norris that certain annuity benefits provided by employers' retirement and fringe benefit programs may not vary between men and women on the basis of sex. This decision applies only to benefits derived from premiums made on or after August 1, 1983. The policies offered by this prospectus are based upon actuarial tables which distinguish between men and women. Thus the policies provide different benefits to men and women of the same age. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of Norris on any employment related insurance or benefit program before purchasing this policy. 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 has 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 29 33 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 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 do not have an effect on the assets of the variable account and are not charged through to the contract 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: o an annual statement containing: the amount of the current death benefit, cash value, cash surrender value, premiums paid, monthly charges deducted, amounts invested in the fixed account and the sub-accounts, and policy indebtedness; o annual and semi-annual reports containing all applicable information and financial statements or their equivalent, which must be sent to the underlying mutual fund beneficial shareholders as required by the rules under the Investment Company Act of 1940 for the variable account; and o statements of significant transactions, such as changes in specified amount, changes in death benefit options, changes in future premium allocations, transfers among sub-accounts, premium payments, loans, loan repayments, reinstatement and termination. ADVERTISING Nationwide is ranked and rated by independent financial rating services, including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these ratings is to reflect the 30 34 financial strength or claims-paying ability of Nationwide. The ratings are not intended to reflect the investment experience or financial strength of the variable account. Nationwide may advertise these ratings from time to time. In addition, Nationwide may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Nationwide or the policies. Furthermore, Nationwide may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. LEGAL PROCEEDINGS Nationwide is a party to litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on Nationwide. In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits, relating to life insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements. In 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 Co.). 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 Co.). 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 that 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 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 31 35 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. The general distributor, NAS, is not engaged in any material litigation of any nature. EXPERTS The audited financial statements have been included herein in reliance upon the reports of KPMG LLP, independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing. REGISTRATION STATEMENT A registration statement has been filed with the SEC 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, 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, NAS. NAS was organized 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: o Nationwide Multi-Flex Variable Account o NACo Variable Account o Nationwide DC Variable Account o Nationwide DCVA-II o Nationwide Variable Account-II o Nationwide VLI Separate Account-3 o Nationwide VLI Separate Account-4 o Nationwide Variable Account o Nationwide Variable Account-5 o Nationwide Variable Account-6 o Nationwide Variable Account-8 o Nationwide Variable Account-9 o Nationwide VA Separate Account-A o Nationwide VA Separate Account-B o Nationwide VA Separate Account-C o Nationwide VL Separate Account-A o Nationwide VL Separate Account-B o Nationwide VL Separate Account-C o Nationwide VL Separate Account-D. NAS also acts as principal underwriter for the following open-end management investment companies: o Nationwide Mutual Funds; o Nationwide Separate Account Trust; o Financial Horizons Investment Trust; and o Nationwide Asset Allocation Trust. 32 36 Gross first year commissions plus any expense allowance payments paid by Nationwide on the sale of these policies provided by the general distributor will not exceed 99% of the target premium plus 3% of any excess premium payments. Gross renewal commissions in years 2 through 10 paid by Nationwide will not exceed 3% of actual premium payment, and will not exceed 2% in policy years 11 and thereafter. No underwriting commissions have been paid by Nationwide to NAS.
NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS POSITIONS AND OFFICES NAME AND BUSINESS ADDRESS WITH UNDERWRITER Joseph J. Gasper President and Director One Nationwide Plaza Columbus, OH 43215 Dimon R. McFerson Chairman of the Board of Directors and Chairman and Chief Executive One Nationwide Plaza Officer and Director Columbus, OH 43215 Robert A. Oakley Executive Vice President - Chief Financial Officer and Director One Nationwide Plaza Columbus, OH 43215 Susan A. Wolken Director One Nationwide Plaza Columbus, OH 43215 Paul J. Hondros Director One Nationwide Plaza Columbus, OH 43215 Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer and Director One Nationwide Plaza Columbus, OH 43215 Edwin P. McCausland, Jr. Senior Vice President-Fixed Income Securities One Nationwide Plaza Columbus, OH 43215 Charles S. Bath Vice President - Investments One Nationwide Plaza Columbus, OH 43215 Alan A. Todryk Vice President - Taxation One Nationwide Plaza Columbus, OH 43215 Dennis W. Click Vice President and Secretary One Nationwide Plaza Columbus, OH 43215 William G. Goslee Vice President One Nationwide Plaza Columbus, OH 43215 James F. Laird, Jr. Vice President and General Manager One Nationwide Plaza Columbus, OH 43215 Joseph P. Rath Vice President - Compliance One Nationwide Plaza Columbus, OH 43215 Christopher A. Cray Treasurer One Nationwide Plaza Columbus, OH 43215
33 37
POSITIONS AND OFFICES NAME AND BUSINESS ADDRESS WITH UNDERWRITER Elizabeth A. Davin Assistant Secretary One Nationwide Plaza 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: o Nationwide Variable Account, o Nationwide Variable Account-II, o Nationwide Variable Account-3, o Nationwide Variable Account-4, o Nationwide Variable Account-5, o Nationwide Variable Account-6, o Nationwide Fidelity Advisor Variable Account, o Nationwide Variable Account-8, o Nationwide Variable Account-9, o MFS Variable Account, o Nationwide Multi-Flex Variable Account, o Nationwide VLI Separate Account, o Nationwide VLI Separate Account-2, o Nationwide VLI Separate Account-3, o Nationwide VLI Separate Account-4, o NACo Variable Account, o Nationwide DC Variable Account and the o Nationwide DCVA-II. Nationwide, in common with other insurance companies, is subject to regulation and supervision by the regulatory authorities of the states in which it is licensed to do business. A license from the state insurance department is a prerequisite to the transaction of insurance business in that state. In general, all states have statutory administrative powers. Such regulation relates, among other things, to licensing of insurers and their agents, the approval of policy forms, the methods of computing reserves, the form and content of statutory financial statements, the amount of policyholders' and stockholders' dividends, and the type of distribution of investments permitted. Nationwide operates in the highly competitive field of life insurance. There are approximately 2,300 stock, mutual and other types of insurers in the life insurance business in the United States, and a large number of them compete with the registrant in the sale of insurance policies. As is customary in insurance company groups, employees are shared with the other insurance companies in the group. In addition to its direct salaried employees, Nationwide shares employees with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. Nationwide does not presently own or lease any materially important physical properties when its property holdings are viewed in relation to its total assets. Nationwide shares Home Office, other facilities and equipment with Nationwide Mutual Insurance Company. Company Management Nationwide and Nationwide Life and Annuity Insurance Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Property 34 38 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. NFS serves as a holding company for other financial institutions. Nationwide 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.
DIRECTORS OF NATIONWIDE DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION 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, Ohio 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; Operator, 1558 West Moreland Road Melrose Orchard (1) Wooster, OH 44691 Joseph J. Gasper President and Chief President and Chief Operating Officer, Nationwide One Nationwide Plaza Operating Officer and Life Insurance Company and Nationwide Life and Columbus, OH 43215 Director Annuity Insurance Company (2) Dimon R. McFerson Chairman and Chief Chairman and Chief Executive Officer- (2) One Nationwide Plaza Executive Officer and Columbus, OH 43215 Director 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 Federation of Southern 2769 Church Street Cooperatives/Land Assistance Fund East Point, GA 30344
35 39
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION 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
(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 and Nationwide Life and Annuity Insurance Company. Messrs. McFerson and Gasper are directors of Nationwide Advisory Services, Inc., a registered broker-dealer. Messrs. McFerson, Miller, Patterson, and Shisler are directors of NFS. Mr. McFerson and Ms. Thomas are trustees of Nationwide Mutual Funds, a registered investment company. Messrs. McFerson, Gasper and Woodward are trustees of Nationwide Separate Account Trust and Nationwide Asset Allocation Trust, registered investment companies. Mr. McFerson is trustee of Financial Horizons Investment Trust and Nationwide Mutual Funds, registered investment companies. Mr. Engel is a director of Western Cooperative Transport.
EXECUTIVE OFFICERS OF NATIONWIDE OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR NAME AND PRINCIPAL BUSINESS ADDRESS 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
36 40
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR NAME AND PRINCIPAL BUSINESS ADDRESS Phillip C. Gath Senior Vice President and Chief Actuary One Nationwide Plaza 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 One Nationwide Plaza Columbus, OH 43215 Richard A. Karas Senior Vice President - Sales and Financial Services One Nationwide Plaza Columbus, OH 43215 Douglas 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 Bruce C. Barnes Vice President - Technology Strategy and Planning One Nationwide Plaza Columbus, OH 43215 David A. Diamond Vice President - Enterprise Controller One Nationwide Plaza Columbus, OH 43215 Matthew S. Easley Vice President - Investment Life Actuarial One Nationwide Plaza Columbus, OH 43215 R. Dennis Noice Vice President - Systems 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
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 - 37 41 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 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 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 of Nationwide 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 38 42 Life Actuarial since June 1998. Mr. Easley was Vice President - Marketing and Administrative Services of NFS 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 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 the 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 Enterprise 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 Insurance Enterprise. 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 39 43 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 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 July 1997. Ms. Wolken has 40 44 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 of the Nationwide Insurance Enterprise. 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 the Nationwide Insurance Enterprise. Mr. Woodward has been with Nationwide for 34 years. 41 45 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., MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS. American Century Variable Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a diversified, open-end investment management company which offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. American Century Variable Portfolios, Inc. is managed by American Century Investment Management, Inc. 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. 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. While securities of United States issuers may be included in the portfolio from time to time, it is the primary intent of the manager to diversify investments across a broad range of foreign issuers. Although the primary investment of the Fund will be common stocks (defined to include depository receipts for common stock and other equity equivalents), the Fund may also invest in other types of securities consistent with the Fund's objective. When the manager believes that the total capital growth 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. 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. 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. DREYFUS STOCK INDEX FUND, INC. The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified, management investment company incorporated under Maryland law on January 24, 1989 and commenced operations on September 29, 1989. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as the Fund's manager, while Mellon Equity 42 46 Associates, an affiliate of Dreyfus, serves as the Fund's index manager. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation. Investment Objective: To provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation. DREYFUS VARIABLE INVESTMENT FUND Dreyfus Variable Investment Fund ("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 on 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. Fayez Sarofim & Company serves as the sub-adviser and provides day-to-day management of the portfolio. CAPITAL APPRECIATION PORTFOLIO Investment Objective: The Portfolio's primary investment objective is to provide long-term capital growth consistent with the preservation of capital; current income is a secondary investment objective. This Portfolio invests primarily in the common stocks of domestic and foreign issuers. THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified, management investment company incorporated under Maryland law on July 20, 1992 and commenced operations on October 7, 1993. The Fund offers its share only as investment vehicles for variable annuity and variable life insurance products of insurance companies. Dreyfus serves as the Fund's investment adviser. 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: Capital growth through equity investment in companies that, in the opinion of the Fund's advisers, 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. FEDERATED INSURANCE SERIES Federated Insurance Series (the "Trust"), an Open-End Management Investment Company, was established as a Massachusetts business trust, under a Declaration of Trust dated September 15, 1993. The Trust offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. Federated Advisers serves as the investment adviser. FEDERATED QUALITY BOND FUND II Investment Objective: Current income by investing in investment grade fixed income securities. FIDELITY VARIABLE INSURANCE PRODUCTS FUND The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. Shares of VIP are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. Fidelity Management & Research Company ("FMR") is the manager for VIP and its portfolios. VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS Investment Objective: 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: SERVICE CLASS Investment Objective: Capital appreciation. This Portfolio will invest in the securities of 43 47 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 underlying mutual funds. It is also important to point out that this Portfolio makes sense for you if you can afford to ride out changes in the stock market because it invests primarily in common stocks. FMR can also 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: SERVICE CLASS Investment Objective: High level of current income by investing primarily in high-risk, lower-rated, high-yielding, fixed-income securities, while also considering growth of capital. FMR will seek high current income normally by investing the Portfolio's assets as follows: o at least 65% in income-producing debt securities and preferred stocks, including convertible securities o 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 Investor Service, Inc. ("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: SERVICE CLASS Investment Objective: Long-term capital growth primarily through investments in foreign securities. This Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside the United States. FIDELITY VARIABLE INSURANCE PRODUCTS FUND II The 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's shares are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity contracts. FMR is the manager of VIP II and its portfolios. VIP II CONTRAFUND PORTFOLIO: SERVICE CLASS Investment Objective: To seek capital appreciation by investing primarily in companies that FMR 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 Portfolio primarily invests in common stock and securities convertible into common stock, but it has the flexibility to invest in any type of security that may produce capital appreciation. FIDELITY VARIABLE INSURANCE PRODUCTS FUND III The Fidelity Variable Insurance Products Fund III (VIP III) is an open-end, diversified, management investment company organized as a Massachusetts business trust on July 14, 1994. VIP III's shares are purchased by insurance companies to fund benefits under variable life insurance policies and variable annuity 44 48 contracts. FMR is the manager of VIP III and it's portfolios. VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS Investment Objective: Capital growth by investing primarily in common stocks and securities convertible into common stocks. The Portfolio, under normal conditions, will invest at least 65% of its total assets in securities of companies that FMR believes have long-term growth potential. Although the Portfolio invests primarily in common stock and securities convertible into common stock, it has the ability to purchase other securities, such as preferred stock and bonds that may produce capital growth. The Portfolio may invest in foreign securities without limitation. MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. Morgan Stanley Dean Witter Universal Funds, Inc. is a mutual fund designed to provide investment vehicles for variable annuity contracts and variable life insurance policies and for certain tax-qualified investors. Its Emerging Markets Debt Portfolio is managed by Morgan Stanley Dean Witter Investment Management, Inc. EMERGING MARKETS DEBT PORTFOLIO Investment Objective: High total return by investing primarily in dollar and non-dollar denominated fixed income securities of government and government-related issuers located in emerging market countries, which securities provide a high level of current income, while at the same time holding the potential for capital appreciation if the perceived creditworthiness of the issuer improves due to improving economic, financial, political, social or other conditions in the country in which the issuer is located. 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. The assets of NSAT are managed by Nationwide Advisory Services, Inc. ("NAS"), a wholly-owned subsidiary of Nationwide Life Insurance Company. CAPITAL APPRECIATION FUND Investment Objective: Long-term capital appreciation. GOVERNMENT BOND FUND Investment Objective: As high a level of income as is consistent with the preservation of capital by investing in a diversified portfolio of securities issued or backed by the U.S. Government, its agencies or instrumentalities. MONEY MARKET FUND Investment Objective: As high a level of current income as is considered consistent with the preservation of capital and maintenance of liquidity. TOTAL RETURN FUND Investment Objective: To obtain a reasonable, long-term total return on invested capital. SUB-ADVISED NATIONWIDE FUNDS NATIONWIDE BALANCED FUND Subadviser: Salomon Brothers Asset Management, Inc. Investment Objective: Primarily seeks above-average income compared to a portfolio entirely invested in equity securities. The Fund's secondary objective is to take advantage of opportunities for growth of capital and income. The Fund seeks its objective primarily through investments in a broad variety of securities, including equity securities, fixed-income securities and short term obligations. Under normal market conditions, it is anticipated that the Fund will invest at least 40% of the Fund's total assets in equity securities and at least 25% in fixed-income senior securities. The Fund's subadviser, Salomon Brothers Asset Management, Inc., will have discretion to invest in the full range of maturities of fixed-income securities. 45 49 Generally, most of the Fund's long-term debt investments will consist of "investment grade" securities, but the Fund may invest up to 20% of its net assets in non-convertible fixed-income securities rated below investment grade or determined by the subadviser to be of comparable quality. These securities are commonly known as junk bonds. In addition, the Fund may invest an unlimited amount in convertible securities rated below investment grade. NATIONWIDE EQUITY INCOME FUND Subadviser: Federated Investment Counseling Investment Objective: Seeks above average income and capital appreciation by investing at least 65% of its assets in income-producing equity securities. Such equity securities include common stocks, preferred stocks, and securities (including debt securities) that are convertible into common stocks. The portion of the Fund's total assets invested in each type of equity security will vary according to the Fund's subadviser's assessment of market, economic conditions and outlook. NATIONWIDE GLOBAL EQUITY FUND Subadviser: J. P. Morgan Investment Management Inc. Investment Objective: To provide high total return from a globally diversified portfolio of equity securities. Total return will consist of income plus realized and unrealized capital gains and losses. The Fund seeks its investment objective through country allocation, stock selection and management of currency exposure. Under normal market conditions, J.P. Morgan Investment Management Inc., intends to keep the Fund essentially fully invested with at least 65% of the value of its total assets in equity securities consisting of common stocks and other securities with equity characteristics such as preferred stocks, warrants, rights, convertible securities, trust certificates, limited partnership interests and equity participations. The Fund's primary equity instruments are the common stock of companies based in the developed countries around the world. The assets of the Fund will ordinarily be invested in the securities of at least five different countries. NATIONWIDE HIGH INCOME BOND FUND Subadviser: Federated Investment Counseling Investment Objective: Seeks to provide high current income by investing primarily in a professionally managed, diversified portfolio of fixed income securities. To meet its objective, the Fund intends to invest at least 65% of its assets in lower-rated fixed income securities such as preferred stocks, bonds, debentures, notes, equipment lease certificates and equipment trust certificates which are rated BBB or lower by Standard & Poor's or Fitch Investors Service or Baa or lower by Moody's (or if not rated, are determined by the Fund's subadviser to be of a comparable quality). Such investments are commonly referred to as "junk bonds." For a further discussion of lower-rated securities, please see the "High Yield Securities" section of the Fund's prospectus. NATIONWIDE MULTI SECTOR BOND FUND Subadviser: Salomon Brothers Asset Management, Inc. with Salomon Brothers Asset Management Limited Investment Objective: Primarily seeks a high level of current income. Capital appreciation is a secondary objective. The Fund seeks to achieve its objectives by investing in a globally diverse portfolio of fixed-income investments and by giving the subadviser, Salomon Brothers Asset Management, Inc. broad discretion to deploy the Fund's assets among certain segments of the fixed-income market that the subadviser believes will best contribute to achievement of the Fund's investment objectives. The Fund reserves the right to invest predominantly in securities rated in medium or lower categories, or as determined by the subadviser to be of comparable quality, commonly referred to as "junk bonds." 46 50 Although the subadviser has the ability to invest up to 100% of the Fund's assets in lower-rated securities, the subadviser does not anticipate investing in excess of 75% of the Fund's assets in such securities. The subadviser has entered into a subadvisory agreement with its London based affiliate, Salomon Brothers Asset Management Limited, pursuant to which the subadviser has delegated to Salomon Brothers Asset Management Limited responsibility for management of the Fund's investments in non-dollar denominated debt securities and currency transactions. NATIONWIDE SELECT ADVISERS MID CAP FUND Subadvisers: First Pacific Advisors, Inc., Pilgrim Baxter & Associates, Ltd., and Rice, Hall, James & Associates Investment Objective: Capital appreciation by investing primarily in equity securities of medium-sized companies (market capitalization between $500 million and $7 billion). Under normal market conditions, the Fund will invest in equity securities consisting of common stock, preferred stock and securities convertible into common stocks, including convertible preferred stock and convertible bonds. NAS has chosen the Fund's subadvisers because they utilize a number of different investment styles. In utilizing these different styles, NAS hopes to increase prospects for investment return and to reduce market risk and volatility. NATIONWIDE SELECT ADVISERS SMALL CAP GROWTH FUND Subadvisers: Franklin Advisers, Inc., Miller Anderson & Sherrerd, LLP, Neuberger Berman, LLC. Investment Objective: Seeks capital growth by investing in a broadly diversified portfolio of equity securities issued by U.S. and foreign companies with market capitalizations in the range of companies represented by the Russell 2000, known as small cap companies. Under normal market conditions, the Fund will invest at least 65% of its total assets in the equity securities of small cap companies. The balance of the Fund's assets may be invested in equity securities of larger cap companies. The Fund may also invest in foreign securities. NATIONWIDE SMALL CAP VALUE FUND Subadviser: The Dreyfus Corporation Investment Objective: 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. NATIONWIDE SMALL COMPANY FUND Subadvisers: The Dreyfus Corporation, Neuberger Berman, L.P., 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 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. NATIONWIDE STRATEGIC GROWTH FUND Subadviser: Strong Capital Management Inc. Investment Objective: Capital growth by investing primarily in equity securities that the Fund's subadviser believes have above-average growth prospects. The Fund will generally invest in companies whose earnings are believed to be in a relatively strong growth trend, and to a lesser extent, in companies in which significant further growth is not anticipated but whose market value is thought to be undervalued. Under normal market conditions, the Fund will invest at least 65% of its total assets in equity securities, including common stocks, preferred stocks, and securities convertible 47 51 into common or preferred stocks, such as warrants and convertible bonds. The Fund may invest up to 35% of its total assets in debt obligations, including intermediate- to long-term corporate or U.S. Government debt securities. NATIONWIDE STRATEGIC VALUE FUND Subadviser: Strong Capital Management Inc./Schafer Capital Management Inc. Investment Objective: Primarily long-term capital appreciation; current income is a secondary objective. The Fund seeks to meet its objectives by investing in securities which are believed to offer the possibility of increase in value, primarily common stocks of established companies having a strong financial position and a low stock market valuation at the time of purchase in relation to investment value. Other than considered appropriate for cash reserves, the Fund will generally maintain a fully invested position in common stocks of publicly held companies, primarily in stocks of companies listed on a national securities exchange or other equity securities (common stock or securities convertible into common stock). Investments may also be made in debt securities which are convertible into common stocks and in warrants or other rights to purchase common stock, which in such case are considered equity securities by the Fund. Strong Capital Management, Inc. has subcontracted with Schafer Capital Management, Inc. to subadvise the Fund. NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST Neuberger & Berman Advisers Management Trust ("NB AMT") is an open-end, diversified management investment company consisting of several series. Shares of the series of NB AMT 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 Guardian, Partners and Mid-Cap Growth Portfolios of NB AMT invest all of their investable assets in a corresponding series of Advisers Managers Trust managed by Neuberger Berman Management Incorporated ("NB Management"). Each series then invests in securities in accordance with an investment objective, policies and limitations identical to those of the Portfolio. This "master/feeder fund" structure is different from that of many other investment companies which directly acquire and manage their own portfolios of securities. (For more information regarding "master/feeder fund" structure, see "Special Information Regarding Organization, Capitalization, and Other Matters" in the underlying mutual fund prospectus.) The investment advisor is NB Management. 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. NB 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 MID-CAP GROWTH PORTFOLIO Investment Objective: Capital appreciation by investing in equity securities of medium-sized companies that NB Management believes have the potential for long-term, above-average capital appreciation. Medium-sized companies have market capitalizations form $300 million to $10 billion at the time of investment. The Portfolio and its corresponding series may invest up to 10% of its net assets, measured at the time of investment, in corporate debt securities that are below investment grade or, if unrated, deemed by NB Management to be of comparable quality. Securities that are below investment grade, as well as unrated securities, are often considered to be speculative and usually entail greater risk. As a part of the Portfolio's investment strategy, the Portfolio may invest up to 20% of its net assets in securities of issuers 48 52 organized and doing business principally outside the United States. This limitation does not apply with respect to foreign securities that are denominated in U.S. dollars. AMT PARTNERS PORTFOLIO Investment Objective: Capital growth 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 the company's track record through all parts of the market cycle. OPPENHEIMER VARIABLE ACCOUNT FUNDS The Oppenheimer Variable Account Funds are an open-end, diversified management investment company organized as a Massachusetts business trust in 1984. Shares of the Funds are sold to provide benefits under variable life insurance policies and variable annuity contracts. OppenheimerFunds, Inc. is the investment adviser. OPPENHEIMER AGGRESSIVE GROWTH FUND/VA (FORMERLY "OPPENHEIMER CAPITAL APPRECIATION FUND") Investment Objective: Capital appreciation by investing in "growth type" companies. Such companies are believed to have relatively favorable long-term prospects for increasing demand for their goods or services, or to be developing new products, services or markets and normally retain a relatively larger portion of their earnings for research, development and investment in capital assets. The Fund may also invest in cyclical industries in "special situations" that OppenheimerFunds, Inc. believes present opportunities for capital growth. OPPENHEIMER CAPITAL APPRECIATION FUND/VA (FORMERLY "OPPENHEIMER GROWTH FUND") Investment Objective: Capital appreciation by investing in securities of well-known established companies. Such securities generally have a history of earnings and dividends and are issued by seasoned companies (companies which have an operating history of at least five years including predecessors). Current income is a secondary consideration in the selection of the Fund's portfolio securities. OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA (FORMERLY "OPPENHEIMER GROWTH & INCOME FUND") Investment Objective: High total return, which stocks, preferred stocks, convertible securities and warrants. Debt investments will include bonds, participation includes growth in the value of its shares as well as current income from quality and debt securities. In seeking its investment objectives, the Fund may invest in equity and debt securities. Equity investments will include common interests, asset-backed securities, private-label mortgage-backed securities and CMOs, zero coupon securities and U.S. debt obligations, and cash and cash equivalents. From time to time, the Fund may focus on small to medium capitalization issuers, the securities of which may be subject to greater price volatility than those of larger capitalized issuers. VAN ECK WORLDWIDE INSURANCE TRUST Van Eck Worldwide Insurance Trust ("Van Eck 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 Van Eck Trust are offered only to separate accounts of insurance companies to fund the benefits of variable life insurance policies and variable annuity contracts. The investment advisor and manager is Van Eck Associates Corporation. 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 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: Long-term capital appreciation by investing primarily in "Hard Asset Securities." For the Fund's purpose, 49 53 "Hard Assets" are real estate, energy, timber, and industrial and precious metals. Income is a secondary consideration. VAN KAMPEN LIFE INVESTMENT TRUST Van Kampen Life Investment Trust is an open-end diversified management investment company organized as a Delaware business trust. Shares are offered in separate portfolios which are sold only to insurance companies to provide funding for variable life insurance policies and variable annuity contracts. Van Kampen Asset Management, Inc. serves as the Fund's investment adviser. MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO Investment Objective: Long-term capital growth by investing principally in a diversified portfolio of securities of companies operating in the real estate industry ("Real Estate Securities"). Current income is a secondary consideration. Real Estate Securities include equity securities, including common stocks and convertible securities, as well as non-convertible preferred stocks and debt securities of real estate industry companies. A "real estate industry company" is a company that derives at least 50% of its assets (marked to market), gross income or net profits from the ownership, construction, management or sale of residential, commercial or industrial real estate. Under normal market conditions, at least 65% of the Fund's total assets will be invested in Real Estate Securities, primarily equity securities of real estate investment trusts. The Portfolio may invest up to 25% of its total assets in securities issued by foreign issuers, some or all of which may also be Real Estate Securities. WARBURG PINCUS TRUST The Warburg Pincus Trust is an open-end management investment company organized in March 1995 as a business trust under the laws of The Commonwealth of Massachusetts. The Trust offers its shares to insurance companies for allocation to separate accounts for the purpose of funding variable annuity and variable life contracts. The Portfolios are managed by Warburg Pincus Asset Management, Inc. ("Warburg"). GROWTH & INCOME PORTFOLIO Investment Objective: Long-term growth of capital and income by investing primarily in dividend-paying equity securities. Under normal market conditions, the Portfolio will invest substantially all of its asset in equity securities that Warburg considers to be relatively undervalued based upon research and analysis, taking into account factors such as price/book ratio, price/cash flow ratio, earnings growth, debt/capital ratio and multiples of earnings of comparable securities. Although the Portfolio may hold securities of any size, it currently expects to focus on companies with market capitalizations of $1 billion or greater at the time of initial purchase. INTERNATIONAL EQUITY PORTFOLIO Investment Objective: Long-term capital appreciation by investing primarily in a broadly diversified portfolio of equity securities of companies, wherever organized, that in the judgment of Warburg have their principal business activities and interests outside the United States. The Portfolio will ordinarily invest substantially all of its assets, but no less than 65% of its total assets, in common stocks, warrants and securities convertible into or exchangeable for common stocks. The Portfolio intends to invest principally in the securities of financially strong companies with opportunities for growth within growing international economies and markets through increased earning power and improved utilization or recognition of assets. POST-VENTURE CAPITAL PORTFOLIO Investment Objective: Long-term growth of capital by investing primarily in equity securities of issuers in their post-venture capital stage of development and pursues an aggressive investment strategy. Under normal market conditions, the Portfolio will invest at least 65% of its total assets in equity securities of "post-venture capital companies." A post-venture capital company is one that has received venture 50 54 capital financing either: (a) during the early stages of the company's existence or the early stages of the development of a new product or service; or (b) as part of a restructuring or recapitalization of the company. The Portfolio may invest up to 10% of its assets in venture capital and other investment funds. 51 55 APPENDIX B: ILLUSTRATION OF SURRENDER CHARGES EXAMPLE 1: A female non-tobacco, age 45, purchases a policy with a specified amount of $50,000 and a scheduled premium of $750. She now wishes to surrender the policy during the first policy year. By using the initial surrender charge table reproduced below, (also see "Surrender Charges") the total surrender charge per thousand multiplied by the specified amount expressed in thousands equals the total surrender charge of $569.50 ($11.390 x 50=569.50). EXAMPLE 2: A male non-tobacco, age 35, purchases a policy with a specified amount of $100,000 and a scheduled premium of $1100. He now wants to surrender the policy in the sixth policy year. The total initial surrender charge is calculated using the method illustrated above (surrender charge per 1000 is 6.817 x 100=681.70 maximum initial surrender charge). Because the fifth policy year has been completed, the maximum initial surrender charge is reduced by multiplying it by the applicable percentage factor from the "Reductions to Surrender Charges" table below. (Also see "Reductions to Surrender Charges.") In this case, $681.70 x 60%=$409.02 which is the amount Nationwide deducts as a total surrender charge. Maximum surrender charge per $1,000 of initial specified amount for policies issued on a standard basis: INITIAL SPECIFIED AMOUNT $50,000-$99,999
ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD 25 $7.773 $7.518 $8.369 $7.818 35 8.817 8.396 9.811 8.889 45 12.185 11.390 13.884 12.164 55 15.628 13.995 18.410 15.106 65 22.274 19.043 26.559 20.607
INITIAL SPECIFIED AMOUNT $100,000+
ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD 25 $5.773 $5.518 $6.369 $5.818 35 6.817 6.396 7.811 6.889 45 9.685 8.890 11.384 9.664 55 13.128 11.495 15.910 12.606 65 21.274 18.043 25.559 19.607
52 56 REDUCTIONS TO SURRENDER CHARGES
SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES 0 100% 5 60% 1 100% 6 50% 2 90% 7 40% 3 80% 8 30% 4 70% 9+ 0%
The current surrender charges are the same for all states. However, in Pennsylvania the guaranteed maximum surrender charges are spread out over 14 years. The guaranteed maximum surrender charge in subsequent years in Pennsylvania is reduced in the following manner:
COMPLETED SURRENDER CHARGE AS A COMPLETED SURRENDER CHARGE AS A COMPLETED SURRENDER CHARGE AS A POLICY YEARS % OF INITIAL POLICY YEARS % OF INITIAL POLICY YEARS % OF INITIAL SURRENDER CHARGES SURRENDER CHARGES SURRENDER CHARGES 0 100% 5 60% 10 20% 1 100% 6 50% 11 15% 2 90% 7 40% 12 10% 3 80% 8 30% 13 5% 4 70% 9 25% 14+ 0%
The illustrations of current values in this prospectus are the same for Pennsylvania. However, the illustrations of guaranteed values in this prospectus do not reflect guaranteed maximum surrender charges which are spread out over 14 years. If this policy is issued in Pennsylvania, please contact Nationwide's home office for an illustration. Nationwide has no plans to change the current surrender charges. 53 57 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 indebtedness, no additional premium payments are made, no cash values are allocated to the fixed account, and there are no changes in the specified amount or death benefit option. The amounts shown for the cash value, 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 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 reimbursement, for the preceding year for all underlying mutual fund options available under the policy as of April 13, 1999 . Some underlying mutual funds are subject to expense reimbursements and fee waivers. Absent expense reimbursement and fees waivers, the annual effective rate would have been 1.01%. 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 or fee waivers of these underlying mutual funds, such change will be reflected in the net asset value of the corresponding underlying mutual fund. Taking into account the underlying mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net investment experience at constant annual rates of -0.90%, 5.10% and 11.10%. The illustrations also reflect the fact that Nationwide makes monthly charges for providing insurance protection, recovering taxes, providing for administrative expenses, and assuming mortality and expense risks. Current values reflect current cost of insurance charges and guaranteed values reflect the maximum cost of insurance charges guaranteed in the policy. The values shown are for policies which are issued as standard. Policies issued on a substandard basis would result in lower cash values and death benefits than those illustrated. The cash surrender values shown in the illustrations reflect the fact that Nationwide will deduct a surrender charge from the policy's cash value for any policy surrendered in full during the first nine policy years. 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 58 DEATH BENEFIT OPTION 1 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 788 406 0 50,000 438 0 50,000 471 0 50,000 2 1,614 853 279 50,000 945 371 50,000 1,041 468 50,000 3 2,483 1,281 764 50,000 1,461 945 50,000 1,658 1,141 50,000 4 3,394 1,690 1,231 50,000 1,989 1,530 50,000 2,326 1,867 50,000 5 4,351 2,085 1,683 50,000 2,531 2,129 50,000 3,056 2,654 50,000 6 5,357 2,463 2,119 50,000 3,087 2,743 50,000 3,852 3,508 50,000 7 6,412 2,826 2,539 50,000 3,659 3,372 50,000 4,723 4,436 50,000 8 7,520 3,172 2,942 50,000 4,246 4,017 50,000 5,675 5,446 50,000 9 8,683 3,502 3,330 50,000 4,849 4,677 50,000 6,719 6,546 50,000 10 9,905 3,814 3,814 50,000 5,469 5,469 50,000 7,863 7,863 50,000 11 11,188 4,110 4,110 50,000 6,105 6,105 50,000 9,119 9,119 50,000 12 12,535 4,387 4,387 50,000 6,759 6,759 50,000 10,499 10,499 50,000 13 13,949 4,647 4,647 50,000 7,431 7,431 50,000 12,017 12,017 50,000 14 15,434 4,887 4,887 50,000 8,121 8,121 50,000 13,690 13,690 50,000 15 16,993 5,108 5,108 50,000 8,830 8,830 50,000 15,534 15,534 50,000 16 18,630 5,309 5,309 50,000 9,559 9,559 50,000 17,570 17,570 50,000 17 20,349 5,462 5,462 50,000 10,283 10,283 50,000 19,799 19,799 50,000 18 22,154 5,562 5,562 50,000 10,998 10,998 50,000 22,246 22,246 50,000 19 24,049 5,611 5,611 50,000 11,709 11,709 50,000 24,943 24,943 50,000 20 26,039 5,615 5,615 50,000 12,419 12,419 50,000 27,932 27,932 50,000 21 28,129 5,557 5,557 50,000 13,116 13,116 50,000 31,252 31,252 50,000 22 30,323 5,432 5,432 50,000 13,798 13,798 50,000 34,950 34,950 50,000 23 32,626 5,230 5,230 50,000 14,457 14,457 50,000 39,082 39,082 50,000 24 35,045 4,942 4,942 50,000 15,089 15,089 50,000 43,716 43,716 51,148 25 37,585 4,559 4,559 50,000 15,686 15,686 50,000 48,852 48,852 56,668 26 40,252 4,067 4,067 50,000 16,243 16,243 50,000 54,509 54,509 62,685 27 43,052 3,456 3,456 50,000 16,752 16,752 50,000 60,756 60,756 68,654 28 45,992 2,711 2,711 50,000 17,204 17,204 50,000 67,661 67,661 75,103 29 49,079 1,811 1,811 50,000 17,590 17,590 50,000 75,301 75,301 82,078 30 52,321 734 734 50,000 17,895 17,895 50,000 83,767 83,767 89,630
1. No policy loans and no partial withdrawals have been made. 2. Current values reflect current cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $5 thereafter. Current values reflect a 6% of premium charge on all premiums up to the target premium and 4% on premiums in excess of target for any single policy year. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 55 59 DEATH BENEFIT OPTION 1 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 788 355 0 50,000 385 0 50,000 416 0 50,000 2 1,614 718 144 50,000 802 229 50,000 891 317 50,000 3 2,483 1,058 542 50,000 1,220 704 50,000 1,397 881 50,000 4 3,394 1,374 915 50,000 1,637 1,178 50,000 1,936 1,477 50,000 5 4,351 1,665 1,264 50,000 2,052 1,651 50,000 2,511 2,110 50,000 6 5,357 1,928 1,584 50,000 2,463 2,118 50,000 3,123 2,779 50,000 7 6,412 2,160 1,873 50,000 2,864 2,577 50,000 3,772 3,485 50,000 8 7,520 2,356 2,127 50,000 3,253 3,023 50,000 4,460 4,231 50,000 9 8,683 2,513 2,341 50,000 3,623 3,451 50,000 5,186 5,014 50,000 10 9,905 2,626 2,626 50,000 3,971 3,971 50,000 5,952 5,952 50,000 11 11,188 2,692 2,692 50,000 4,290 4,290 50,000 6,760 6,760 50,000 12 12,535 2,705 2,705 50,000 4,575 4,575 50,000 7,610 7,610 50,000 13 13,949 2,664 2,664 50,000 4,823 4,823 50,000 8,508 8,508 50,000 14 15,434 2,562 2,562 50,000 5,025 5,025 50,000 9,455 9,455 50,000 15 16,993 2,391 2,391 50,000 5,171 5,171 50,000 10,454 10,454 50,000 16 18,630 2,142 2,142 50,000 5,252 5,252 50,000 11,506 11,506 50,000 17 20,349 1,806 1,806 50,000 5,254 5,254 50,000 12,614 12,614 50,000 18 22,154 1,367 1,367 50,000 5,159 5,159 50,000 13,779 13,779 50,000 19 24,049 809 809 50,000 4,948 4,948 50,000 15,002 15,002 50,000 20 26,039 115 115 50,000 4,599 4,599 50,000 16,287 16,287 50,000 21 28,129 (*) (*) 4,088 4,088 50,000 17,640 17,640 50,000 22 30,323 (*) (*) 3,387 3,387 50,000 19,071 19,071 50,000 23 32,626 (*) (*) 2,466 2,466 50,000 20,594 20,594 50,000 24 35,045 (*) (*) 1,284 1,284 50,000 22,222 22,222 50,000 25 37,585 (*) (*) (*) (*) 23,972 23,972 50,000 26 40,252 (*) (*) (*) (*) 25,865 25,865 50,000 27 43,052 (*) (*) (*) (*) 27,931 27,931 50,000 28 45,992 (*) (*) (*) (*) 30,202 30,202 50,000 29 49,079 (*) (*) (*) (*) 32,730 32,730 50,000 30 52,321 (*) (*) (*) (*) 35,587 35,587 50,000
1. No policy loans and no partial withdrawals have been made. 2. Guaranteed values reflect guaranteed cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 56 60 DEATH BENEFIT OPTION 2 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 788 404 0 50,404 436 0 50,436 469 0 50,469 2 1,614 848 274 50,848 939 365 50,939 1,035 461 51,035 3 2,483 1,270 753 51,270 1,449 932 51,449 1,643 1,127 51,643 4 3,394 1,672 1,213 51,672 1,966 1,507 51,966 2,299 1,840 52,299 5 4,351 2,056 1,654 52,056 2,495 2,093 52,495 3,011 2,610 53,011 6 5,357 2,422 2,078 52,422 3,034 2,690 53,034 3,784 3,440 53,784 7 6,412 2,770 2,483 52,770 3,584 3,298 53,584 4,623 4,336 54,623 8 7,520 3,100 2,870 53,100 4,145 3,915 54,145 5,534 5,304 55,534 9 8,683 3,410 3,238 53,410 4,715 4,543 54,715 6,524 6,352 56,524 10 9,905 3,700 3,700 53,700 5,295 5,295 55,295 7,600 7,600 57,600 11 11,188 3,971 3,971 53,971 5,885 5,885 55,885 8,771 8,771 58,771 12 12,535 4,220 4,220 54,220 6,483 6,483 56,483 10,045 10,045 60,045 13 13,949 4,448 4,448 54,448 7,090 7,090 57,090 11,432 11,432 61,432 14 15,434 4,654 4,654 54,654 7,704 7,704 57,704 12,943 12,943 62,943 15 16,993 4,838 4,838 54,838 8,325 8,325 58,325 14,589 14,589 64,589 16 18,630 4,998 4,998 54,998 8,952 8,952 58,952 16,383 16,383 66,383 17 20,349 5,103 5,103 55,103 9,553 9,553 59,553 18,306 18,306 68,306 18 22,154 5,148 5,148 55,148 10,119 10,119 60,119 20,366 20,366 70,366 19 24,049 5,135 5,135 55,135 10,653 10,653 60,653 22,579 22,579 72,579 20 26,039 5,071 5,071 55,071 11,156 11,156 61,156 24,965 24,965 74,965 21 28,129 4,939 4,939 54,939 11,611 11,611 61,611 27,529 27,529 77,529 22 30,323 4,732 4,732 54,732 12,007 12,007 62,007 30,286 30,286 80,286 23 32,626 4,443 4,443 54,443 12,332 12,332 62,332 33,245 33,245 83,245 24 35,045 4,064 4,064 54,064 12,574 12,574 62,574 36,419 36,419 86,419 25 37,585 3,585 3,585 53,585 12,718 12,718 62,718 39,821 39,821 89,821 26 40,252 2,998 2,998 52,998 12,749 12,749 62,749 43,462 43,462 93,462 27 43,052 2,295 2,295 52,295 12,653 12,653 62,653 47,359 47,359 97,359 28 45,992 1,467 1,467 51,467 12,413 12,413 62,413 51,527 51,527 101,527 29 49,079 502 502 50,502 12,009 12,009 62,009 55,981 55,981 105,981 30 52,321 (*) (*) (*) 11,414 11,414 61,414 60,734 60,734 110,734
1. No policy loans and no partial withdrawals have been made. 2. Current values reflect current cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $5 thereafter. Current values reflect a 6% of premium charge on all premiums up to the target premium and 4% on premiums in excess of target for any single policy year. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 57 61 DEATH BENEFIT OPTION 2 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 788 352 0 50,352 383 0 50,383 414 0 50,414 2 1,614 711 137 50,711 795 221 50,795 883 309 50,883 3 2,483 1,045 529 51,045 1,205 689 51,205 1,380 863 51,380 4 3,394 1,353 894 51,353 1,611 1,152 51,611 1,905 1,446 51,905 5 4,351 1,632 1,231 51,632 2,011 1,610 52,011 2,460 2,058 52,460 6 5,357 1,881 1,537 51,881 2,402 2,057 52,402 3,044 2,700 53,044 7 6,412 2,096 1,809 52,096 2,778 2,491 52,778 3,656 3,369 53,656 8 7,520 2,273 2,043 52,273 3,135 2,905 53,135 4,294 4,065 54,294 9 8,683 2,406 2,234 52,406 3,466 3,293 53,466 4,955 4,783 54,955 10 9,905 2,493 2,493 52,493 3,764 3,764 53,764 5,636 5,636 55,636 11 11,188 2,528 2,528 52,528 4,025 4,025 54,025 6,335 6,335 56,335 12 12,535 2,508 2,508 52,508 4,241 4,241 54,241 7,048 7,048 57,048 13 13,949 2,430 2,430 52,430 4,406 4,406 54,406 7,772 7,772 57,772 14 15,434 2,289 2,289 52,289 4,512 4,512 54,512 8,503 8,503 58,503 15 16,993 2,077 2,077 52,077 4,547 4,547 54,547 9,232 9,232 59,232 16 18,630 1,787 1,787 51,787 4,500 4,500 54,500 9,950 9,950 59,950 17 20,349 1,411 1,411 51,411 4,358 4,358 54,358 10,646 10,646 60,646 18 22,154 936 936 50,936 4,102 4,102 54,102 11,302 11,302 61,302 19 24,049 349 349 50,349 3,712 3,712 53,712 11,901 11,901 61,901 20 26,039 (*) (*) (*) 3,168 3,168 53,168 12,421 12,421 62,421 21 28,129 (*) (*) (*) 2,451 2,451 52,451 12,840 12,840 62,840 22 30,323 (*) (*) (*) 1,539 1,539 51,539 13,136 13,136 63,136 23 32,626 (*) (*) (*) 413 413 50,413 13,282 13,282 63,282 24 35,045 (*) (*) (*) (*) (*) (*) 13,247 13,247 63,247 25 37,585 (*) (*) (*) (*) (*) (*) 12,991 12,991 62,991 26 40,252 (*) (*) (*) (*) (*) (*) 12,461 12,461 62,461 27 43,052 (*) (*) (*) (*) (*) (*) 11,591 11,591 61,591 28 45,992 (*) (*) (*) (*) (*) (*) 10,302 10,302 60,302 29 49,079 (*) (*) (*) (*) (*) (*) 8,505 8,505 58,505 30 52,321 (*) (*) (*) (*) (*) (*) 6,106 6,106 56,106
1. No policy loans and no partial withdrawals have been made. 2. Guaranteed values reflect guaranteed cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 58 62 DEATH BENEFIT OPTION 1 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 1,260 590 0 50,000 640 0 50,000 690 0 50,000 2 2,583 1,195 502 50,000 1,333 640 50,000 1,479 786 50,000 3 3,972 1,774 1,150 50,000 2,041 1,418 50,000 2,333 1,709 50,000 4 5,431 2,341 1,787 50,000 2,779 2,225 50,000 3,276 2,722 50,000 5 6,962 2,898 2,413 50,000 3,549 3,064 50,000 4,319 3,834 50,000 6 8,570 3,444 3,028 50,000 4,353 3,937 50,000 5,472 5,056 50,000 7 10,259 3,979 3,632 50,000 5,192 4,846 50,000 6,750 6,403 50,000 8 12,032 4,503 4,226 50,000 6,070 5,793 50,000 8,165 7,888 50,000 9 13,893 5,016 4,808 50,000 6,988 6,780 50,000 9,736 9,528 50,000 10 15,848 5,519 5,519 50,000 7,948 7,948 50,000 11,479 11,479 50,000 11 17,901 6,012 6,012 50,000 8,954 8,954 50,000 13,416 13,416 50,000 12 20,056 6,408 6,408 50,000 9,926 9,926 50,000 15,496 15,496 50,000 13 22,318 6,719 6,719 50,000 10,874 10,874 50,000 17,752 17,752 50,000 14 24,694 6,955 6,955 50,000 11,812 11,812 50,000 20,223 20,223 50,000 15 27,189 7,111 7,111 50,000 12,733 12,733 50,000 22,938 22,938 50,000 16 29,808 7,135 7,135 50,000 13,597 13,597 50,000 25,908 25,908 50,000 17 32,559 7,028 7,028 50,000 14,405 14,405 50,000 29,194 29,194 50,000 18 35,447 6,773 6,773 50,000 15,147 15,147 50,000 32,855 32,855 50,000 19 38,479 6,367 6,367 50,000 15,824 15,824 50,000 36,969 36,969 50,000 20 41,663 5,814 5,814 50,000 16,443 16,443 50,000 41,633 41,633 50,000 21 45,006 5,082 5,082 50,000 16,982 16,982 50,000 46,958 46,958 50,000 22 48,517 4,141 4,141 50,000 17,426 17,426 50,000 52,960 52,960 55,607 23 52,202 2,955 2,955 50,000 17,754 17,754 50,000 59,573 59,573 62,551 24 56,073 1,481 1,481 50,000 17,940 17,940 50,000 66,857 66,857 70,200 25 60,136 (*) (*) (*) 17,957 17,957 50,000 74,875 74,875 78,619 26 64,403 (*) (*) (*) 17,779 17,779 50,000 83,698 83,698 87,883 27 68,883 (*) (*) (*) 17,365 17,365 50,000 93,401 93,401 98,071 28 73,587 (*) (*) (*) 16,666 16,666 50,000 104,065 104,065 109,268 29 78,527 (*) (*) (*) 15,614 15,614 50,000 115,777 115,777 121,566 30 83,713 (*) (*) (*) 14,112 14,112 50,000 128,630 128,630 135,062
1. No policy loans and no partial withdrawals have been made. 2. Current values reflect current cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $5 thereafter. Current values reflect a 6% of premium charge on all premiums up to the target premium and 4% on premiums in excess of target for any single policy year. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 59 63 DEATH BENEFIT OPTION 1 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 1,260 468 0 50,000 514 0 50,000 561 0 50,000 2 2,583 910 217 50,000 1,032 339 50,000 1,161 468 50,000 3 3,972 1,294 671 50,000 1,522 898 50,000 1,772 1,148 50,000 4 5,431 1,616 1,061 50,000 1,976 1,422 50,000 2,389 1,835 50,000 5 6,962 1,867 1,382 50,000 2,386 1,901 50,000 3,008 2,523 50,000 6 8,570 2,041 1,625 50,000 2,742 2,326 50,000 3,621 3,205 50,000 7 10,259 2,129 1,783 50,000 3,032 2,686 50,000 4,220 3,874 50,000 8 12,032 2,118 1,841 50,000 3,240 2,963 50,000 4,794 4,517 50,000 9 13,893 1,993 1,785 50,000 3,349 3,141 50,000 5,328 5,120 50,000 10 15,848 1,741 1,741 50,000 3,338 3,338 50,000 5,807 5,807 50,000 11 17,901 1,345 1,345 50,000 3,186 3,186 50,000 6,214 6,214 50,000 12 20,056 789 789 50,000 2,871 2,871 50,000 6,530 6,530 50,000 13 22,318 56 56 50,000 2,365 2,365 50,000 6,735 6,735 50,000 14 24,694 (*) (*) (*) 1,634 1,634 50,000 6,799 6,799 50,000 15 27,189 (*) (*) (*) 633 633 50,000 6,683 6,683 50,000 16 29,808 (*) (*) (*) (*) (*) (*) 6,333 6,333 50,000 17 32,559 (*) (*) (*) (*) (*) (*) 5,675 5,675 50,000 18 35,447 (*) (*) (*) (*) (*) (*) 4,611 4,611 50,000 19 38,479 (*) (*) (*) (*) (*) (*) 3,014 3,014 50,000 20 41,663 (*) (*) (*) (*) (*) (*) 724 724 50,000 21 45,006 (*) (*) (*) (*) (*) (*) (*) (*) (*) 22 48,517 (*) (*) (*) (*) (*) (*) (*) (*) (*) 23 52,202 (*) (*) (*) (*) (*) (*) (*) (*) (*) 24 56,073 (*) (*) (*) (*) (*) (*) (*) (*) (*) 25 60,136 (*) (*) (*) (*) (*) (*) (*) (*) (*) 26 64,403 (*) (*) (*) (*) (*) (*) (*) (*) (*) 27 68,883 (*) (*) (*) (*) (*) (*) (*) (*) (*) 28 73,587 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 78,527 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 83,713 (*) (*) (*) (*) (*) (*) (*) (*) (*)
1. No policy loans and no partial withdrawals have been made. 2. Guaranteed values reflect guaranteed cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 60 64 DEATH BENEFIT OPTION 2 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 1,260 583 0 50,583 632 0 50,632 682 0 50,682 2 2,583 1,174 481 51,174 1,311 618 51,311 1,454 761 51,454 3 3,972 1,734 1,110 51,734 1,996 1,372 51,996 2,281 1,657 52,281 4 5,431 2,277 1,722 52,277 2,702 2,147 52,702 3,184 2,629 53,184 5 6,962 2,803 2,318 52,803 3,430 2,945 53,430 4,171 3,686 54,171 6 8,570 3,313 2,897 53,313 4,182 3,766 54,182 5,251 4,835 55,251 7 10,259 3,806 3,459 53,806 4,958 4,611 54,958 6,433 6,087 56,433 8 12,032 4,282 4,005 54,282 5,758 5,481 55,758 7,728 7,451 57,728 9 13,893 4,743 4,535 54,743 6,585 6,377 56,585 9,147 8,939 59,147 10 15,848 5,187 5,187 55,187 7,439 7,439 57,439 10,703 10,703 60,703 11 17,901 5,615 5,615 55,615 8,320 8,320 58,320 12,409 12,409 62,409 12 20,056 5,928 5,928 55,928 9,128 9,128 59,128 14,176 14,176 64,176 13 22,318 6,138 6,138 56,138 9,872 9,872 59,872 16,021 16,021 66,021 14 24,694 6,259 6,259 56,259 10,558 10,558 60,558 17,965 17,965 67,965 15 27,189 6,282 6,282 56,282 11,176 11,176 61,176 20,008 20,008 70,008 16 29,808 6,149 6,149 56,149 11,661 11,661 61,661 22,098 22,098 72,098 17 32,559 5,865 5,865 55,865 12,010 12,010 62,010 24,240 24,240 74,240 18 35,447 5,415 5,415 55,415 12,198 12,198 62,198 26,425 26,425 76,425 19 38,479 4,802 4,802 54,802 12,219 12,219 62,219 28,663 28,663 78,663 20 41,663 4,038 4,038 54,038 12,076 12,076 62,076 30,968 30,968 80,968 21 45,006 3,097 3,097 53,097 11,732 11,732 61,732 33,320 33,320 83,320 22 48,517 1,960 1,960 51,960 11,157 11,157 61,157 35,698 35,698 85,698 23 52,202 607 607 50,607 10,315 10,315 60,315 38,082 38,082 88,082 24 56,073 (*) (*) (*) 9,169 9,169 59,169 40,445 40,445 90,445 25 60,136 (*) (*) (*) 7,680 7,680 57,680 42,758 42,758 92,758 26 64,403 (*) (*) (*) 5,820 5,820 55,820 45,003 45,003 95,003 27 68,883 (*) (*) (*) 3,549 3,549 53,549 47,149 47,149 97,149 28 73,587 (*) (*) (*) 827 827 50,827 49,161 49,161 99,161 29 78,527 (*) (*) (*) (*) (*) (*) 50,992 50,992 100,992 30 83,713 (*) (*) (*) (*) (*) (*) 52,579 52,579 102,579
1. No policy loans and no partial withdrawals have been made. 2. Current values reflect current cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $5 thereafter. Current values reflect a 6% of premium charge on all premiums up to the target premium and 4% on premiums in excess of target for any single policy year. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 61 65 DEATH BENEFIT OPTION 2 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 1,260 459 0 50,459 505 0 50,505 551 0 50,551 2 2,583 886 193 50,886 1,006 313 51,006 1,132 439 51,132 3 3,972 1,249 626 51,249 1,470 846 51,470 1,712 1,088 51,712 4 5,431 1,542 988 51,542 1,888 1,333 51,888 2,283 1,728 52,283 5 6,962 1,758 1,273 51,758 2,248 1,763 52,248 2,835 2,350 52,835 6 8,570 1,890 1,474 51,890 2,542 2,126 52,542 3,359 2,943 53,359 7 10,259 1,929 1,582 51,929 2,755 2,408 52,755 3,840 3,493 53,840 8 12,032 1,863 1,586 51,863 2,869 2,592 52,869 4,260 3,982 54,260 9 13,893 1,679 1,472 51,679 2,866 2,658 52,866 4,597 4,389 54,597 10 15,848 1,367 1,367 51,367 2,727 2,727 52,727 4,828 4,828 54,828 11 17,901 913 913 50,913 2,431 2,431 52,431 4,929 4,929 54,929 12 20,056 310 310 50,310 1,961 1,961 51,961 4,874 4,874 54,874 13 22,318 (*) (*) (*) 1,295 1,295 51,295 4,633 4,633 54,633 14 24,694 (*) (*) (*) 409 409 50,409 4,170 4,170 54,170 15 27,189 (*) (*) (*) (*) (*) (*) 3,442 3,442 53,442 16 29,808 (*) (*) (*) (*) (*) (*) 2,392 2,392 52,392 17 32,559 (*) (*) (*) (*) (*) (*) 948 948 50,948 18 35,447 (*) (*) (*) (*) (*) (*) (*) (*) (*) 19 38,479 (*) (*) (*) (*) (*) (*) (*) (*) (*) 20 41,663 (*) (*) (*) (*) (*) (*) (*) (*) (*) 21 45,006 (*) (*) (*) (*) (*) (*) (*) (*) (*) 22 48,517 (*) (*) (*) (*) (*) (*) (*) (*) (*) 23 52,202 (*) (*) (*) (*) (*) (*) (*) (*) (*) 24 56,073 (*) (*) (*) (*) (*) (*) (*) (*) (*) 25 60,136 (*) (*) (*) (*) (*) (*) (*) (*) (*) 26 64,403 (*) (*) (*) (*) (*) (*) (*) (*) (*) 27 68,883 (*) (*) (*) (*) (*) (*) (*) (*) (*) 28 73,587 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 78,527 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 83,713 (*) (*) (*) (*) (*) (*) (*) (*) (*)
1. No policy loans and no partial withdrawals have been made. 2. Guaranteed values reflect guaranteed cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 62 66 DEATH BENEFIT OPTION 1 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 1,575 931 34 100,000 1,000 103 100,000 1,069 172 100,000 2 3,229 1,896 998 100,000 2,093 1,196 100,000 2,299 1,402 100,000 3 4,965 2,832 2,024 100,000 3,221 2,414 100,000 3,644 2,836 100,000 4 6,788 3,741 3,023 100,000 4,386 3,668 100,000 5,114 4,396 100,000 5 8,703 4,621 3,993 100,000 5,588 4,960 100,000 6,724 6,096 100,000 6 10,713 5,473 4,935 100,000 6,830 6,291 100,000 8,489 7,950 100,000 7 12,824 6,297 5,848 100,000 8,112 7,663 100,000 10,424 9,975 100,000 8 15,040 7,092 6,733 100,000 9,437 9,078 100,000 12,548 12,189 100,000 9 17,367 7,857 7,588 100,000 10,805 10,536 100,000 14,883 14,614 100,000 10 19,810 8,593 8,593 100,000 12,220 12,220 100,000 17,450 17,450 100,000 11 22,376 9,299 9,299 100,000 13,682 13,682 100,000 20,276 20,276 100,000 12 25,069 9,974 9,974 100,000 15,195 15,195 100,000 23,390 23,390 100,000 13 27,898 10,618 10,618 100,000 16,759 16,759 100,000 26,825 26,825 100,000 14 30,868 11,231 11,231 100,000 18,378 18,378 100,000 30,628 30,628 100,000 15 33,986 11,771 11,771 100,000 20,016 20,016 100,000 34,810 34,810 100,000 16 37,261 12,223 12,223 100,000 21,660 21,660 100,000 39,406 39,406 100,000 17 40,699 12,579 12,579 100,000 23,307 23,307 100,000 44,468 44,468 100,000 18 44,309 12,831 12,831 100,000 24,951 24,951 100,000 50,058 50,058 100,000 19 48,099 12,984 12,984 100,000 26,604 26,604 100,000 56,251 56,251 100,000 20 52,079 13,058 13,058 100,000 28,288 28,288 100,000 63,146 63,146 100,000 21 56,258 13,004 13,004 100,000 29,967 29,967 100,000 70,821 70,821 100,000 22 60,646 12,823 12,823 100,000 31,645 31,645 100,000 79,394 79,394 100,000 23 65,253 12,498 12,498 100,000 33,315 33,315 100,000 88,984 88,984 105,001 24 70,091 12,013 12,013 100,000 34,971 34,971 100,000 99,575 99,575 116,503 25 75,170 11,349 11,349 100,000 36,605 36,605 100,000 111,244 111,244 129,044 26 80,504 10,485 10,485 100,000 38,212 38,212 100,000 124,100 124,100 142,715 27 86,104 9,401 9,401 100,000 39,784 39,784 100,000 138,299 138,299 156,278 28 91,984 8,070 8,070 100,000 41,316 41,316 100,000 153,996 153,996 170,936 29 98,158 6,459 6,459 100,000 42,797 42,797 100,000 171,366 171,366 186,789 30 104,641 4,525 4,525 100,000 44,213 44,213 100,000 190,612 190,612 203,955
1. No policy loans and no partial withdrawals have been made. 2. Current values reflect current cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $5 thereafter. Current values reflect a 6% of premium charge on all premiums up to the target premium and 4% on premiums in excess of target for any single policy year. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 63 67 DEATH BENEFIT OPTION 1 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 1,575 931 34 100,000 1,000 102 100,000 1,069 171 100,000 2 3,229 1,854 956 100,000 2,050 1,153 100,000 2,255 1,357 100,000 3 4,965 2,738 1,930 100,000 3,121 2,313 100,000 3,538 2,730 100,000 4 6,788 3,580 2,862 100,000 4,212 3,494 100,000 4,926 4,208 100,000 5 8,703 4,379 3,751 100,000 5,320 4,692 100,000 6,428 5,800 100,000 6 10,713 5,132 4,593 100,000 6,444 5,906 100,000 8,054 7,515 100,000 7 12,824 5,833 5,384 100,000 7,579 7,130 100,000 9,812 9,363 100,000 8 15,040 6,477 6,118 100,000 8,720 8,361 100,000 11,711 11,352 100,000 9 17,367 7,058 6,789 100,000 9,861 9,592 100,000 13,763 13,493 100,000 10 19,810 7,571 7,571 100,000 10,997 10,997 100,000 15,979 15,979 100,000 11 22,376 8,009 8,009 100,000 12,123 12,123 100,000 18,376 18,376 100,000 12 25,069 8,368 8,368 100,000 13,233 13,233 100,000 20,971 20,971 100,000 13 27,898 8,643 8,643 100,000 14,323 14,323 100,000 23,788 23,788 100,000 14 30,868 8,827 8,827 100,000 15,387 15,387 100,000 26,851 26,851 100,000 15 33,986 8,908 8,908 100,000 16,413 16,413 100,000 30,193 30,193 100,000 16 37,261 8,877 8,877 100,000 17,392 17,392 100,000 33,848 33,848 100,000 17 40,699 8,719 8,719 100,000 18,310 18,310 100,000 37,852 37,852 100,000 18 44,309 8,416 8,416 100,000 19,149 19,149 100,000 42,247 42,247 100,000 19 48,099 7,945 7,945 100,000 19,889 19,889 100,000 47,085 47,085 100,000 20 52,079 7,286 7,286 100,000 20,510 20,510 100,000 52,429 52,429 100,000 21 56,258 6,417 6,417 100,000 20,991 20,991 100,000 58,359 58,359 100,000 22 60,646 5,315 5,315 100,000 21,308 21,308 100,000 64,972 64,972 100,000 23 65,253 3,955 3,955 100,000 21,437 21,437 100,000 72,388 72,388 100,000 24 70,091 2,304 2,304 100,000 21,348 21,348 100,000 80,754 80,754 100,000 25 75,170 317 317 100,000 20,996 20,996 100,000 90,218 90,218 104,653 26 80,504 (*) (*) (*) 20,324 20,324 100,000 100,668 100,668 115,769 27 86,104 (*) (*) (*) 19,257 19,257 100,000 112,193 112,193 126,778 28 91,984 (*) (*) (*) 17,696 17,696 100,000 124,916 124,916 138,657 29 98,158 (*) (*) (*) 15,524 15,524 100,000 138,987 138,987 151,495 30 104,641 (*) (*) (*) 12,605 12,605 100,000 154,580 154,580 165,401
1. No policy loans and no partial withdrawals have been made. 2. Guaranteed values reflect guaranteed cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 64 68 DEATH BENEFIT OPTION 2 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 1,575 927 30 100,927 996 98 100,996 1,065 167 101,065 2 3,229 1,884 987 101,884 2,080 1,183 102,080 2,285 1,388 102,285 3 4,965 2,809 2,001 102,809 3,195 2,387 103,195 3,613 2,806 103,613 4 6,788 3,702 2,984 103,702 4,340 3,622 104,340 5,059 4,341 105,059 5 8,703 4,563 3,935 104,563 5,516 4,887 105,516 6,635 6,006 106,635 6 10,713 5,391 4,853 105,391 6,723 6,185 106,723 8,352 7,813 108,352 7 12,824 6,186 5,737 106,186 7,962 7,514 107,962 10,224 9,775 110,224 8 15,040 6,947 6,588 106,947 9,234 8,875 109,234 12,266 11,907 112,266 9 17,367 7,673 7,404 107,673 10,538 10,268 110,538 14,495 14,226 114,495 10 19,810 8,365 8,365 108,365 11,874 11,874 111,874 16,929 16,929 116,929 11 22,376 9,021 9,021 109,021 13,244 13,244 113,244 19,587 19,587 119,587 12 25,069 9,641 9,641 109,641 14,647 14,647 114,647 22,492 22,492 122,492 13 27,898 10,224 10,224 110,224 16,083 16,083 116,083 25,667 25,667 125,667 14 30,868 10,768 10,768 110,768 17,553 17,553 117,553 29,150 29,150 129,150 15 33,986 11,229 11,229 111,229 19,009 19,009 119,009 32,922 32,922 132,922 16 37,261 11,585 11,585 111,585 20,429 20,429 120,429 36,994 36,994 136,994 17 40,699 11,831 11,831 111,831 21,804 21,804 121,804 41,387 41,387 141,387 18 44,309 11,956 11,956 111,956 23,118 23,118 123,118 46,125 46,125 146,125 19 48,099 11,967 11,967 111,967 24,374 24,374 124,374 51,248 51,248 151,248 20 52,079 11,885 11,885 111,885 25,593 25,593 125,593 56,820 56,820 156,820 21 56,258 11,659 11,659 111,659 26,720 26,720 126,720 62,831 62,831 162,831 22 60,646 11,289 11,289 111,289 27,747 27,747 127,747 69,326 69,326 169,326 23 65,253 10,760 10,760 110,760 28,653 28,653 128,653 76,339 76,339 176,339 24 70,091 10,057 10,057 110,057 29,414 29,414 129,414 83,907 83,907 183,907 25 75,170 9,163 9,163 109,163 30,003 30,003 130,003 92,068 92,068 192,068 26 80,504 8,064 8,064 108,064 30,394 30,394 130,394 100,866 100,866 200,866 27 86,104 6,744 6,744 106,744 30,559 30,559 130,559 110,351 110,351 210,351 28 91,984 5,186 5,186 105,186 30,465 30,465 130,465 120,574 120,574 220,574 29 98,158 3,370 3,370 103,370 30,076 30,076 130,076 131,587 131,587 231,587 30 104,641 1,267 1,267 101,267 29,345 29,345 129,345 143,442 143,442 243,442
1. No policy loans and no partial withdrawals have been made. 2. Current values reflect current cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $5 thereafter. Current values reflect a 6% of premium charge on all premiums up to the target premium and 4% on premiums in excess of target for any single policy year. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 65 69 DEATH BENEFIT OPTION 2 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 1,575 927 29 100,927 995 98 100,995 1,064 167 101,064 2 3,229 1,842 945 101,842 2,037 1,140 102,037 2,241 1,343 102,241 3 4,965 2,714 1,906 102,714 3,094 2,286 103,094 3,507 2,699 103,507 4 6,788 3,540 2,822 103,540 4,164 3,446 104,164 4,869 4,151 104,869 5 8,703 4,318 3,689 104,318 5,244 4,615 105,244 6,334 5,705 106,334 6 10,713 5,043 4,504 105,043 6,329 5,791 106,329 7,906 7,368 107,906 7 12,824 5,711 5,262 105,711 7,415 6,966 107,415 9,592 9,143 109,592 8 15,040 6,315 5,956 106,315 8,492 8,133 108,492 11,394 11,035 111,394 9 17,367 6,848 6,578 106,848 9,554 9,285 109,554 13,317 13,048 113,317 10 19,810 7,304 7,304 107,304 10,592 10,592 110,592 15,365 15,365 115,365 11 22,376 7,676 7,676 107,676 11,596 11,596 111,596 17,544 17,544 117,544 12 25,069 7,959 7,959 107,959 12,557 12,557 112,557 19,858 19,858 119,858 13 27,898 8,149 8,149 108,149 13,470 13,470 113,470 22,316 22,316 122,316 14 30,868 8,237 8,237 108,237 14,320 14,320 114,320 24,924 24,924 124,924 15 33,986 8,212 8,212 108,212 15,093 15,093 115,093 27,688 27,688 127,688 16 37,261 8,063 8,063 108,063 15,772 15,772 115,772 30,615 30,615 130,615 17 40,699 7,777 7,777 107,777 16,337 16,337 116,337 33,706 33,706 133,706 18 44,309 7,335 7,335 107,335 16,763 16,763 116,763 36,957 36,957 136,957 19 48,099 6,719 6,719 106,719 17,020 17,020 117,020 40,361 40,361 140,361 20 52,079 5,910 5,910 105,910 17,080 17,080 117,080 43,913 43,913 143,913 21 56,258 4,891 4,891 104,891 16,913 16,913 116,913 47,608 47,608 147,608 22 60,646 3,647 3,647 103,647 16,492 16,492 116,492 51,441 51,441 151,441 23 65,253 2,163 2,163 102,163 15,785 15,785 115,785 55,408 55,408 155,408 24 70,091 419 419 100,419 14,756 14,756 114,756 59,499 59,499 159,499 25 75,170 (*) (*) (*) 13,359 13,359 113,359 63,693 63,693 163,693 26 80,504 (*) (*) (*) 11,535 11,535 111,535 67,956 67,956 167,956 27 86,104 (*) (*) (*) 9,210 9,210 109,210 72,242 72,242 172,242 28 91,984 (*) (*) (*) 6,296 6,296 106,296 76,483 76,483 176,483 29 98,158 (*) (*) (*) 2,700 2,700 102,700 80,607 80,607 180,607 30 104,641 (*) (*) (*) (*) (*) (*) 84,540 84,540 184,540
1. No policy loans and no partial withdrawals have been made. 2. Guaranteed values reflect guaranteed cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 66 70 DEATH BENEFIT OPTION 1 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 2,625 1,404 242 100,000 1,514 352 100,000 1,625 462 100,000 2 5,381 2,840 1,677 100,000 3,151 1,988 100,000 3,476 2,314 100,000 3 8,275 4,247 3,201 100,000 4,855 3,809 100,000 5,516 4,470 100,000 4 11,314 5,627 4,697 100,000 6,631 5,701 100,000 7,767 6,837 100,000 5 14,505 6,979 6,165 100,000 8,482 7,668 100,000 10,252 9,438 100,000 6 17,855 8,303 7,606 100,000 10,412 9,715 100,000 12,999 12,302 100,000 7 21,373 9,601 9,020 100,000 12,428 11,846 100,000 16,039 15,457 100,000 8 25,066 10,871 10,406 100,000 14,532 14,067 100,000 19,405 18,940 100,000 9 28,945 12,115 11,767 100,000 16,732 16,383 100,000 23,136 22,788 100,000 10 33,017 13,333 13,333 100,000 19,032 19,032 100,000 27,280 27,280 100,000 11 37,293 14,524 14,524 100,000 21,439 21,439 100,000 31,894 31,894 100,000 12 41,782 15,536 15,536 100,000 23,815 23,815 100,000 36,910 36,910 100,000 13 46,497 16,390 16,390 100,000 26,187 26,187 100,000 42,412 42,412 100,000 14 51,446 17,104 17,104 100,000 28,583 28,583 100,000 48,491 48,491 100,000 15 56,644 17,666 17,666 100,000 30,998 30,998 100,000 55,232 55,232 100,000 16 62,101 17,981 17,981 100,000 33,362 33,362 100,000 62,696 62,696 100,000 17 67,831 18,049 18,049 100,000 35,685 35,685 100,000 71,023 71,023 100,000 18 73,848 17,841 17,841 100,000 37,957 37,957 100,000 80,376 80,376 100,000 19 80,165 17,351 17,351 100,000 40,191 40,191 100,000 90,964 90,964 100,000 20 86,798 16,585 16,585 100,000 42,408 42,408 100,000 102,881 102,881 110,083 21 93,763 15,487 15,487 100,000 44,591 44,591 100,000 116,096 116,096 121,901 22 101,076 14,004 14,004 100,000 46,730 46,730 100,000 130,665 130,665 137,198 23 108,755 12,069 12,069 100,000 48,814 48,814 100,000 146,720 146,720 154,056 24 116,818 9,602 9,602 100,000 50,830 50,830 100,000 164,403 164,403 172,623 25 125,284 6,511 6,511 100,000 52,768 52,768 100,000 183,868 183,868 193,061 26 134,173 2,713 2,713 100,000 54,636 54,636 100,000 205,286 205,286 215,551 27 143,506 (*) (*) (*) 56,426 56,426 100,000 228,841 228,841 240,283 28 153,307 (*) (*) (*) 58,135 58,135 100,000 254,729 254,729 267,466 29 163,597 (*) (*) (*) 59,748 59,748 100,000 283,201 283,201 297,362 30 174,402 (*) (*) (*) 61,244 61,244 100,000 314,509 314,509 330,234
1. No policy loans and no partial withdrawals have been made. 2. Current values reflect current cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $5 thereafter. Current values reflect a 6% of premium charge on all premiums up to the target premium and 4% on premiums in excess of target for any single policy year. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 67 71 DEATH BENEFIT OPTION 1 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 2,625 1,393 230 100,000 1,502 340 100,000 1,613 450 100,000 2 5,381 2,724 1,562 100,000 3,031 1,869 100,000 3,352 2,190 100,000 3 8,275 3,963 2,917 100,000 4,555 3,508 100,000 5,199 4,153 100,000 4 11,314 5,101 4,171 100,000 6,065 5,135 100,000 7,160 6,230 100,000 5 14,505 6,131 5,317 100,000 7,554 6,740 100,000 9,239 8,425 100,000 6 17,855 7,043 6,345 100,000 9,011 8,313 100,000 11,443 10,745 100,000 7 21,373 7,825 7,244 100,000 10,424 9,843 100,000 13,779 13,198 100,000 8 25,066 8,461 7,996 100,000 11,776 11,311 100,000 16,252 15,787 100,000 9 28,945 8,934 8,585 100,000 13,048 12,699 100,000 18,867 18,518 100,000 10 33,017 9,225 9,225 100,000 14,221 14,221 100,000 21,635 21,635 100,000 11 37,293 9,318 9,318 100,000 15,278 15,278 100,000 24,571 24,571 100,000 12 41,782 9,194 9,194 100,000 16,198 16,198 100,000 27,704 27,704 100,000 13 46,497 8,835 8,835 100,000 16,962 16,962 100,000 31,065 31,065 100,000 14 51,446 8,214 8,214 100,000 17,542 17,542 100,000 34,688 34,688 100,000 15 56,644 7,295 7,295 100,000 17,901 17,901 100,000 38,610 38,610 100,000 16 62,101 6,028 6,028 100,000 17,989 17,989 100,000 42,875 42,875 100,000 17 67,831 4,346 4,346 100,000 17,739 17,739 100,000 47,535 47,535 100,000 18 73,848 2,162 2,162 100,000 17,065 17,065 100,000 52,659 52,659 100,000 19 80,165 (*) (*) (*) 15,863 15,863 100,000 58,342 58,342 100,000 20 86,798 (*) (*) (*) 14,020 14,020 100,000 64,718 64,718 100,000 21 93,763 (*) (*) (*) 11,403 11,403 100,000 71,975 71,975 100,000 22 101,076 (*) (*) (*) 7,853 7,853 100,000 80,362 80,362 100,000 23 108,755 (*) (*) (*) 3,173 3,173 100,000 90,209 90,209 100,000 24 116,818 (*) (*) (*) (*) (*) (*) 101,771 101,771 106,860 25 125,284 (*) (*) (*) (*) (*) (*) 114,520 114,520 120,246 26 134,173 (*) (*) (*) (*) (*) (*) 128,503 128,503 134,928 27 143,506 (*) (*) (*) (*) (*) (*) 143,825 143,825 151,016 28 153,307 (*) (*) (*) (*) (*) (*) 160,592 160,592 168,621 29 163,597 (*) (*) (*) (*) (*) (*) 178,913 178,913 187,859 30 174,402 (*) (*) (*) (*) (*) (*) 198,906 198,906 208,851
1. No policy loans and no partial withdrawals have been made. 2. Guaranteed values reflect guaranteed cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 68 72 DEATH BENEFIT OPTION 2 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 2,625 1,389 226 101,389 1,498 335 101,498 1,607 445 101,607 2 5,381 2,797 1,635 102,797 3,104 1,941 103,104 3,424 2,262 103,424 3 8,275 4,165 3,119 104,165 4,760 3,714 104,760 5,408 4,361 105,408 4 11,314 5,493 4,563 105,493 6,470 5,540 106,470 7,575 6,645 107,575 5 14,505 6,780 5,966 106,780 8,233 7,420 108,233 9,944 9,131 109,944 6 17,855 8,027 7,330 108,027 10,054 9,356 110,054 12,537 11,839 112,537 7 21,373 9,234 8,653 109,234 11,932 11,351 111,932 15,374 14,792 115,374 8 25,066 10,401 9,936 110,401 13,871 13,406 113,871 18,481 18,016 118,481 9 28,945 11,529 11,180 111,529 15,872 15,523 115,872 21,885 21,536 121,885 10 33,017 12,616 12,616 112,616 17,938 17,938 117,938 25,617 25,617 125,617 11 37,293 13,664 13,664 113,664 20,071 20,071 120,071 29,721 29,721 129,721 12 41,782 14,489 14,489 114,489 22,086 22,086 122,086 34,042 34,042 134,042 13 46,497 15,114 15,114 115,114 23,996 23,996 123,996 38,625 38,625 138,625 14 51,446 15,563 15,563 115,563 25,820 25,820 125,820 43,518 43,518 143,518 15 56,644 15,818 15,818 115,818 27,539 27,539 127,539 48,735 48,735 148,735 16 62,101 15,765 15,765 115,765 29,024 29,024 129,024 54,184 54,184 154,184 17 67,831 15,409 15,409 115,409 30,265 30,265 130,265 59,889 59,889 159,889 18 73,848 14,717 14,717 114,717 31,213 31,213 131,213 65,842 65,842 165,842 19 80,165 13,696 13,696 113,696 31,855 31,855 131,855 72,067 72,067 172,067 20 86,798 12,367 12,367 112,367 32,193 32,193 132,193 78,612 78,612 178,612 21 93,763 10,680 10,680 110,680 32,156 32,156 132,156 85,453 85,453 185,453 22 101,076 8,596 8,596 108,596 31,683 31,683 131,683 92,575 92,575 192,575 23 108,755 6,071 6,071 106,071 30,699 30,699 130,699 99,955 99,955 199,955 24 116,818 3,063 3,063 103,063 29,130 29,130 129,130 107,566 107,566 207,566 25 125,284 (*) (*) (*) 26,892 26,892 126,892 115,376 115,376 215,376 26 134,173 (*) (*) (*) 23,937 23,937 123,937 123,390 123,390 223,390 27 143,506 (*) (*) (*) 20,187 20,187 120,187 131,580 131,580 231,580 28 153,307 (*) (*) (*) 15,564 15,564 115,564 139,914 139,914 239,914 29 163,597 (*) (*) (*) 9,963 9,963 109,963 148,339 148,339 248,339 30 174,402 (*) (*) (*) 3,258 3,258 103,258 156,779 156,779 256,779
1. No policy loans and no partial withdrawals have been made. 2. Current values reflect current cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $5 thereafter. Current values reflect a 6% of premium charge on all premiums up to the target premium and 4% on premiums in excess of target for any single policy year. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 69 73 DEATH BENEFIT OPTION 2 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS INVESTMENT 12% HYPOTHETICAL GROSS INVESTMENT RETURN RETURN 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 1 2,625 1,377 215 101,377 1,486 323 101,486 1,595 433 101,595 2 5,381 2,680 1,517 102,680 2,982 1,819 102,982 3,298 2,135 103,298 3 8,275 3,874 2,827 103,874 4,452 3,405 104,452 5,081 4,035 105,081 4 11,314 4,951 4,021 104,951 5,884 4,954 105,884 6,944 6,014 106,944 5 14,505 5,901 5,087 105,901 7,265 6,452 107,265 8,880 8,067 108,880 6 17,855 6,712 6,014 106,712 8,579 7,882 108,579 10,885 10,187 110,885 7 21,373 7,372 6,791 107,372 9,808 9,227 109,808 12,949 12,368 112,949 8 25,066 7,863 7,398 107,863 10,926 10,461 110,926 15,056 14,591 115,056 9 28,945 8,165 7,816 108,165 11,906 11,557 111,906 17,188 16,839 117,188 10 33,017 8,260 8,260 108,260 12,721 12,721 112,721 19,326 19,326 119,326 11 37,293 8,132 8,132 108,132 13,344 13,344 113,344 21,449 21,449 121,449 12 41,782 7,766 7,766 107,766 13,745 13,745 113,745 23,535 23,535 123,535 13 46,497 7,147 7,147 107,147 13,899 13,899 113,899 25,565 25,565 125,565 14 51,446 6,256 6,256 106,256 13,768 13,768 113,768 27,512 27,512 127,512 15 56,644 5,065 5,065 105,065 13,309 13,309 113,309 29,334 29,334 129,334 16 62,101 3,538 3,538 103,538 12,464 12,464 112,464 30,972 30,972 130,972 17 67,831 1,626 1,626 101,626 11,162 11,162 111,162 32,352 32,352 132,352 18 73,848 (*) (*) (*) 9,316 9,316 109,316 33,377 33,377 133,377 19 80,165 (*) (*) (*) 6,835 6,835 106,835 33,942 33,942 133,942 20 86,798 (*) (*) (*) 3,634 3,634 103,634 33,937 33,937 133,937 21 93,763 (*) (*) (*) (*) (*) (*) 33,254 33,254 133,254 22 101,076 (*) (*) (*) (*) (*) (*) 31,778 31,778 131,778 23 108,755 (*) (*) (*) (*) (*) (*) 29,388 29,388 129,388 24 116,818 (*) (*) (*) (*) (*) (*) 25,943 25,943 125,943 25 125,284 (*) (*) (*) (*) (*) (*) 21,264 21,264 121,264 26 134,173 (*) (*) (*) (*) (*) (*) 15,133 15,133 115,133 27 143,506 (*) (*) (*) (*) (*) (*) 7,275 7,275 107,275 28 153,307 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 163,597 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 174,402 (*) (*) (*) (*) (*) (*) (*) (*) (*)
1. No policy loans and no partial withdrawals have been made. 2. Guaranteed values reflect guaranteed cost of insurance charges and a monthly $10 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. 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 lapse without value. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by Nationwide or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time 70 74
Performance Tables - Cash Values --------------------------------------------------------------- 1 Year to 2 Years to 3 Years to 12/31/98 12/31/98 12/31/98 -------------- ---------------- ---------------- Underlying Fund Cash Cash Cash Investment Inception Accum Surr. Accum Surr. Accum Surr. Options Date** Value Value Value Value Value Value - -------------------------------------------------------------------------------- American 10/30/97 $9,857 $5,026 $0 $0 $0 $0 Century VP Inc & Growth American 05/01/94 $9,281 $4,450 $20,262 $15,431 $32,623 $28,275 Century VP International American 05/01/96 $8,016 $3,185 $18,304 $13,473 $0 $0 Century VP Value Dreyfus 10/06/93 $10,044 $5,213 $23,045 $18,213 $38,630 $34,282 Socially Responsible Growth Fund Dreyfus Stock 09/29/89 $9,967 $5,136 $23,350 $18,519 $39,495 $35,147 Index Fund Dreyfus 04/05/93 $10,167 $5,336 $23,242 $18,411 $39,467 $35,119 Variable Investment Fund Capital Appreciation Fund NSAT Small Cap 10/31/97 $7,291 $2,460 $0 $0 $0 $0 Value NSAT Equity 10/31/97 $8,839 $4,008 $0 $0 $0 $0 Income NSAT High 10/31/97 $8,114 $3,283 $0 $0 $0 $0 Income Bond Fidelity VIP 01/03/95 $10,072 $5,241 $22,608 $17,776 $37,679 $33,331 Fund II - Contrafund Portfolio Fidelity VIP 10/09/86 $8,570 $3,739 $19,724 $14,893 $32,247 $27,899 Fund - Equity Income Portfolio Fidelity VIP 01/03/95 $9,621 $4,790 $22,258 $17,427 $36,944 $32,596 Fund III - Growth Opportunity Portfolio Fidelity VIP 10/09/86 $10,879 $6,047 $24,275 $19,444 $39,500 $35,152 Fund - Growth Portfolio Fidelity VIP 09/19/85 $7,267 $2,435 $15,960 $11,129 $25,809 $21,461 Fund - High Income Port Fidelity VIP 01/28/87 $8,715 $3,884 $18,462 $13,631 $29,372 $25,024 Fund - Overseas Portfolio JP Morgan/NSAT 10/31/97 $9,224 $4,393 $0 $0 $0 $0 Global Equity Fund Van Kampen 07/03/95 $6,595 $1,764 $14,884 $10,053 $26,531 $22,183 American Capital Life Real Estate Securities Fund Morgan Stanley 06/16/97 $5,236 $405 $0 $0 $0 $0 Emerging Markets Debt Portfolio NSAT Capital 04/15/92 $10,127 $5,296 $23,846 $19,015 $40,938 $36,590 Appreciation Fund NSAT 11/08/82 $8,365 $3,534 $17,525 $12,694 $26,870 $22,522 Government Bond Fund NSAT Money 11/10/81 $8,055 $3,224 $16,539 $11,708 $25,403 $21,055 Market Fund NSAT Small 10/23/95 $7,649 $2,818 $16,814 $11,983 $28,121 $23,773 Company Fund NSAT Total 11/08/82 $9,128 $4,297 $21,096 $16,265 $35,463 $31,115 Return Fund Neuberger & 11/03/97 $10,400 $5,569 $0 $0 $0 $0 Berman Advisors Management Trust Guardian Neuberger & 11/03/97 $10,859 $6,028 $0 $0 $0 $0 Berman Advisors Management Trust Mid Cap Growth Portfolios Neuberger & 03/22/94 $7,948 $3,117 $18,662 $13,831 $32,421 $28,073 Berman Advisers Management Trust - Partners Port Oppenheimer 08/15/86 $8,580 $3,749 $18,211 $13,380 $29,946 $25,598 Variable Account Fund - Aggressive Growth Oppenheimer 04/03/85 $9,582 $4,751 $21,866 $17,035 $37,127 $32,779 Variable Account Fund - Growth Fund Oppenheimer 07/05/95 $8,003 $3,172 $18,848 $14,017 $33,196 $28,848 Variable Account Fund - Income and Growth Fund Salomon 10/31/97 $8,301 $3,470 $0 $0 $0 $0 Brothers/NSAT Balanced Fund Salomon 10/31/97 $7,829 $2,998 $0 $0 $0 $0 Brothers/NSAT Multi Sector Bond Strong/NSAT 10/31/97 $8,745 $3,914 $0 $0 $0 $0 Strategic Growth Fund Strong/NSAT 10/37/97 $7,563 $2,731 $0 $0 $0 $0 Strategic Value Fund United Asset 10/31/97 $8,468 $3,637 $0 $0 $0 $0 Management / NSAT Select Advisors Mid- Cap Fund Van Eck 12/27/95 $4,654 $0 $9,186 $4,355 $14,923 $10,575 Worldwide Insurance Trust - - Worldwide Emerging Markets Fund Van Eck 09/01/89 $5,000 $169 $10,189 $5,358 $16,402 $12,054 Worldwide Insurance Trust - - Worldwide Hard Assets Fund Warburg Pincus 10/31/97 $8,633 $3,802 $0 $0 $0 $0 Trust - Growth and Income Portfolio Warburg Pincus 06/30/95 $8,128 $3,297 $16,069 $11,238 $24,755 $20,407 Trust - International Equity Portfolio Warburg Pincus 09/30/96 $8,110 $3,279 $17,378 $12,547 $0 $0 Trust - Post Venture Capital Portfolio Performance Tables - Cash Values ---------------------------------------------------------- 5 Years to 10 Years to Inception to 12/31/98 12/31/98 12/31/98 ---------------- ------------------ ------------------- Underlying Cash Cash Cash Investment Accum Surr. Accum Surr. Accum Surr. Options Value Value Value Value Value Value - ----------------------------------------------------------------------------- American $0 $0 $0 $0 $21,669 $16,838 Century VP Inc & Growth American $0 $0 $0 $0 $56,516 $53,135 Century VP International American $0 $0 $0 $0 $29,285 $24,937 Century VP Value Dreyfus $80,667 $77,285 $0 $0 $94,334 $91,435 Socially Responsible Growth Fund Dreyfus Stock $83,681 $80,299 $0 $0 $219,901 $219,901 Index Fund Dreyfus $83,084 $79,702 $0 $0 $103,790 $100,891 Variable Investment Fund Capital Appreciation Fund NSAT Small Cap $0 $0 $0 $0 $17,599 $12,768 Value NSAT Equity $0 $0 $0 $0 $18,901 $14,070 Income NSAT High $0 $0 $0 $0 $18,009 $13,178 Income Bond Fidelity VIP $0 $0 $0 $0 $59,163 $55,298 Fund II - Contrafund Portfolio Fidelity VIP $67,473 $64,091 $207,063 $207,063 $293,903 $293,903 Fund - Equity Income Portfolio Fidelity VIP $0 $0 $0 $0 $56,707 $52,842 Fund III - Growth Opportunity Portfolio Fidelity VIP $80,552 $77,171 $250,037 $250,037 $380,066 $380,066 Fund - Growth Portfolio Fidelity VIP $49,230 $45,849 $148,654 $148,654 $239,973 $239,973 Fund - High Income Port Fidelity VIP $53,321 $49,939 $136,137 $136,137 $176,490 $176,490 Fund - Overseas Portfolio JP Morgan/NSAT $0 $0 $0 $0 $19,356 $14,525 Global Equity Fund Van Kampen $0 $0 $0 $0 $39,170 $35,305 American Capital Life Real Estate Securities Fund Morgan Stanley $0 $0 $0 $0 $11,672 $6,841 Emerging Markets Debt Portfolio NSAT Capital $84,377 $80,996 $0 $0 $130,210 $127,794 Appreciation Fund NSAT $48,797 $45,415 $122,827 $122,827 $288,313 $288,313 Government Bond Fund NSAT Money $44,401 $41,020 $99,732 $99,732 $232,417 $232,417 Market Fund NSAT Small $0 $0 $0 $0 $40,219 $36,354 Company Fund NSAT Total $72,621 $69,239 $206,360 $206,360 $577,882 $577,882 Return Fund Neuberger & $0 $0 $0 $0 $21,211 $16,380 Berman Advisors Management Trust Guardian Neuberger & $0 $0 $0 $0 $24,697 $19,866 Berman Advisors Management Trust Mid Cap Growth Portfolios Neuberger & $0 $0 $0 $0 $66,568 $63,186 Berman Advisers Management Trust - Partners Port Oppenheimer $59,136 $55,754 $191,017 $191,017 $288,924 $288,924 Variable Account Fund - Aggressive Growth Oppenheimer $78,720 $75,339 $223,226 $223,226 $400,616 $400,616 Variable Account Fund - Growth Fund Oppenheimer $0 $0 $0 $0 $47,447 $43,582 Variable Account Fund - Income and Growth Fund Salomon $0 $0 $0 $0 $17,895 $13,064 Brothers/NSAT Balanced Fund Salomon $0 $0 $0 $0 $17,249 $12,418 Brothers/NSAT Multi Sector Bond Strong/NSAT $0 $0 $0 $0 $20,111 $15,280 Strategic Growth Fund Strong/NSAT $0 $0 $0 $0 $18,152 $13,321 Strategic Value Fund United Asset $0 $0 $0 $0 $18,717 $13,886 Management / NSAT Select Advisors Mid- Cap Fund Van Eck $0 $0 $0 $0 $24,293 $20,428 Worldwide Insurance Trust - - Worldwide Emerging Markets Fund Van Eck $29,498 $26,116 $0 $0 $76,631 $76,631 Worldwide Insurance Trust - - Worldwide Hard Assets Fund Warburg Pincus $0 $0 $0 $0 $18,935 $14,104 Trust - Growth and Income Portfolio Warburg Pincus $0 $0 $0 $0 $31,718 $27,853 Trust - International Equity Portfolio Warburg Pincus $0 $0 $0 $0 $27,704 $23,356 Trust - Post Venture Capital Portfolio
75
Performance Tables - Total Return ===================================================================================================== Annual Percentage Change Non annualized Percentage Change ============================================================================================================================= Underlying Fund Unit 1 mo 1 Yr 2 Yrs 3 Yrs. 5 yrs. Investment Inception Values 1996 1997 1998 To to to to to Options Date** 12/31/97 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 ============================================================================================================================= American Century VP 10/30/97 12.69 NA NA NA 5.98 26.86 NA NA NA Inc & Growth American Century VP 05/01/94 11.88 12.21 14.41 18.63 5.39 18.76 40.89 61.19 NA International American Century VP 05/01/96 10.48 NA NA 26.08 -0.44 4.81 32.15 NA NA Value Dreyfus Socially 10/06/93 12.94 34.56 21.23 28.43 7.91 29.38 66.17 101.45 175.12 Responsible Growth Fund Dreyfus Stock Index 09/29/89 12.82 36.78 22.54 32.96 5.78 28.21 70.47 108.88 188.22 Fund Dreyfus Variable 04/05/93 13.02 33.52 25.56 28.05 4.36 30.22 66.74 109.35 188.03 Investment Fund Capital Appreciation Fund NSAT Small Cap Value 10/31/97 9.69 NA NA NA 4.63 -3.06 NA NA NA NSAT Equity Income 10/31/97 11.51 NA NA NA 3.46 15.13 NA NA NA NSAT High Income Bond 10/31/97 10.58 NA NA NA -0.55 5.8 NA NA NA Fidelity VIP Fund II - 01/03/95 12.99 NA 21.31 24.08 12.12 29.94 61.23 95.58 NA Contrafund Portfolio Fidelity VIP Fund - 10/09/86 11.15 35.09 14.28 28.05 3.13 11.54 42.83 63.24 136.1 Equity Income Portfolio Fidelity VIP Fund III 01/03/95 12.45 NA 18.27 29.95 5.35 24.51 61.79 91.36 NA - - Growth Opportunity Portfolio Fidelity VIP Fund - 10/09/86 13.94 35.36 14.71 23.45 8.52 39.38 72.06 97.36 167.1 Growth Portfolio Fidelity VIP Fund - 09/19/85 9.56 20.6 14.03 17.58 -0.6 -4.42 12.38 28.15 52.16 High Income Port Fidelity VIP Fund - 01/28/87 11.26 9.68 13.22 11.56 2.19 12.64 25.65 42.26 58.72 Overseas Portfolio JP Morgan/NSAT Global 10/31/97 11.91 NA NA NA 4.35 19.14 NA NA NA Equity Fund Van Kampen American 07/03/95 8.84 NA 40.53 21.47 1.1 -11.62 7.36 50.87 NA Capital Life Real Estate Securities Fund Morgan Stanley 06/16/97 7.16 NA NA NA -2.33 -28.38 NA NA NA Emerging Markets Debt Portfolio NSAT Capital 04/15/92 13 29.35 26.14 34.49 5.23 29.96 74.79 120.48 182.64 Appreciation Fund NSAT Government Bond 11/08/82 10.89 18.74 3.49 9.67 0.3 8.91 19.44 23.6 42.03 Fund NSAT Money Market Fund 11/10/81 10.53 5.67 5.13 5.27 0.41 5.27 10.82 16.5 27.89 NSAT Small Company Fund 10/23/95 10.1 NA 22.83 17.35 8.03 1.01 18.53 45.59 NA NSAT Total Return Fund 11/08/82 11.81 29.09 21.84 29.43 3.46 18.07 52.82 86.2 142.95 Neuberger & Berman 11/03/97 13.17 NA NA NA 4.77 31.67 NA NA NA Advisors Management Trust Guardian Neuberger & Berman 11/03/97 13.93 NA NA NA 13.67 39.28 NA NA NA Advisors Management Trust Mid Cap Growth Portfolios Neuberger & Berman 03/22/94 10.42 36.47 29.57 31.25 2.38 4.21 36.77 77.22 NA Advisers Management Trust - Partners Port Oppenheimer Variable 08/15/86 11.24 32.52 20.22 11.67 13.98 12.36 25.48 50.85 84.74 Account Fund - Aggressive Growth Oppenheimer Variable 04/03/85 12.4 36.62 25.21 26.69 9.59 24 57.1 96.7 171.3 Account Fund - Growth Fund Oppenheimer Variable 07/05/95 10.47 NA 32.51 32.48 5.35 4.7 38.71 83.8 NA Account Fund - Income and Growth Fund Salomon Brothers/NSAT 10/31/97 10.81 NA NA NA 0.91 8.07 NA NA NA Balanced Fund Salomon Brothers/NSAT 10/31/97 10.26 NA NA NA -0.34 2.6 NA NA NA Multi Sector Bond Strong/NSAT Strategic 10/31/97 11.46 NA NA NA 12.61 14.59 NA NA NA Growth Fund Strong/NSAT Strategic 10/37/97 10.04 NA NA NA 7.51 0.39 NA NA NA Value Fund United Asset 10/31/97 11.08 NA NA NA 7.01 10.81 NA NA NA Management / NSAT Select Advisors Mid- Cap Fund Van Eck Worldwide 12/27/95 6.59 NA 26.82 -11.6 0.71 -34.13 -41.77 -26.16 NA Insurance Trust - Worldwide Emerging Markets Fund Van Eck Worldwide 09/01/89 6.9 10.99 18.06 -1.68 -2.34 -30.97 -32.13 -19.87 -15.32 Insurance Trust - Worldwide Hard Assets Fund Warburg Pincus Trust - 10/31/97 11.21 NA NA NA 2.59 12.13 NA NA NA Growth and Income Portfolio Warburg Pincus Trust - 06/30/95 10.53 NA 9.98 -2.26 0.92 5.35 2.97 13.25 NA International Equity Portfolio Warburg Pincus Trust - 09/30/96 10.65 NA NA 13.34 9.48 6.51 20.72 NA NA Post Venture Capital Portfolio Performance Tables - Total Return ==================================================== Non annualized Annualized Percentage Percentage Change Change ==================================================== Underlying Fund Inception 3 yrs 5 yrs Inception Investment Inception to to to to Options Date** 12/31/98 12/31/98 12/31/98 12/31/98 ============================================================================= American Century VP 10/30/97 36.76 NA NA 30.7 Inc & Growth American Century VP 05/01/94 71.82 17.25 NA 12.31 International American Century VP 05/01/96 48.38 NA NA 15.97 Value Dreyfus Socially 10/06/93 195.34 26.3 22.43 22.99 Responsible Growth Fund Dreyfus Stock Index 09/29/89 332.13 27.83 23.58 17.14 Fund Dreyfus Variable 04/05/93 207.43 27.93 23.56 21.63 Investment Fund Capital Appreciation Fund NSAT Small Cap Value 10/31/97 -4.63 NA NA -3.98 NSAT Equity Income 10/31/97 17.17 NA NA 14.55 NSAT High Income Bond 10/31/97 8.21 NA NA 7 Fidelity VIP Fund II - 01/03/95 173.06 25.06 NA 28.61 Contrafund Portfolio Fidelity VIP Fund - 10/09/86 418.56 17.74 18.75 14.41 Equity Income Portfolio Fidelity VIP Fund III 01/03/95 153.59 24.15 NA 26.25 - - Growth Opportunity Portfolio Fidelity VIP Fund - 10/09/86 607.56 25.44 21.71 17.36 Growth Portfolio Fidelity VIP Fund - 09/19/85 306 8.62 8.76 11.13 High Income Port Fidelity VIP Fund - 01/28/87 167.06 12.47 9.68 8.59 Overseas Portfolio JP Morgan/NSAT Global 10/31/97 20.54 NA NA 17.36 Equity Fund Van Kampen American 07/03/95 63.46 14.69 NA 15.11 Capital Life Real Estate Securities Fund Morgan Stanley 06/16/97 -27.82 NA NA -19.09 Emerging Markets Debt Portfolio NSAT Capital 04/15/92 227.71 30.15 23.1 19.36 Appreciation Fund NSAT Government Bond 11/08/82 323.4 7.32 7.27 9.35 Fund NSAT Money Market Fund 11/10/81 216.31 5.22 5.04 6.95 NSAT Small Company Fund 10/23/95 66.52 13.34 NA 17.35 NSAT Total Return Fund 11/08/82 1052.53 23.03 19.43 16.35 Neuberger & Berman 11/03/97 38.51 NA NA 32.47 Advisors Management Trust Guardian Neuberger & Berman 11/03/97 63.24 NA NA 52.65 Advisors Management Trust Mid Cap Growth Portfolios Neuberger & Berman 03/22/94 136.29 21.01 NA 19.74 Advisers Management Trust - Partners Port Oppenheimer Variable 08/15/86 468.42 14.69 13.06 15.07 Account Fund - Aggressive Growth Oppenheimer Variable 04/03/85 673.1 25.3 22.09 16.05 Account Fund - Growth Fund Oppenheimer Variable 07/05/95 130.22 22.49 NA 27.02 Account Fund - Income and Growth Fund Salomon Brothers/NSAT 10/31/97 9.65 NA NA 8.21 Balanced Fund Salomon Brothers/NSAT 10/31/97 3.67 NA NA 3.14 Multi Sector Bond Strong/NSAT Strategic 10/31/97 17.11 NA NA 14.5 Growth Fund Strong/NSAT Strategic 10/37/97 2.02 NA NA 1.73 Value Fund United Asset 10/31/97 10.41 NA NA 8.86 Management / NSAT Select Advisors Mid- Cap Fund Van Eck Worldwide 12/27/95 -26.89 -9.61 NA -9.83 Insurance Trust - Worldwide Emerging Markets Fund Van Eck Worldwide 09/01/89 21.38 -7.12 -3.27 2.1 Insurance Trust - Worldwide Hard Assets Fund Warburg Pincus Trust - 10/31/97 16.49 NA NA 13.98 Growth and Income Portfolio Warburg Pincus Trust - 06/30/95 21.51 4.24 NA 5.73 International Equity Portfolio Warburg Pincus Trust - 09/30/96 17.82 NA NA 7.56 Post Venture Capital Portfolio
76 1 Independent Auditors' Report The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide VLI Separate Account-4: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide VLI Separate Account-4 as of December 31, 1998, and the related statement of operations and changes in contract owners' equity for the period February 18, 1998 (commencement of operations) through December 31, 1998. 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 audit. We conducted our audit 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 audit provides 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-4 as of December 31, 1998, and the results of its operations and its changes in contract owners' equity for the period February 18, 1998 (commencement of operations) through December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Columbus, Ohio February 5, 1999 2 NATIONWIDE VLI SEPARATE ACCOUNT-4 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 1998
ASSETS: Investments at market value: American Century VP - American Century VP Income & Growth (ACVPIncGr) 182,077 shares (cost $1,109,477) .......................................... $ 1,234,484 American Century VP - American Century VP International (ACVPInt) 325,182 shares (cost $2,318,120) .......................................... 2,477,888 American Century VP - American Century VP Value (ACVPValue) 93,159 shares (cost $598,683) ............................................. 626,960 The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) 44,142 shares (cost $1,263,578) ........................................... 1,371,933 Dreyfus Stock Index Fund (DryStkIx) 442,059 shares (cost $12,920,739) ......................................... 14,375,758 Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) 42,881 shares (cost $1,397,683) ........................................... 1,548,425 Fidelity VIP - Equity-Income Portfolio - Service Class (FidVIPEI) 227,239 shares (cost $5,320,426) .......................................... 5,769,608 Fidelity VIP - Growth Portfolio - Service Class (FidVIPGr) 79,605 shares (cost $3,087,212) ........................................... 3,567,896 Fidelity VIP - High Income Portfolio - Service Class (FidVIPHI) 306,210 shares (cost $3,487,179) .......................................... 3,524,474 Fidelity VIP - Overseas Portfolio - Service Class (FidVIPOv) 53,655 shares (cost $1,006,403) ........................................... 1,074,716 Fidelity VIP-II - Contrafund Portfolio - Service Class (FidVIPCon) 194,290 shares (cost $4,096,142) .......................................... 4,744,555 Fidelity VIP-III - Growth Opportunities Portfolio - Service Class (FidVIPGrOp) 105,845 shares (cost $2,156,825) .......................................... 2,419,625 Morgan Stanley - Emerging Markets Debt Portfolio (VKMSEmMkt) 25,820 shares (cost $164,824) ............................................. 157,501 Nationwide SAT - Balanced Fund (NSATBal) 69,134 shares (cost $708,627) ............................................. 731,433 Nationwide SAT - Capital Appreciation Fund (NSATCapAp) 237,441 shares (cost $5,844,303) .......................................... 6,313,569 Nationwide SAT - Equity Income Fund (NSATEqInc) 21,275 shares (cost $229,007) ............................................. 244,028 Nationwide SAT - Global Equities Fund (NSATGlobEq) 42,042 shares (cost $455,810) ............................................. 493,998 Nationwide SAT - Government Bond Fund (NSATGvtBd) 401,958 shares (cost $4,783,321) .......................................... 4,698,885 Nationwide SAT - High Income Bond Fund (NSATHIncBd) 96,723 shares (cost $963,155) ............................................. 971,097 Nationwide SAT - Money Market Fund (NSATMyMkt) 21,598,475 shares (cost $21,598,475) ...................................... 21,598,475
3 Nationwide SAT - Multi Sector Bond Fund (NSATMSecBd) 93,944 shares (cost $921,749) ............................................. 922,530 Nationwide SAT - Select Advisers Mid Cap Fund (NSATMidCap) 27,354 shares (cost $268,890) ............................................. 298,705 Nationwide SAT - Small Cap Value Fund (NSATSmCapV) 108,781 shares (cost $913,731) ............................................ 1,032,333 Nationwide SAT - Small Company Fund (NSATSmCo) 100,590 shares (cost $1,477,476) .......................................... 1,610,450 Nationwide SAT - Strategic Growth Fund (NSATStrGro) 36,588 shares (cost $379,237) ............................................. 428,084 Nationwide SAT - Strategic Value Fund (NSATStrVal) 34,188 shares (cost $302,102) ............................................. 345,983 Nationwide SAT - Total Return Fund (NSATTotRe) 450,747 shares (cost $8,009,908) .......................................... 8,293,744 Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) 53,552 shares (cost $658,273) ............................................. 741,159 Neuberger & Berman AMT - Mid-Cap Growth Portfolio (NBAMTMCGr) 73,728 shares (cost $1,019,587) ........................................... 1,195,872 Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) 219,668 shares (cost $3,903,184) .......................................... 4,158,317 Oppenheimer VAF - Aggressive Growth Fund (OppAggGro) 25,508 shares (cost $988,141) ............................................. 1,143,545 Oppenheimer VAF - Growth Fund (OppGro) 55,781 shares (cost $1,790,387) ........................................... 2,045,484 Oppenheimer VAF - Growth & Income Fund (OppGrInc) 79,472 shares (cost $1,547,267) ........................................... 1,627,592 Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) 40,617 shares (cost $270,845) ............................................. 289,192 Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) 16,765 shares (cost $156,341) ............................................. 154,239 Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio (VKMSRESec) 52,116 shares (cost $689,806) ............................................. 717,112 Warburg Pincus Trust - Growth & Income Portfolio (WPGrInc) 62,712 shares (cost $714,061) ............................................. 719,931 Warburg Pincus Trust - International Equity Portfolio (WPIntEq) 54,415 shares (cost $567,694) ............................................. 598,018 Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) 15,798 shares (cost $156,142) ............................................. 186,103 ------------ Total investments ...................................................... 104,453,701 Accounts receivable ............................................................. 3,536,003 ------------ Total assets ........................................................... 107,989,704 ACCOUNTS PAYABLE ................................................................... - ------------ CONTRACT OWNERS' EQUITY (NOTE 7) ................................................... $107,989,704 ============
See accompanying notes to financial statements. 4 NATIONWIDE VLI SEPARATE ACCOUNT - 4 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY For the Period February 18, 1998 (commencement of operations) Through December 31, 1998
Total ACVPIncGr ACVPInt ACVPValue ----- --------- ------- --------- Investment activity: Reinvested dividends ................................... $ 795,996 5,125 355 169 Mortality and expense charges (note 3) ................. (7,523) (86) (173) (44) -------------- --------- --------- ------- Net investment income ................................ 788,473 5,039 182 125 -------------- --------- --------- ------- Proceeds from mutual fund shares sold .................. 61,803,110 60,422 613,620 216,392 Cost of mutual fund shares sold ........................ (62,074,770) (58,667) (614,510) (220,562) -------------- --------- --------- ------- Realized gain (loss) on investments .................. (271,660) 1,755 (890) (4,170) Change in unrealized gain (loss) on investments ........ 6,208,890 125,007 159,768 28,277 -------------- --------- --------- ------- Net gain (loss) on investments ....................... 5,937,230 126,762 158,878 24,107 -------------- --------- --------- ------- Reinvested capital gains ............................... 597,466 - 3,644 1,997 -------------- --------- --------- ------- Net increase (decrease) in contract owners' equity resulting from operations ................. 7,323,169 131,801 162,704 26,229 -------------- --------- --------- ------- Equity transactions: Purchase payments received from contract owners ...................................... 106,894,981 168,731 489,914 218,019 Transfers between funds ................................ - 959,762 1,905,042 409,201 Surrenders ............................................. (205,540) (64) - (20) Death benefits - - - - Policy loans (net of repayments) (note 5) .............. (1,093,563) - (2,833) (1,893) Deductions for surrender charges (note 2d) ............. (2,405) (1) - - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .................................... (4,765,148) (23,721) (73,254) (23,676) Deductions for asset charges (note 3) .................. (161,790) (1,072) (2,800) (900) -------------- --------- --------- ------- Net equity transactions ............................ 100,666,535 1,103,635 2,316,069 600,731 -------------- --------- --------- ------- Net change in contract owners' equity .................. 107,989,704 1,235,436 2,478,773 626,960 Contract owners' equity beginning of period ............ - - - - -------------- --------- --------- ------- Contract owners' equity end of period .................. $ 107,989,704 1,235,436 2,478,773 626,960 ============== ========= ========= =======
DrySRGro DryStkIx DryCapAp FidVIPEI -------- -------- -------- -------- Investment activity: Reinvested dividends ................................... 2,114 64,671 7,616 - Mortality and expense charges (note 3) ................. (96) (1,001) (108) (402) --------- ---------- --------- --------- Net investment income ................................ 2,018 63,670 7,508 (402) --------- ---------- --------- --------- Proceeds from mutual fund shares sold .................. 292,403 2,855,607 191,690 1,186,510 Cost of mutual fund shares sold ........................ (279,293) (2,928,820) (192,584) (1,221,597) --------- ---------- --------- --------- Realized gain (loss) on investments .................. 13,110 (73,213) (894) (35,087) Change in unrealized gain (loss) on investments ........ 108,355 1,455,019 150,742 449,182 --------- ---------- --------- --------- Net gain (loss) on investments ....................... 121,465 1,381,806 149,848 414,095 --------- ---------- --------- --------- Reinvested capital gains ............................... 47,900 12,311 - - --------- ---------- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations ................. 171,383 1,457,787 157,356 413,693 --------- ---------- --------- --------- Equity transactions: Purchase payments received from contract owners ...................................... 544,259 3,047,695 381,182 1,622,388 Transfers between funds ................................ 721,262 10,358,645 1,070,054 3,964,871 Surrenders ............................................. (97) (430) (44) (401) Death benefits ......................................... - - - - Policy loans (net of repayments) (note 5) .............. (1,497) (9,416) (289) (6,242) Deductions for surrender charges (note 2d) ............. (1) (5) (1) (5) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .................................... (61,633) (463,310) (58,099) (217,638) Deductions for asset charges (note 3) .................. (1,748) (16,396) (1,734) (7,304) --------- ---------- --------- --------- Net equity transactions ............................ 1,200,545 12,916,783 1,391,069 5,355,669 --------- ---------- --------- --------- Net change in contract owners' equity .................. 1,371,928 14,374,570 1,548,425 5,769,362 Contract owners' equity beginning of period ............ - - - - --------- ---------- --------- --------- Contract owners' equity end of period .................. 1,371,928 14,374,570 1,548,425 5,769,362 ========= ========== ========= =========
5 NATIONWIDE VLI SEPARATE ACCOUNT - 4 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY For the Period February 18, 1998 (commencement of operations) Through December 31, 1998
FidVIPGr FidVIPHI FidVIPOv FidVIPCon -------- -------- -------- --------- Investment activity: Reinvested dividends .................................... $ - - - - Mortality and expense charges (note 3) .................. (249) (245) (75) (330) -------------- --------- --------- --------- Net investment income ................................. (249) (245) (75) (330) -------------- --------- --------- --------- Proceeds from mutual fund shares sold ................... 759,197 848,212 528,529 974,276 Cost of mutual fund shares sold ......................... (750,697) (901,996) (553,402) (947,452) -------------- --------- --------- --------- Realized gain (loss) on investments ................... 8,500 (53,784) (24,873) 26,824 Change in unrealized gain (loss) on investments ......... 480,684 37,295 68,313 648,413 -------------- --------- --------- --------- Net gain (loss) on investments ........................ 489,184 (16,489) 43,440 675,237 -------------- --------- --------- --------- Reinvested capital gains ................................ - - - - -------------- --------- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations .................. 488,935 (16,734) 43,365 674,907 -------------- --------- --------- --------- Equity transactions: Purchase payments received from contract owners ....................................... 742,777 685,592 233,314 1,117,315 Transfers between funds ................................. 2,489,085 2,964,332 835,812 3,133,469 Surrenders .............................................. (1,445) - (16) (165) Death benefits .......................................... - - - - Policy loans (net of repayments) (note 5) ............... (5,968) (1,581) (1,574) (2,052) Deductions for surrender charges (note 2d) .............. (17) - - (2) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ..................................... (140,842) (103,400) (34,849) (173,162) Deductions for asset charges (note 3) ................... (4,630) (3,733) (1,337) (5,764) -------------- --------- --------- --------- Net equity transactions ............................. 3,078,960 3,541,210 1,031,350 4,069,639 -------------- --------- --------- --------- Net change in contract owners' equity ................... 3,567,895 3,524,476 1,074,715 4,744,546 Contract owners' equity beginning of period ............. - - - - -------------- --------- --------- --------- Contract owners' equity end of period ................... $ 3,567,895 3,524,476 1,074,715 4,744,546 ============== ========= ========= =========
FidVIPGrOp VKMSEmMkt NSATBal NSATCapAp ---------- --------- ------- --------- Investment activity: Reinvested dividends .................................... - 18,594 9,854 14,834 Mortality and expense charges (note 3) .................. (168) (11) (51) (440) --------- ------- ------- --------- Net investment income ................................. (168) 18,583 9,803 14,394 --------- ------- ------- --------- Proceeds from mutual fund shares sold ................... 309,151 268,442 316,297 703,904 Cost of mutual fund shares sold ......................... (296,203) (301,322) (315,924) (686,965) --------- ------- ------- --------- Realized gain (loss) on investments ................... 12,948 (32,880) 373 16,939 Change in unrealized gain (loss) on investments ......... 262,800 (7,323) 22,806 469,266 --------- ------- ------- --------- Net gain (loss) on investments ........................ 275,748 (40,203) 23,179 486,205 --------- ------- ------- --------- Reinvested capital gains ................................ - - 2,184 174,093 --------- ------- ------- --------- Net increase (decrease) in contract owners' equity resulting from operations .................. 275,580 (21,620) 35,166 674,692 --------- ------- ------- --------- Equity transactions: Purchase payments received from contract owners ....................................... 584,874 41,423 87,905 1,531,297 Transfers between funds ................................. 1,646,479 144,407 640,480 4,379,971 Surrenders .............................................. (36) - - (118) Death benefits .......................................... - - - - Policy loans (net of repayments) (note 5) ............... 29 - (2,200) 731 Deductions for surrender charges (note 2d) .............. - - - (1) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ..................................... (84,140) (6,534) (28,998) (265,208) Deductions for asset charges (note 3) ................... (3,172) (166) (914) (7,790) --------- ------- ------- --------- Net equity transactions ............................. 2,144,034 179,130 696,273 5,638,882 --------- ------- ------- --------- Net change in contract owners' equity ................... 2,419,614 157,510 731,439 6,313,574 Contract owners' equity beginning of period ............. - - - - --------- ------- ------- --------- Contract owners' equity end of period ................... 2,419,614 157,510 731,439 6,313,574 ========= ======= ======= =========
(Continued) 6 NATIONWIDE VLI SEPARATE ACCOUNT - 4 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY For the Period February 18, 1998 (commencement of operations) Through December 31, 1998
NSATEqInc NSATGlobEq NSATGvtBd NSATHIncBd --------- ---------- --------- ---------- Investment activity: Reinvested dividends ................................... $ 896 1,950 83,382 22,707 Mortality and expense charges (note 3) ................. (17) (34) (327) (68) -------------- ------- --------- ------- Net investment income ................................ 879 1,916 83,055 22,639 -------------- ------- --------- ------- Proceeds from mutual fund shares sold .................. 18,085 57,978 1,043,507 206,929 Cost of mutual fund shares sold ........................ (17,928) (57,852) (1,033,771) (213,860) -------------- ------- --------- ------- Realized gain (loss) on investments .................. 157 126 9,736 (6,931) Change in unrealized gain (loss) on investments ........ 15,021 38,188 (84,436) 7,941 -------------- ------- --------- ------- Net gain (loss) on investments ....................... 15,178 38,314 (74,700) 1,010 -------------- ------- --------- ------- Reinvested capital gains ............................... 2,636 3,213 22,403 - -------------- ------- --------- ------- Net increase (decrease) in contract owners' equity resulting from operations ................. 18,693 43,443 30,758 23,649 -------------- ------- --------- ------- Equity transactions: Purchase payments received from contract owners .................................... 28,736 96,340 480,508 116,422 Transfers between funds .............................. 202,838 374,760 4,241,272 850,224 Surrenders ........................................... - (20) (58) - Death benefits ....................................... - - - - Policy loans (net of repayments) (note 5) ............ - (199) (822) - Deductions for surrender charges (note 2d) ........... - - (1) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .................................. (5,984) (19,705) (51,451) (18,455) Deductions for asset charges (note 3) ................ (269) (621) (2,298) (823) -------------- ------- --------- ------- Net equity transactions ............................ 225,321 450,555 4,667,150 947,368 -------------- ------- --------- ------- Net change in contract owners' equity .................. 244,014 493,998 4,697,908 971,017 Contract owners' equity beginning of period ............ - - - - -------------- ------- --------- ------- Contract owners' equity end of period .................. $ 244,014 493,998 4,697,908 971,017 ============== ======= ========= =======
NSATMyMkt NSATMSecBd NSATMidCap NSATSmCapV --------- ---------- ---------- ---------- Investment activity: Reinvested dividends ................................... 506,347 20,456 782 - Mortality and expense charges (note 3) ................. (1,751) (64) (21) (72) ---------- ------- ------- --------- Net investment income ................................ 504,596 20,392 761 (72) ---------- ------- ------- --------- Proceeds from mutual fund shares sold .................. 44,230,768 678,560 48,915 119,432 Cost of mutual fund shares sold ........................ (44,230,768) (682,489) (51,817) (127,976) ---------- ------- ------- --------- Realized gain (loss) on investments .................. - (3,929) (2,902) (8,544) Change in unrealized gain (loss) on investments ........ - 781 29,815 118,603 ---------- ------- ------- --------- Net gain (loss) on investments ....................... - (3,148) 26,913 110,059 ---------- ------- ------- --------- Reinvested capital gains ............................... - 691 - - ---------- ------- ------- --------- Net increase (decrease) in contract owners' equity resulting from operations ................. 504,596 17,935 27,674 109,987 ---------- ------- ------- --------- Equity transactions: Purchase payments received from contract owners ...................................... 88,272,542 238,773 38,598 186,610 Transfers between funds ................................ (60,507,727) 687,922 239,349 774,453 Surrenders ............................................. (201,196) - - - Death benefits ......................................... - - - - Policy loans (net of repayments) (note 5) .............. (1,000,116) (427) - (2,782) Deductions for surrender charges (note 2d) ............. (2,354) - - - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .................................... (1,866,745) (20,588) (6,590) (34,791) Deductions for asset charges (note 3) .................. (63,919) (1,082) (314) (1,140) ---------- ------- ------- --------- Net equity transactions ............................ 24,630,485 904,598 271,043 922,350 ---------- ------- ------- --------- Net change in contract owners' equity .................. 25,135,081 922,533 298,717 1,032,337 Contract owners' equity beginning of period ............ - - - - ---------- ------- ------- --------- Contract owners' equity end of period .................. 25,135,081 922,533 298,717 1,032,337 ========== ======= ======= =========
7 NATIONWIDE VLI SEPARATE ACCOUNT - 4 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY For the Period February 18, 1998 (commencement of operations) Through December 31, 1998
NSATSmCo NSATStrGro NSATStrVal NSATTotRe -------- ---------- ---------- --------- Investment activity: Reinvested dividends .................................. $ - - 1,052 27,487 Mortality and expense charges (note 3) (112) (30) (24) (578) -------------- ------- ------- --------- Net investment income ............................... (112) (30) 1,028 26,909 -------------- ------- ------- --------- Proceeds from mutual fund shares sold ................. 303,745 150,535 81,326 1,201,208 Cost of mutual fund shares sold ....................... (310,124) (150,564) (89,165) (1,222,228) -------------- ------- ------- --------- Realized gain (loss) on investments ................. (6,379) (29) (7,839) (21,020) Change in unrealized gain (loss) on investments ....... 132,974 48,847 43,881 283,836 -------------- ------- ------- --------- Net gain (loss) on investments ...................... 126,595 48,818 36,042 262,816 -------------- ------- ------- --------- Reinvested capital gains .............................. - - - 321,440 -------------- ------- ------- --------- Net increase (decrease) in contract owners' equity resulting from operations ................ 126,483 48,788 37,070 611,165 -------------- ------- ------- --------- Equity transactions: Purchase payments received from contract owners ..................................... 360,233 106,807 26,097 2,620,309 Transfers between funds ............................... 1,192,844 294,315 290,790 5,463,668 Surrenders ............................................ (43) - - (81) Death benefits ........................................ - - - - Policy loans (net of repayments) (note 5) ............. (2,442) (514) 368 (4,594) Deductions for surrender charges (note 2d) ............ (1) - - (1) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ................................... (64,333) (20,594) (7,966) (385,652) Deductions for asset charges (note 3) ................. (2,292) (715) (385) (10,992) -------------- ------- ------- --------- Net equity transactions ........................... 1,483,966 379,299 308,904 7,682,657 -------------- ------- ------- --------- Net change in contract owners' equity ................. 1,610,449 428,087 345,974 8,293,822 Contract owners' equity beginning of period ........... - - - - -------------- ------- ------- --------- Contract owners' equity end of period ................. $ 1,610,449 428,087 345,974 8,293,822 ============== ======= ======= =========
NBAMTGuard NBAMTMCGr NBAMTPart OppAggGro ---------- --------- --------- --------- Investment activity: Reinvested dividends .................................. - - 114 26 Mortality and expense charges (note 3) ................ (83) (52) (290) (80) --------- ------- --------- --------- Net investment income ............................... (83) (52) (176) (54) --------- ------- --------- --------- Proceeds from mutual fund shares sold ................. 117,578 140,913 862,257 120,154 Cost of mutual fund shares sold ....................... (123,077) (137,009) (875,740) (118,908) --------- ------- --------- --------- Realized gain (loss) on investments ................. (5,499) 3,904 (13,483) 1,246 Change in unrealized gain (loss) on investments ....... 82,886 176,285 255,133 155,404 --------- ------- --------- --------- Net gain (loss) on investments ...................... 77,387 180,189 241,650 156,650 --------- ------- --------- --------- Reinvested capital gains .............................. - - 3,599 270 --------- ------- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations ................ 77,304 180,137 245,073 156,866 --------- ------- --------- --------- Equity transactions: Purchase payments received from contract owners ..................................... 246,176 57,715 831,946 298,181 Transfers between funds ............................... 891,240 560,630 3,231,525 753,401 Surrenders ............................................ (2) (20) (16) (318) Death benefits ........................................ - - - - Policy loans (net of repayments) (note 5) ............. (318) (140) (174) (2,146) Deductions for surrender charges (note 2d) ............ - - - (4) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ................................... (17,719) (55,646) (144,625) (60,958) Deductions for asset charges (note 3) ................. (807) (1,530) (5,414) (1,492) --------- ------- --------- --------- Net equity transactions ........................... 1,118,570 561,009 3,913,242 986,664 --------- ------- --------- --------- Net change in contract owners' equity ................. 1,195,874 741,146 4,158,315 1,143,530 Contract owners' equity beginning of period ........... - - - - --------- ------- --------- --------- Contract owners' equity end of period ................. 1,195,874 741,146 4,158,315 1,143,530 ========= ======= ========= =========
(Continued) 8 NATIONWIDE VLI SEPARATE ACCOUNT - 4 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY For the Period February 18, 1998 (commencement of operations) Through December 31, 1998
OppGro OppGrInc VEWrldEMkt VEWrldHAs ------ -------- ---------- --------- Investment activity: Reinvested dividends .................................... $ 8 29 - - Mortality and expense charges (note 3) .................. (142) (113) (20) (11) -------------- --------- ------- ------- Net investment income ................................. (134) (84) (20) (11) -------------- --------- ------- ------- Proceeds from mutual fund shares sold ................... 412,555 698,919 70,482 46,572 Cost of mutual fund shares sold ......................... (391,820) (718,580) (84,625) (49,623) -------------- --------- ------- ------- Realized gain (loss) on investments ................... 20,735 (19,661) (14,143) (3,051) Change in unrealized gain (loss) on investments ......... 255,097 80,325 18,347 (2,102) -------------- --------- ------- ------- Net gain (loss) on investments ........................ 275,832 60,664 4,204 (5,153) -------------- --------- ------- ------- Reinvested capital gains ................................ 101 645 - - -------------- --------- ------- ------- Net increase (decrease) in contract owners' equity resulting from operations .................. 275,799 61,225 4,184 (5,164) -------------- --------- ------- ------- Equity transactions: Purchase payments received from contract owners ....................................... 522,163 284,513 90,144 23,363 Transfers between funds ................................. 1,352,464 1,343,627 207,921 144,721 Surrenders .............................................. (369) (418) - - Death benefits .......................................... - - - - Policy loans (net of repayments) (note 5) ............... (10,091) (16,228) 410 235 Deductions for surrender charges (note 2d) .............. (4) (5) - - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ..................................... (91,465) (43,383) (13,062) (8,707) Deductions for asset charges (note 3) ................... (3,006) (1,749) (402) (203) -------------- --------- ------- ------- Net equity transactions ............................. 1,769,692 1,566,357 285,011 159,409 -------------- --------- ------- ------- Net change in contract owners' equity ................... 2,045,491 1,627,582 289,195 154,245 Contract owners' equity beginning of period ............. - - - - -------------- --------- ------- ------- Contract owners' equity end of period ................... $ 2,045,491 1,627,582 289,195 154,245 ============== ========= ======= =======
VKMSRESec WPGrInc WPIntEq WPPVenCap --------- ------- ------- --------- Investment activity: Reinvested dividends .................................... 34 4,521 2,873 - Mortality and expense charges (note 3) .................. (50) (50) (42) (13) ------- ------- ------- ------- Net investment income ................................. (16) 4,471 2,831 (13) ------- ------- ------- ------- Proceeds from mutual fund shares sold ................... 357,742 345,457 277,515 87,326 Cost of mutual fund shares sold ......................... (388,797) (337,050) (301,573) (89,432) ------- ------- ------- ------- Realized gain (loss) on investments ................... (31,055) 8,407 (24,058) (2,106) Change in unrealized gain (loss) on investments ......... 27,306 5,870 30,323 29,961 ------- ------- ------- ------- Net gain (loss) on investments ........................ (3,749) 14,277 6,265 27,855 ------- ------- ------- ------- Reinvested capital gains ................................ 339 - - - ------- ------- ------- ------- Net increase (decrease) in contract owners' equity resulting from operations .................. (3,426) 18,748 9,096 27,842 ------- ------- ------- ------- Equity transactions: Purchase payments received from contract owners ....................................... 233,023 76,711 114,374 48,012 Transfers between funds ................................. 517,845 655,643 495,343 118,060 Surrenders .............................................. - - - (163) Death benefits .......................................... - - - - Policy loans (net of repayments) (note 5) ............... (834) (17,477) (891) 404 Deductions for surrender charges (note 2d) .............. - - - (2) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ..................................... (28,277) (13,090) (19,101) (7,797) Deductions for asset charges (note 3) ................... (1,214) (607) (798) (258) ------- ------- ------- ------- Net equity transactions ............................. 720,543 701,180 588,927 158,256 ------- ------- ------- ------- Net change in contract owners' equity ................... 717,117 719,928 598,023 186,098 Contract owners' equity beginning of period ............. - - - - ------- ------- ------- ------- Contract owners' equity end of period 717,117 719,928 598,023 186,098 ........................................................ ======= ======= ======= =======
See accompanying notes to financial statements. 9 NATIONWIDE VLI SEPARATE ACCOUNT-4 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Nature of Operations The Nationwide VLI Separate Account-4 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on December 3, 1997. The Account has been registered as a unit investment trust under the Investment Company Act of 1940. The Company offers Flexible Premium Variable Life Insurance Policies through the Account. (b) The Contracts Only contracts without a front-end sales charge, but with a contingent deferred sales charge and certain other fees are offered for purchase. See note 2 for a discussion of policy charges, and note 3 for asset charges. Contract owners may invest in the following: Portfolios of the American Century Variable Portfolios, Inc. (American Century VP); American Century VP - American Century VP Income & Growth (ACVPIncGr) American Century VP - American Century VP International (ACVPInt) American Century VP - American Century VP Value (ACVPValue) The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) Dreyfus Stock Index Fund (DryStkIx) Portfolio of the Dreyfus Variable Investment Fund (Dreyfus VIF); Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP); Fidelity VIP - Equity-Income Portfolio - Service Class (FidVIPEI) Fidelity VIP - Growth Portfolio - Service Class (FidVIPGr) Fidelity VIP - High Income Portfolio - Service Class (FidVIPHI) Fidelity VIP - Overseas Portfolio - Service Class (FidVIPOv) Portfolio of the Fidelity Variable Insurance Products Fund II (Fidelity VIP-II); Fidelity VIP-II - Contrafund Portfolio - Service Class (FidVIPCon) Portfolio of the Fidelity Variable Insurance Products Fund III (Fidelity VIP-III); Fidelity VIP-III - Growth Opportunities Portfolio - Service Class (FidVIPGrOp) Portfolio of the Morgan Stanley Universal Funds, Inc. (Morgan Stanley); Morgan Stanley - Emerging Markets Debt Portfolio (VKMSEmMkt) Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed for a fee by an affiliated investment advisor); Nationwide SAT - Balanced Fund (NSATBal) Nationwide SAT - Capital Appreciation Fund (NSATCapAp) Nationwide SAT - Equity Income Fund (NSATEqInc) Nationwide SAT - Global Equity Fund (NSATGlobEq) Nationwide SAT - Government Bond Fund (NSATGvtBd) Nationwide SAT - High Income Bond Fund (NSATHIncBd) Nationwide SAT - Money Market Fund (NSATMyMkt) Nationwide SAT - Multi Sector Bond Fund (NSATMSecBd) Nationwide SAT - Select Advisers Mid Cap Fund (NSATMidCap) 10 Nationwide SAT - Small Cap Value Fund (NSATSmCapV) Nationwide SAT - Small Company Fund (NSATSmCo) Nationwide SAT - Strategic Growth Fund (NSATStrGro) Nationwide SAT - Strategic Value Fund (NSATStrVal) Nationwide SAT - Total Return Fund (NSATTotRe) Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger &Berman AMT); Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) Neuberger & Berman AMT - Mid-Cap Growth Portfolio (NBAMTMCGr) Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) Funds of the Oppenheimer Variable Account Funds (Oppenheimer VAF); Oppenheimer VAF - Aggressive Growth Fund (OppAggGro) Oppenheimer VAF - Growth Fund (OppGro) Oppenheimer VAF - Growth & Income Fund (OppGrInc) Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT); Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) 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) Portfolios of the Warburg Pincus Trust; Warburg Pincus Trust - Growth & Income Portfolio (WPGrInc) Warburg Pincus Trust - International Equity Portfolio (WPIntEq) Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) At December 31, 1998, contract owners have invested in all of the above funds. The contract owners' equity is affected by the investment results of each fund, equity transactions by contract owners and certain contract expenses (see note 2). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. A contract owner may choose from among a number of different underlying mutual fund options. The underlying mutual fund options are not available to the general public directly. The underlying mutual funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. Some of the underlying mutual funds have been established by investment advisers which manage publicly traded mutual funds having similar names and investment objectives. While some of the underlying mutual funds may be similar to, and may in fact be modeled after, publicly traded mutual funds, the underlying mutual funds are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any corresponding underlying mutual funds may differ substantially. (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 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. 11 (e) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) POLICY CHARGES (a) Deductions from Premium On flexible premium life insurance contracts, the Company deducts a charge for state premium taxes not to exceed 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 $10 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. 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 eighth year. No surrender charge is assessed on any contract surrendered after the eighth 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 For America's FUTURE Life Series, the Company deducts a charge equal to an annual effective rate multiplied by the Cash Value attributable to the Variable Account. The annual effective rate is 0.60% for the first $25,000 of Cash Value attributable to the Variable Account, 0.30% for the next $225,000 of Cash Value attributable to the Variable Account and 0.10% for all Cash Value attributable to the Variable Account in excess of $250,000. This charge is assessed monthly against each contract by liquidating units. For Corporate Variable Universal Life Series, the Company deducts on a daily basis from the assets of the Variable Account, a charge to provide for mortality and expense risks. This charge is guaranteed not to exceed an annual effective rate of 0.75% of the daily net assets of the Variable Account. On a current basis this rate will be 0.40% during the first through fourth Policy Years, 0.25% during the fifth through twentieth Policy Years, and 0.10% thereafter. This charge is assessed through the daily unit value calculation. 12 (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. There were no death benefits paid in the current year. (5) POLICY LOANS (NET OF REPAYMENTS) Contract provisions allow contract owners to borrow 90% of a policy's cash surrender value. Interest is charged 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. 13 (7) COMPONENTS OF CONTRACT OWNERS' EQUITY The following is a summary of contract owners' equity at December 31, 1998.
PERIOD Contract owners' equity represented by: UNITS UNIT VALUE RETURN* --------- ----------- ------- The BEST of AMERICA(R) America's FUTURE Life Series(SM): American Century VP - American Century VP Income & Growth 97,382 $ 12.686493 $ 1,235,436 27% American Century VP - American Century VP International 206,063 11.875895 2,447,183 19% American Century VP - American Century VP Value 59,424 10.481205 622,835 5% The Dreyfus Socially Responsible Growth Fund, Inc. 105,696 12.938078 1,367,503 29% Dreyfus Stock Index Fund 1,025,141 12.821142 13,143,478 28% Dreyfus VIF - Capital Appreciation Portfolio 110,355 13.021619 1,437,001 30% Fidelity VIP - Equity-Income Portfolio - Service Class 511,915 11.154137 5,709,970 12% Fidelity VIP - Growth Portfolio - Service Class 255,829 13.937692 3,565,666 39% Fidelity VIP - High Income Portfolio - Service Class 368,689 9.557602 3,523,783 (4)% Fidelity VIP - Overseas Portfolio - Service Class 92,817 11.263759 1,045,468 13% Fidelity VIP-II - Contrafund Portfolio - Service Class 362,774 12.993755 4,713,796 30% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class 193,229 12.450522 2,405,802 25% Morgan Stanley - Emerging Markets Debt Portfolio 21,992 7.162164 157,510 (28)% Nationwide SAT - Balanced Fund 67,360 10.806799 727,946 8% Nationwide SAT - Capital Appreciation Fund 485,064 12.996420 6,304,095 30% Nationwide SAT - Equity Income Fund 21,000 11.513398 241,781 15% Nationwide SAT - Global Equity Fund 41,464 11.913908 493,998 19% Nationwide SAT - Government Bond Fund 166,631 10.890820 1,814,748 9% Nationwide SAT - High Income Bond Fund 79,031 10.579676 836,122 6% Nationwide SAT - Money Market Fund 2,000,515 10.527225 21,059,872 5% Nationwide SAT - Multi Sector Bond Fund 74,773 10.260092 767,178 3% Nationwide SAT - Select Advisers Mid Cap Fund 26,958 11.080816 298,717 11% Nationwide SAT - Small Cap Value Fund 106,497 9.693575 1,032,337 (3)% Nationwide SAT - Small Company Fund 159,205 10.100944 1,608,121 1% Nationwide SAT - Strategic Growth Fund 36,919 11.459357 423,068 15%
(Continued) 14 Nationwide SAT - Strategic Value Fund 34,463 10.038994 345,974 0% Nationwide SAT - Total Return Fund 702,365 11.807411 8,293,112 18% Neuberger & Berman AMT - Guardian Portfolio 55,695 13.166703 733,320 32% Neuberger & Berman AMT - Mid-Cap Growth Portfolio 85,802 13.928381 1,195,083 39% Neuberger & Berman AMT - Partners Portfolio 375,069 10.420882 3,908,550 4% Oppenheimer VAF - Aggressive Growth Fund 100,709 11.236019 1,131,568 12% Oppenheimer VAF - Growth Fund 164,300 12.399968 2,037,315 24% Oppenheimer VAF - Growth & Income Fund 139,668 10.470163 1,462,347 5% Van Eck WIT - Worldwide Emerging Markets Fund 43,904 6.586990 289,195 (34)% Van Eck WIT - Worldwide Hard Assets Fund 22,344 6.903203 154,245 (31)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio 81,141 8.837916 717,117 (12)% Warburg Pincus Trust - Growth & Income Portfolio 49,891 11.212895 559,423 12% Warburg Pincus Trust - International Equity Portfolio 56,767 10.534701 598,023 5% Warburg Pincus Trust - Post Venture Capital Portfolio 16,634 10.651002 177,169 7% The BEST of AMERICA(R) Corporate Variable Universal Life Series(SM): American Century VP - American Century VP International 3,234 9.768200 31,590 (2)% American Century VP - American Century VP Value 440 9.374321 4,125 (6)% The Dreyfus Socially Responsible Growth Fund, Inc. 397 11.144998 4,425 11% Dreyfus Stock Index Fund 111,613 11.030001 1,231,092 10% Dreyfus VIF - Capital Appreciation Portfolio 10,106 11.025485 111,424 10% Fidelity VIP - Equity-Income Portfolio - Service Class 5,995 9.906965 59,392 (1)% Fidelity VIP - Growth Portfolio - Service Class 185 12.048634 2,229 20% Fidelity VIP - High Income Portfolio - Service Class 77 9.003329 693 (10)% Fidelity VIP - Overseas Portfolio - Service Class 3,076 9.508092 29,247 (5)%
15
Fidelity VIP-II - Contrafund Portfolio - Service Class 2,712 11.338370 30,750 13% Fidelity VIP-III - Growth Opportunities Portfolio - Service Class 1,228 11.247664 13,812 12% Nationwide SAT - Balanced Fund 349 10.009481 3,493 0% Nationwide SAT - Capital Appreciation Fund 847 11.191056 9,479 12% Nationwide SAT - Equity Income Fund 211 10.581467 2,233 6% Nationwide SAT - Government Bond Fund 270,361 10.664112 2,883,160 7% Nationwide SAT - High Income Bond Fund 13,423 10.049520 134,895 0% Nationwide SAT - Money Market Fund 394,891 10.319833 4,075,209 3% Nationwide SAT - Multi Sector Bond Fund 15,549 9.991296 155,355 0% Nationwide SAT - Small Company Fund 257 9.056852 2,328 (9)% Nationwide SAT - Strategic Growth Fund 477 10.521882 5,019 5% Nationwide SAT - Total Return Fund 70 10.144232 710 1% Neuberger & Berman AMT - Guardian Portfolio 838 9.338993 7,826 (7)% Neuberger & Berman AMT - Mid-Cap Growth Portfolio 70 11.296584 791 13% Neuberger & Berman AMT - Partners Portfolio 26,750 9.337008 249,765 (7)% Oppenheimer VAF - Aggressive Growth Fund 1,235 9.685930 11,962 (3)% Oppenheimer VAF - Growth Fund 767 10.659314 8,176 7% Oppenheimer VAF - Growth & Income Fund 18,485 8.938847 165,235 (11)% Warburg Pincus Trust - Growth & Income Portfolio 16,145 9.941469 160,505 (1)% Warburg Pincus Trust - Post Venture Capital Portfolio 985 9.065227 8,929 (9)% ======= ========= ------------- $ 107,989,704 =============
* This investment option was not being utilized for the entire period. Accordingly, the period return was computed for such period as the investment option was utilized and does not include contract charges satisfied by surrendering units. 77 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 2
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 ------ --------- --------- 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 ========= =========
See accompanying notes to consolidated financial statements. 3
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 -------- -------- --------- 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 ======== ======== ========
See accompanying notes to consolidated financial statements. 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Shareholder's Equity Years ended December 31, 1998, 1997 and 1996 (in millions of dollars) Accumulated Additional other Total Common paid-in Retained comprehensive shareholder's stock capital earnings income equity ----- ------- -------- ------ ------ 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 ====== ======= ======== ======= ========
See accompanying notes to consolidated financial statements. 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Cash Flows (in millions of dollars) Years ended December 31, --------------------------------------- 1998 1997 1996 --------- --------- --------- 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 ========= ========= =========
See accompanying notes to consolidated financial statements. 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. 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. 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. 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. 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. 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:
Gross Gross Amortized unrealized unrealized Estimated (in millions of dollars) cost gains losses fair value ------------------------ ---- ----- ------ ---------- 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 ========= ====== ====== =========
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. 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.
Amortized Estimated (in millions of dollars) cost fair value ---- ---------- 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 ========= =========
The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31:
(in millions of dollars) 1998 1997 ---- ---- 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 ======= =======
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:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- 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) ===== ====== =======
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. 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:
(in millions of dollars) 1998 1997 ---- ---- 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 ===== =====
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:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- 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 ======== ======== ========
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- 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) ===== ===== =====
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. 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:
(in millions of dollars) 1998 1997 ---- ---- 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 ====== ======
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:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Currently payable $186.1 $121.7 $116.5 Deferred tax expense (benefit) 4.3 28.5 (5.6) ------ ------ ------ $190.4 $150.2 $110.9 ====== ====== ======
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:
1998 1997 1996 ----------------- ---------------- ----------------- (in millions of dollars) Amount % Amount % Amount % ------ - ------ - ------ - 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 ====== ==== ====== ==== ====== ====
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:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- 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) ====== ====== =======
(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. 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. 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:
1998 1997 ------------------------- -------------------------- Carrying Estimated Carrying Estimated (in millions of dollars) amount fair value amount fair value --------- ---------- --------- ---------- 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 -- --
(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. 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. 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:
Pension Benefits Postretirement Benefits --------------------- ----------------------- (in millions of dollars) 1998 1997 1998 1997 --------------------------------------------------------- -------- -------- -------- ------- 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) ======== ======== ======= =======
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:
Pension Benefits Postretirement Benefits -------------------- ----------------------- 1998 1997 1998 1997 -------- ------ -------- -------- 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
The net periodic pension cost for the pension plan as a whole for the years ended December 31, 1998, 1997 and 1996 follows:
(in millions of dollars) 1998 1997 1996 -------------------------------------------------------------------------------- ---- ---- 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 ======= ======= =======
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:
1998 1997 1996 ---- ---- ---- 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%
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:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- 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 ===== ===== =====
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:
1998 1997 1996 ----- ----- ---- 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
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. 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. 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:
1998 1997 1996 ------------------------------------------------------------------------------------ (in millions of dollars) NMIC ELICW NMIC ELICW NMIC ELICW ----------------------------------------------------------------------------------------------------------------------- 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
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. 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. 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.
Variable Fixed Life Corporate (in millions of dollars) Annuities Annuities Insurance and Other Total - ------------------------------------ --------- --------- --------- --------- ----- 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 ========= ========= ======== ======== =========
26 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued
Variable Fixed Life Corporate (in millions of dollars) Annuities Annuities Insurance and Other Total ------------------------------------ ---------- ---------- --------- --------- --------- 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 ========== ========== ======== ======== =========
----------- (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. 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:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Revenues $ -- $ -- $ 668.9 Net income $ -- $ -- $ 11.3
A summary of the assets and liabilities of discontinued operations as of December 31, 1998, 1997 and 1996 is as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- 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
78 PART II - OTHER INFORMATION CONTENTS OF REGISTRATION STATEMENT This Post-Effective Amendment to Form S-6 Registration Statement comprises the following papers and documents: o The facing sheet. o Cross-reference to items required by Form N-8B-2. o The prospectus consisting of 112 pages. o Representations and Undertakings. o Signatures. o Independent Auditors' Consent The following exhibits required by Forms N-8B-2 and S-6:
1. Power of Attorney dated April 1, 1999. Attached hereto. 2. Resolution of the Depositor's Board of Filed previously in connection with Directors authorizing the establishment Securities and Exchange Commission File No. 333-31725 and is of the Registrant, adopted hereby incorporated by reference. 3. Distribution Contracts Filed previously in connection with Securities and Exchange Commission File No. 333-27133 and is hereby incorporated by reference. 4. Form of Security Filed previously in connection with Securities and Exchange Commission File No. 333-31725 and is hereby incorporated by reference. 5. Articles of Incorporation of Depositor Filed previously in connection with Securities and Exchange Commission File No. 333-27133 and is hereby incorporated by reference. 6. Application form of Security Filed previously in connection with Securities and Exchange Commission File No. 333-31725 and is hereby incorporated by reference. 7. Opinion of Counsel Filed previously in connection with Securities and Exchange Commission File No. 333-31725 and is hereby incorporated by reference.
79 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 (the "SEC") on request. (c) Nationwide has concluded that there is a reasonable likelihood that the distribution financing arrangement of the separate account will benefit the separate account and the contractholders and will keep and make available to the SEC on request a memorandum setting forth the basis for this representation. (d) Nationwide represents that the separate account will invest only in management investment companies which have undertaken to have a board of directors, a majority of whom are not interested persons of Nationwide, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the Registrant hereby undertakes to file with the SEC such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the SEC heretofore or hereafter duly adopted pursuant to authority conferred in that section. (f) The fees and charges deducted under the policy in the aggregate are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Nationwide. 80 INDEPENDENT AUDITORS' CONSENT The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide VLI Separate Account-4: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the Prospectus. KPMG LLP Columbus, Ohio April 29, 1999 81 As required by the Securities Act of 1933, the Registrant, Nationwide VLI Separate Account-4, has caused this Post-Effective Amendment to be signed on its behalf in the City of Columbus, and the State of Ohio, on this 29th day of April 1, 1999. NATIONWIDE VLI SEPARATE ACCOUNT-4 ----------------------------------------- (Registrant) (Seal) NATIONWIDE LIFE INSURANCE COMPANY ----------------------------------------- Attest: (Depositor) By: /s/ GLENN W. SODEN By: /s/ JOSEPH P. RATH - ------------------------------- ---------------------------------------------- Glenn W. Soden Joseph P. Rath Assistant Secretary Vice President - Product and Market Compliance Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment has been signed below by the following persons in the capacities indicated on the 29th day of April 1, 1999.
SIGNATURE TITLE LEWIS J. ALPHIN Director - ---------------------------------------- Lewis J. Alphin A. I. BELL Director - ---------------------------------------- A. I. Bell KENNETH D. DAVIS Director - ---------------------------------------- Kenneth D. Davis KEITH W. ECKEL Director - ---------------------------------------- Keith W. Eckel WILLARD J. ENGEL Director - ---------------------------------------- Willard J. Engel FRED C. FINNEY Director - ---------------------------------------- Fred C. Finney JOSEPH J. GASPER President and Chief Operating - ---------------------------------------- Officer and Director Joseph J. Gasper DIMON R. MCFERSON Chairman and Chief Executive - ---------------------------------------- Officer and Director Dimon R. McFerson DAVID O. MILLER Chairman of the Board and - ---------------------------------------- Director David O. Miller YVONNE L. MONTGOMERY Director - ---------------------------------------- Yvonne L. Montgomery ROBERT A. OAKLEY Executive Vice President and Chief - ---------------------------------------- Financial Officer Robert A. Oakley RALPH M. PAIGE Director - ---------------------------------------- Ralph M. Paige JAMES F. PATTERSON Director - ---------------------------------------- James F. Patterson ARDEN L. SHISLER Director By /s/ JOSEPH P. RATH - ---------------------------------------- -------------------------------------- Arden L. Shisler Joseph P. Rath Attorney-in-Fact ROBERT L. STEWART Director - ---------------------------------------- Robert L. Stewart NANCY C. THOMAS Director - ---------------------------------------- Nancy C. Thomas
EX-1 2 EXHIBIT 1 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 -----END PRIVACY-ENHANCED MESSAGE-----